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When Gifts Become A Liability

My mother-in-law, Kathleen, was a devoted watcher of Judge Judy. No matter what she had planned for the day, you could bet she was seated in the kitchen watching Judy Scheindlin presiding over the bench, making things right and the world a better place.

If I'm home during the day by the four o'clock hour, I like to watch Judge Judy if nothing else, for the combination of justice and laughter. After watching for some time and seeing case after case over a number of weeks I came to a definite conclusion- at least 1 in every 3 cases involved the issue of a gift versus a loan.

The case usually starts between 2 people who were in a relationship or were in love and about to get married. Party "A" gave Party "B" a sum of money as a loan. Everything was hunky dory and no mention of the loan came up until one of the parties decided that they weren't in love anymore and decided to part ways.

At that time Party "A" asks Party "B" for repayment of the loan. Party "B" now claims that the loan was actually a gift and doesn't have to pay back the money. Voila- they end up in court. Whew...

Many times we generously give people money for various things. Perhaps our children when they can't quite make it on their own, perhaps to a friend who asks for short term loan for various reasons.

Either way, trying to be a good person, we comply with some implied agreement that they will pay us back at some certain point in time. What happens though in this busy world the person whom you loaned the money too sometimes seems to forget the little point that they have to pay us back. The difficulty comes when we have to go and remind them and or we have to manually collect.

Moreover sometimes issues like this tend to ruin a friendship amongst those we love. The way to solve this dilemma? Meet the "Promissory Note."

A promissory note is a document wherein Party "A," called the maker makes an unconditional promise in writing to pay a pre-determined sum of money to the other party called, called the payee either at a fixed or future time based on the terms of the promissory note. The note outlines the amount of money that has been loaned, any interest if it has been pre determined, the weekly, monthly or other payment schedule, as well as where the payments are to be delivered. At any time there is a dispute as to the amount of money that has been loaned as well as if it were a gift versus a loan; this document will clarify that issue- even to the satisfaction of Judge Judy!

Never feel intimidated or silly by asking "the payee" to sign a promissory note. If they feel insulted, so be it. If they're good enough to take your money, they should be good enough to understand how important the promissory note is in defining the loan. The biggest violators of a loan agreement usually are our children- yes- those wonderful bundles of love.

Having our children sign a promissory note is a lesson to them in the world of finance. If they go to the bank or to a loan company in order to get money for a house or a car no institution will give it to them without them signing an agreement outlining the terms of the loan as well as the payment provisions. By having your children's sign a promissory note to you it is a lesson in life and will help to keep them on track regardless of how you want to structure the repayment schedule. Part of our job as parents is to give our children life lessons as they get older. Teaching our children a lesson to know that on the first of the month you have to make a scheduled payment teaches responsibility, diligence, and structure.

Always remember that you should never give or loan money if it will make a material impact on your current lifestyle. As much as you would like to help out your friends and children, if you are no longer working and not able to bring in the money to replace the money that you have given away it may impact you when it comes time to pay your own bills. As difficult as it may be always remember those four immortal words, "we can't afford it." As much as you want to help your children it's most important that you take care of yourself first. We teach our children when they are young to say no. Now it's our turn. As difficult as it may be for us as parents to say no, your children will respect you for it.

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