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Ask the Hammer: What's the Best Way to Handle a Loan to a Family Member?

Jeffrey Levine, chief planning officer at Buckingham Wealth Partners, discusses in this Retirement Daily video the best way a parent can handle a family loan.

  My question is about loaning my daughter money for grad school.

Her dad and I (we're divorced, neither remarried) have been paying for her tuition/expenses. She looked into student loans, but the interest rate was ridiculously high! Since we're both financially able, we offered to provide her with what she needs for the 2 1/2 years, at a much more reasonable interest rate (or possibly no interest).

She's a year away from graduating in a career that has good potential for jobs with good pay ($80,000+).

We haven't written up a loan agreement with her, yet. If we do, what should be in it? What if one of us decides to gift her the amount, in full or in part? What if she doesn't repay us? And, assuming she does repay us, with interest, is that taxable income? If the amount we receive each year is $15,000 or less, can it just be called a gift from her?

That's the question Jeffrey Levine, chief planning officer of Buckingham Wealth Partners, answered in this episode of Ask the Hammer.

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