Many parents loan money to their children throughout the course of their lifetime. The problem is that many of these parents do not document the debt or keep a log. At death, the job of deciphering the notes is left to the successor trustee or administrator. Many times it is difficult to determine if it was a gift, a loan or even a loan with interest. In most situations the parents expect the debt to be repaid. I frequently deal with situations where a parent has died and the administrator comes across scribbled notes and handwritten notes indicating monies loaned to one or more of the children. Unfortunately, the notes are not well documented and it now requires the administrator of the estate to piece together the information. As you can expect, the child that received the funds is never quite forthcoming about how much money they received and in many situations it creates strife or conflict among the family members.
It would make the trustee’s or administrator’s life so much easier if the loan was documented and there was some explanation about repayment or that if not repaid that the balance due would come out of their share of the estate. Many administrators are family members, or even a sibling, and they do not want to make waves. If you are setting up an estate plan and have made some loans already, reference that in your trust. If you set up an estate plan years ago and have recently made some loans to family now may be a good time to go in and update your estate plan and identify how these are to be handled at your death.