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.

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Q and A: Same-sex marriages (L.A. Times)
Here are some excerpts from the article:

“In 2004, the California Supreme Court voided about 4,000 same-sex marriage licenses granted in San Francisco. Are those marriages now legally recognized by the state?
No. Those couples would have to remarry.”

“Will the federal government recognize a California same-sex marriage?
The federal government does not recognize same-sex marriage. This means that married couples of the same sex cannot file joint federal income tax returns or receive federal spousal benefits, including those from the Social Security Administration or the Department of Veterans Affairs. A U.S. citizen who marries a foreigner of the same sex in California will not be allowed to sponsor the spouse to immigrate here.”

“When will same-sex couples be able to marry?
The decision will take effect 30 days after it was issued. Los Angeles County and San Francisco officials are reviewing the decision and have not said when they will begin issuing licenses to same-sex couples.”

Los Angeles County gearing up for same-sex marriage licenses (L.A. Times)
Here is an excerpt from the article:

“In Los Angeles County, supervisors asked Dean C. Logan, acting registrar-recorder and county clerk, to report back Tuesday on what needs to be done before the order takes effect…

Logan, whose department issues about 75,000 marriage licenses a year, said ‘the phone was ringing off the hook’ after Thursday’s court decision, with couples inquiring about the process.

Currently, couples wishing to obtain marriage licenses must do so by appointment. County officials said the anticipated rush for appointments may require extending hours at county facilities.”

Read the rest of this entry »

On May 15, 2008, the California Supreme Court overturned the ban on gay marriage in California. A copy of the Court’s decision can be found here.

The 4-3 ruling declared the state Constitution protects a fundamental “right to marry” that extends equally to same-sex couples. The decision opens the way for tens of thousands of gay people to wed in California, starting as early as mid-June.

The majority opinion, by Chief Justice Ronald M. George, declares any law that discriminates on the basis of sexual orientation is constitutionally suspect in California in the same way as laws that discriminate by race or gender, making the state’s high court the first in the nation to adopt such a stringent standard.

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