Credit & Money Management
Should I Lend $50,000 to My Brother-In-Law?
Is it possible to lend money to family without it affecting the relationship for the worst? Plus, what to do in case of a banking error in your favor.
By Knight Kiplinger, Editor in Chief
From Kiplinger's Personal Finance magazine, March 2009
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My brother-in-law got laid off, and his job search isn't going well. He has approached me for a $50,000 loan to help his family get by (they have almost no savings). I am well off and can afford it, but I'm worried about how this might affect our relationship, especially if he can't repay it. My wife and I feel for his wife and kids and want to help. Any advice?
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Helping a relative in this way is compassionate, but it will indeed affect your relationship if the loan sours (and even if it doesn't). There should be a written agreement on repayment, which should start when your brother-in-law has income again. If you fear that he won't manage a lump sum wisely, you could advance him and his wife the money gradually -- perhaps a monthly amount that would cover their home and car payments and some other essentials.
Another approach: Make gifts instead of loans. You and your wife can each give to each of his family members up to $13,000 a year with no tax consequences on either side. Tell him you have no expectation of repayment. You might be surprised that he gives some of the money back to you when he's able, out of pride and gratitude.
May I keep it?
My bank made a $1,000 error in my favor, which I brought to their attention -- twice -- and offered to repay. They said they'd look into it and debit my account, but it's never happened. May I keep the money?
Yes. You made an honest attempt to correct the error, and the bank dropped the ball. You needn't keep trying. I trust that you have a record of whom you talked to and when, just in case the bank discovers the error and tries to say you did something wrong.
After some time has passed, consider doing something creative with this windfall that isn't really yours, like giving it to a favorite charity -- without taking the tax deduction.
Have a money-and-ethics question you'd like answered in this column? Write to editor in chief Knight Kiplinger at ethics@kiplinger.com.
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Reader Comments (8)
Posted by: Allan at 02/12/2009 12:04:38 PM
If you do decide to donate that found $1,000 to charity I have an alternative suggestion. Rather than donate it and not take the deduction, why not gross it up to cover the tax benefit as well. That way you can make a donation of say $1250 which after the tax break is the original $1,000.
Posted by: Frank at 02/12/2009 12:23:12 PM
Lending money to a relative (or anyone) is a very delicate business and is best avoided. It definitely changes the relationship. The problem is that the request itself changes the relationship and your reaction, whatever it is, will change the relationship. It is a lose-lose situation, and actually lending the money will make it worse.
Posted by: Bob at 02/12/2009 06:04:21 PM
A $50,000 loan to someone who is such a poor money manager that they have almost no savings? I'm glad that the person making the loan is well enough off that it is no problem but does the person asking for the loan really need that much all at once? Will it affect the relationship? It already has. Will the money get paid back? Whether it is or not will most likely have a negative effect on the people involved. Will the borrower be back for more? What then? Will giving this family money just enable irresponsible spending habits rather than force them to learn to budget wisely? More information is needed on this one and sadly it may well end up as a lose/lose situation. (On) Keep the bank's $1000. Certainly not. It's not yours. The account that lost it may not realize it yet. Also I would report it again to someone else higher up in management since this could indicate illegal activity going on in YOUR bank. It could even be a computer glitch. A little nagging will eventually get the right person's attention.
Posted by: Krissa at 02/13/2009 06:52:22 AM
Bob: Having no savings doesn't necesarily mean one is a poor money manager. Some careers only pay enough to allow for paycheck to paycheck living, no matter how frugal one is. Still, it's not a good idea to lend someone in one of those careers that kind of money. They can't pay it back.
Posted by: Nomen at 02/13/2009 01:10:51 PM
Ethics questions are very easy but the situations may be very difficult. I advised my sons many years ago that if you have all the facts,y ou will instantly know in your heart what is right. If you don't like that answer and have to mull it over and even poll your friends,you are then trying to rationalize(make it right) the answer you want. This process will result in an unethical or wrong decision most of the time. The excuse that something is legal does not make it right either. Should the man help out his brother-in-law? Yes! Should you keep the bank's $1000? No! Do the right thing and you will have no regrets and a mind at peace. The added comment about giving the money to charity to assuage your conscience just confirms that keeping it was the wrong thing to do in the first place.
Posted by: Bill at 02/13/2009 01:15:00 PM
He definately need the money but not a lum sum. Have your wife set up a joint account with him and let him withdraw funds from that account whenever he needed to. In this case, it won't affect your relationship as it feels like he is borrowing money from his sister. You definately can't spend that $1,000 as it belongs to someone else. It might cost someone's job, or even life. You can keep it until the bank asks for it. The bank will find it out eventually.
Posted by: Dave at 02/13/2009 01:59:19 PM
I loaned my brother and sister-in-law a few thousand dollars once so their bank account would look good for obtaining a mortgage. We signed a promissory note, set the interest rate and it was to be paid back in 30 days. They sent me a check in 45 days, post dated, so I really could not get my money for 60 days and it was only for the principal.
Posted by: AGH at 02/14/2009 09:50:15 AM
Lending the BIL $50K? Absolutely not-it'll be a burden on the relationship from both ends. Maybe a gift of $5-10K and let them figure out the rest. I think asking someone for a $50K loan for personal expenses is a bit presumptive no matter if they can afford it or not. My thought is to not loan money to friends or family, if one can't afford to just give it to them, don't do it. I agree with the other readers, how will they pay back $50K? The $1K error, don't touch it for a year. Follow up every three months with the bank and after a year donate it to charity.