How Can You Handle Loans Or Gifts To Your Children In A Trust Or Will

Meta description: Some families give gifts or loans to their children, and it often results in disputes if it is unclear whether the money is a gift or a loan.

How Do You Clarify Whether It's a Gift or a Loan?

The best time to clearly express a parent's intentions is when the gift or loan is made. You can do that by putting it in writing, but people seldom think about those things at the moment. 

Families are rarely so businesslike. Parents sometimes hesitate. They hope that the money will be returned. Sometimes, they confide in someone that they wish it would be returned. 

Then they decide not to bring it up again when it is apparent that it will not be repaid. Sometimes the money is given with the hope that it will be paid back, or the child promises like they'll pay you back when they can. However, it will not be paid back over time.

How Does Ambiguity Cause Problems for Your Estate?

Any ambiguity will cause difficulties for your estate. Your family may be unsure about what you intended and how they should handle the money you provided to your children during your life.

Your children may have different opinions, but it only takes one of them to cause a problem. In the worst case, the problem must be resolved in court with high costs for your family. 

The effects of resentments can last for years, even if your family isn't willing to hire attorneys. The primary objective of estate planning is to clarify your intentions. 

If you make your intentions clear, your family will not have to guess what you mean. Even if one of them doesn't like it, clarifying your intentions eliminates ambiguity that leads to arguments or litigation.

What Are the Default Rules for Resolving Ambiguity?

When the intention of the giver is unclear, the law imposes default rules to resolve the ambiguity. The purpose of the default rules is to establish a base assumption for resolving disputes. It is a starting point.

For example, if a parent gives money to a child, the law presumes it was a gift. The transfer of money from spouse to spouse is also considered a gift. However, money transferred from child to parent is not considered a gift.

Default rules are presumptions that can be overcome if there is evidence to the contrary. It is just a starting point. Most people think overcoming presumptions should be simple, but that rarely happens.

What Are the Evidentiary Problems?

The evidence in these situations is something the parents said. With mom or dad passing, the rules of evidence do not permit an interested party (someone who has a stake in the estate) to testify to what the parents said. It includes:

• The individual to whom the money was given
• Family members who are heirs or named in the will or trust

Because now mom or dad can't confirm or deny what has been said. It has become hearsay now, which means it cannot be denied or affirmed by the individual who said it. That's why the rules of evidence do not permit it to be considered. 

In this case, standard rules often prove to be the best solution. Without contrary evidence that's admissible in the court of law (for example, a statement from a non-interested party, such as a financial planner or neighbor), the legal presumption is sufficient to settle the dispute.

Make Sure Your Intentions Are Clear

It is essential not to leave your family in the dark about what you intended. Even if your family relationships are great, you are unaware of the uncertainty and confusion that can add to the stress and sadness they feel when you die.

To avoid these problems for your family, be clear about your intentions. You can clarify everything in your will or trust if you haven't spelled out your intentions when giving money to your children.

What Is the Solution to The Intention Problem?

In the end, it doesn't matter what you planned or didn't plan for in your life. Your intentions are specified in your will or trust by specifying how your estate is to be managed.

You can forgive the loan, even if you gave your child money with a clear intention to repay it. If that is what you want, you must state it clearly. 

You can adjust your estate plan to even out the gifts you provided your children during their lifetime, even if you gifted money to them during their lifetime.

Conclusion

If you have given gifts to your children in your life, it is necessary to think about those gifts and address them.

When you are clear about your intentions, your kids can't object to your decision, even if they are not happy with it.

You are doing them a great favor when you clearly state whether you are forgiving the loans or making adjustments for the gifts.