When family lends you money, write it down

Treat the sections below as a sequence. With lending and borrowing within families, getting the early decisions right makes the later ones much easier.

Two people, two memories

The most common family money dispute is not about dishonesty but about two sincere and different recollections of what was agreed. One person remembers a gift, the other a loan; one assumed repayment when circumstances allowed, the other assumed a schedule. Neither is lying, and by the time the difference surfaces there is no way to establish which was intended.

A note written at the time removes the entire category of problem.

What to write down

The amount, the date, whether it is a gift or a loan, and if a loan, when and how it is repayable. Whether interest applies, what happens if the borrower cannot pay for a period, and what happens if either party dies.

Put simply, it does not need to be long, and both people signing and keeping a copy is what makes it useful. For larger sums, particularly involving property, a properly drafted agreement is proportionate and worth the fee.

Property complicates it substantially

Money contributed toward a home purchase may be treated as a gift, a loan or a beneficial interest, and the difference matters enormously if the relationship or the household changes. Mortgage lenders frequently require a declaration that family money is a gift with no repayment expectation, which has real consequences if the intention was otherwise. Where the borrower has a partner, what happens to the money on separation depends on how the contribution was documented.

This is firmly a case for legal advice rather than a family conversation alone.

Lend only what you can lose

The workable test for a lender is whether the relationship would survive the money never being returned. Where the answer is no, the sum is too large or should be a gift, because the risk of non-repayment is real in any lending. A lender who needs the money back on a schedule is exposed twice: financially and relationally.

Lenders approaching retirement should be especially careful, since the money cannot be rebuilt from future earnings.

The borrower's side

Borrowing from family avoids interest and credit checks and replaces them with an obligation that appears at every family occasion. Some borrowers find the informal debt more stressful than a commercial one precisely because there is no defined end.

On an ordinary week, proposing terms yourself, including a repayment schedule, converts a vague obligation into a finite one and is usually welcomed. It also makes it much easier to ask again in future, having demonstrated how the first arrangement ended.

Some of this will suit you and some will not, and that is the point.

Tell the people who are not in the room

Family loans and gifts that other relatives learn about after a death are a common source of estate disputes. Whether an advance should be accounted for in an estate depends on jurisdiction and on what the will says, and assumptions differ. Recording the arrangement, and mentioning it when the will is made, addresses both.

Put simply, transparency at the time is far cheaper than a dispute among siblings later.

The takeaway

Write down the amount, the date, and whether it is a gift or a loan. One page prevents most of it.

The version you keep doing is the version that works.