Dear Michael: We have an interesting situation. One of our sons got married and had a good job, built a new house and then lost his job to no fault of his own. To date, we’ve given him more than $300,000, whereas the other boys haven’t asked for a penny. We’ve explained to the one who borrowed the money that this loan might be his inheritance later if he doesn’t repay us before death. But we don’t have enough other liquid assets to pay the other boys an equal share when we die. How would you handle this? – Early Inheritance

Dear Early Inheritance: This is a pretty common occurrence. Sooner or later one of the children gets themselves into financial trouble through no fault of their own (or sometimes their fault) and needs to hit the “Dad and Mom Bank” for an early withdrawal.

However, when it gets beyond a few thousand here or there, then it’s time to get serious about how you deal with this issue.

In order to address anything, there has to be some proof there is something out there to be dealt with regarding this debt.

I have seen cases when the parents die and there is no proof of a loan, the child can claim it was a “gift,” or say he repaid the debt. This is one of those areas where families get torn asunder upon the settlement of the estate. After a few back and forths as to what is true and what isn’t true, no one’s going to believe anything any longer and long-term enmity sets in between the family members.

The best method is to write up a simple note signed by yourself and the borrowing child as to the amount that is owed. You might also put into the note that whatever amount is left owing at the time of death, your son understands will be deducted from his share of the other assets at the time of death. Make certain your son understands he has to show canceled checks of any payments made on the note if he wants to lower this amount prior to death – preferably written onto the note as well.

This doesn’t have to be anything fancy – just an amount owed and a place to put any payments made. Keep this in your papers somewhere where you and one of the other children who hasn’t borrowed knows where it is. I’ve seen some instances where a few notes have disappeared at death, as well, so put it somewhere safe.

If your son balks at signing the note, then you remind him he’s saving roughly $20,000 per year in interest on the loan and if he won’t sign the loan or note, you’ll do your own and add the interest on each year.

Upon death, this note has to be dealt with. You might have a will or a life estate deed that states the one child has borrowed money subject to the note and before he receives a share the other two who didn’t borrow receive an equal amount in property before the rest is divided three ways.

This can be done with an appraiser who can lot out the farm into sections so that the boys who didn’t borrow get to take land fairly close or equal in value. Again, if he squeaks about it, remind him there would be interest he would have to pay on the loan from anywhere else but the “Bank of Mom and Dad.” That, in itself, could add up to tens, if not hundreds, of thousands of dollars.

Michael Baron provides estate planning guidance at Great Plains Diversified Services in Bismarck, North Dakota. Email him at


Michael Baron provides estate planning guidance at Great Plains Diversified Services in Bismarck, North Dakota.