MDNews - Cleveland-Akron-Canton

+++++++++++++++++++++++++++ + +++ + +++ +++++++++++++++++++++++++++ FINANCIAL PLANNING L ENDING MONEY TO friends and family members is a common consideration. According to a survey by American Consumer Credit Counseling, 82 percent of people would lend money to a family member and 66 percent to a friend. 1 If you are considering lending money, understand that there are risks involved. Not only is there a chance you could lose your money, but you may also put your rela- tionship with the borrower in jeopardy. Below are a few tips to help manage the mixing of your money with the people you love. Ask what the money is for. Instead of automatically responding "Sure!" when your brother-in-law asks for a loan, take a step back and get some answers. Ask what the plans are for the funds. How you respond is likely to differ if it's to take a class for career advancement versus going on a trip to the Bahamas. And when it comes to posing ques- tions, don't let yourself off the hook. What is your motivation for wanting to get involved? Only you can decide whether you're doing it for the right reasons. Just make sure to dig deep and give it plenty of consideration before saying "Yes." Be clea r about terms. A f ter you decide to make the loan, it's time to talk terms. Don't be tempted to ignore or pass lightly over this step, even if you would rather avoid the uncomfortable formalities of hashing out specifics. You will likely save yourself a lot of misun- derstandings and conf licts down the line if you work through these questions: + What is the exact amount of money to be loaned? + Will it be conveyed in one lump sum or installments? If it's in installments, on what timetable? + Will interest be charged? + How will payment be delivered — cash, check, or transfer? + What is the payback schedule? + How will late or severely delinquent payments be handled? Understand the tax implications. If you loan money at a very low interest rate (or without any interest at all), the IRS will assume the amount is a gift, not a loan, and that may carry tax consequences. (In 2014, you can give gifts of up to $14,000 a year per person without triggering gift ta x implica- tions.) 2 The interest you waive may also qualify as a gift. To avoid these issues, consider charg- ing interest at the applicable federal rate, which the IRS updates monthly and makes available on IRS.gov. In addition to talking with your financial advisor, make sure to check in with your tax advisor to help ensure you're clear about how transferring money might affect your tax bill. Regulate repayment. Be sure to set reasonable and attainable repayment terms. If there's interest involved, an online calculator from a site such as Bankrate (bankrate.com) can help you break down the numbers so you and the borrower can set a manageable repayment schedule. Also come up with a way to track repayment. Keeping track of all this information may sound like a lot of work. But remem- ber that when a loan is handled with care, both parties stand to benefit. Paul Guerra is the managing principal of Brookshire Wealth Management in Canton OH. For more information visit w w w . b r o o k s h i r e w e a l t h . c o m o r e - m a i l M r. G u e r r a a t p g u e r r a @ brookshirefinancial.com. References 1. American Consumer Credit Counseling, "More Than 90 Percent of Young Americans Would Loan Money to a Family Member in Need," ConsumerCredit.com, 14 Nov. 2013. ht tp://w w w.consumercredit.com/about-us/ press-releases/2013-press-releases/lending-money- to-family-and-friends-survey-results-consumer- creditcom.aspx. 2. Internal Revenue Service, "In 2014, Various Tax Benefits Increase Due to Inflation Adjustments," 31 Oct. 2013, http://www.irs.gov/uac/Newsroom/ In-2014,-Various-Tax-Benefits-Increase-Due-to- Inflation-Adjustments. Investment products and services are of fered through Wells Fargo Advisors Financial Net work , L LC ( W FA FN), Me m b e r SI P C . B r o o k s h i r e We a l t h M a n a g e m e n t i s a s e p a r a t e e n t i t y f rom WFAFN. Wells Fargo Advisors does not provide legal or ta x advice. Be sure to consult with your tax and legal advisors before taking any action that could have ta x consequences. Please consult your legal advisors regarding your fiduciar y duties. Wells Fargo Advisors Financial Network, LLC, Member SIPC, is a registered broker- dealer and a separate non-bank affiliate of Wells Fargo & Company. ■ By Paul D. Guerra Lending to Loved Ones TIPS for 2 6 | Cleveland/Akron/Canton MD NEWS ■ M D N E W S . CO M ■ JA N UA RY/ F E B R UA RY 2 0 1 5

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