Foresight Legal Blog

Sometimes clients tell me they’ve either loaned money to their children or their children have loaned money to them. As an attorney, I lean toward having these commitments reduced to writing so everyone is clear and there are no surprises. Of course, the decision to put the agreement in writing is ultimately left up to the clients, but there are several issues to consider with any family loan.

First, regardless of whether its written down, family members should still be charged interest. If you charge below the rate, or make an interest-free loan, the IRS may impute the difference as interest earned and consider it taxable income. In some cases, the IRS could characterize the entire loan as a gift, subject to gift tax.

An acceptable interest rate for the IRS is the “Applicable Federal Rate” or AFR. You can check out those rates by following this link. The imputed interest rules don’t apply to loans of less than $10,000.  You can read much more about related-party transactions and the below-market interest rules in IRS Publication 550 at the IRS website.

Second, the promissory note should include all of the following elements:

• The loan amount.
• A definite payment date or dates.
• A stated rate of interest.
• Collateral or security.

Third, you might consider taking the awkward moments out of a family loan by having a third party administer it. For a $99 fee, Virgin Money formalizes the agreement you and takes care of the paperwork. For $199 plus $9 per payment, they’ll also electronically collect payments from the borrower’s bank account and credit yours. For $14.95, LoanBack will generate a promissory note and pay schedule, but won’t help you collect.

Fourth, from an estate planning standpoint, it is much better to put these agreements in writing to provide a paper trail for the executor or trustee to piece together who owes what and to whom.

Hope this helps.

With unanimous votes in the State Assembly and State Senate last week, the California Legislature sent Gov. Arnold Schwarzenegger a bill designed to protect companion animals after their owners’ death.

“Pets are an important part of the American family,” Sen. Leland Yee said in a statement. “SB 685 will make pet trusts enforceable and assure that the wishes of pet owners are respected.”

“Wills and trusts are the means for people to bestow their possessions and savings as they see fit,” Yee said. “Under SB 685, a pet owner will be assured that their pet will be properly cared for after their passing while also ensuring that kin are not burdened with undue pressure.”

The bill will ensure those pets designated within the trust are protected and cared for as the owner intended and are not sent unnecessarily into the shelter system. Funds left over after the animal’s life may be donated, using the trust’s instructions, to animal related charities.

Tom Martin is an estate planning attorney in downtown Long Beach. Call Tom today to schedule your complimentary consultation on how you can protect your pet’s future: (562) 219-3290.

I was puttering around Google the other day and noticed there’s a new free service that allows you to organize your medical records online. Here’s a tour of what it can do.

In working with injured or disabled clients, I know that gathering medical records can be time consuming and frustrating. In essence, medical records are “land locked” in different medical institutions with different proprietary data systems and different terminology.

Google Health provides an alternative. In their own words:

“Google Health puts you in charge of your health information. It’s safe, secure, and free.

• Organize your health information all in one place
• Gather your medical records from doctors, hospitals, and pharmacies
• Keep your doctors up-to-date about your health
• Be more informed about important health issues”

I know some of you are asking yourself (as did I) how secure can this service be? Especially when it comes to something as personal as health issues. Google states: “So is it safe? Yes! We believe that your health information belongs to you, and you should decide how much you share and whom you share it with. We will never sell your data. We store your information securely and privately.”

Try it out. Let me know what you think!