Money Manners: Always put it in writing when lending

Dear Jeanne & Leonard:

I lent my sister $5,000 on a handshake (the money is to help her buy a small condo), and my wife is upset. I explained to my wife that that’s how we do things in my family, but it turns out that her family does the opposite: They put everything in writing. How do we resolve this?

My wife is very uncomfortable about the absence of a written agreement, but I’m equally uncomfortable about asking my sister — as if I don’t trust her — to sign a note.

— Andrew, Santa Barbara, California

Dear Andrew:

Sorry, but there’s a right way and a wrong way to lend money to friends and family, and your family’s been doing it the wrong way.

Suppose, say, your sister dies unexpectedly before she repays you, and the executor of her estate knows nothing about the loan? Suppose, as time passes, she remembers borrowing only $4,000 or believes you told her not to worry about repaying you? Or suppose your sister simply decides that, for whatever reason, there is no need to pay you back?

We know, you trust her completely. But your sister would not be the first otherwise honorable person to convince herself that a loan was actually a gift. Things change, and sometimes people do as well. So ask her to sign a note. And if you need someone to blame, leave your wife out of it and blame us.

Dear Jeanne & Leonard:

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My sister and I inherited a mortgage-free house from our mother. Since the housing market was soft at the time Mom died, I suggested that my sister’s son and his family rent the house from us at a below-market rate until real estate prices rebounded.

Well, six years have gone by; real estate prices turned up years ago; and my nephew is still in the house. He says he’d like to buy the place one day, and my sister — who’s the executor of Mom’s estate — has asked me to be “patient.”

But it’s been six years, and I’m tired of waiting for the place to be sold so that I can get my inheritance. What should I do?

— P.B., Leavenworth, Kansas

Dear P.B.:

Sounds like saying “pretty please” isn’t going to work.

Seriously, tell your sister that six years is long enough — that the time has come for her or her son to buy you out, and that if one of them won’t, you’re going to talk to a lawyer about forcing the sale of the house. Because from what you’ve said, nothing short of an ultimatum is going to work with these two. (Look, if either your sister or her son had a sense of shame, you wouldn’t be in this position.)

And if the ultimatum doesn’t work? Then you’ll have to decide what matters more: Keeping peace in the family, or hiring a lawyer to put an end to your sister exploiting her role as the executor so she can give her son a sweetheart deal at your expense.