Legally, how do I forgive a family debt?
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Legally, how do I forgive a family debt?
My brother owes me money after my father passed away. He bought my father’s farm from the rest of the family and owes me money from that. I would like to forgive that debt. What do I need to do regarding this?
Asked on June 18, 2012 under Bankruptcy Law, Minnesota
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 11 years ago | Contributor
If he did not take out a provide mortgage from you, but simply either borrowed the money and/or gave you a promissory note or other agreement to pay it later, then you can forgive anything he owes you simply by drafting and signing an agreement which states that you forgive the loan/debt. If a private mortgage was taken out and filed, you'll need to file a document forgiving the loan and discharging the security interest--the best thing to do would be to have a real estate attorney help you.
Note that when a debt is forgiven, that counts as income to the person forgiven; that is, say you forgive a $50k debt--that is the equivalent as giving your brother $50k, and income taxes will be owed on it. Therefore, before doing anything, you and your brother should consult with a certified public accountant or tax attorney about how best to structure this for minimum tax impact.
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