If funding is needed by one of your grandchildren to begin a medical
practice or to a start up a firm, you should help him to gear up his
career. You may have saved money for the inheritance of your children
and grandchildren and somehow you have agreed to loan your son out of
that money.
A promissory note generally secures this money, even
when its terms are not strictly enforced by some parents. If the
promissory note is left unpaid until the death of the parents, the
estate will count it as its asset that must be paid for. Interest will
be imputed by the tax authority, if it is a larger amount of money. The
loan will become a taxable income of the child, if the loan is forgiven
by the parents.
Loan documents and estate documents control
These
issues are generally controlled by the parents during his or her
lifetime. You must write the loans on paper along with the repayment
schedule. Extensive outlines of the remedies make up most of the loan
and available on the open market that is reserved by the creditor. These
are not so important, if the parents do not want to exercise these
remedies in the document. The parents can then write the ways of
treating these loans as per their will.
There are also many
situations where it is common for a parent to find his or her child and
to document the loaned amount and paid back off. In this circumstance,
the money which is not paid off acts as a gift, as there are no such
rights.
Cancellation of Gift or Debt
Loans can be forgiven
by the parent. In this case, cancellation of debt becomes taxable
income. If the parent documents or probates the estate, such as, the
returning of inheritance tax or state estate, this information can be
cross checked by the tax authorities with the tax return of debtor's
child. The balance of the loan is also forgiven by the parent in some
cases at the time of his or her death. Loan below $a certain limit is
counted as a gift.
Offset
It can also be decided by the
parent not to repay the full loan. Parents can also offset the unpaid
amount against the money received by the child. This helps the parent to
share the money between the heirs equally.