Article by Ann Perry, Special to The Times,
Financial experts caution, however, that not all parents should loan to their children. They could be putting their retirement income at risk.
If the loan is sealed with a handshake rather than written documents, there’s a chance it might turn into a gift and create tensions among siblings. Loans improperly set up can cause borrowers who deduct interest payments to run afoul of the IRS. And should children default on an undocumented loan, parents may have little recourse to recover their money.
Still, those in the older generation who can afford to make a gift or a loan sometimes view it as a way of distributing some of their estate in advance so they can watch their children enjoy it.
“The point is, parents can give very-low-interest loans to their kids,” said Asheesh Advani, president of CircleLending, the Waltham, Mass., company that formalized and administers the Landres’ mortgage.