To lend or not to lend? An awkward question for inheritors

Barbara Blouin, The Inheritance Project

Borrowing and lending are a tricky and complicated pair of actions for almost every type of loan, whether it be a bank or a close friend, or someone you hardly know. Being asked for a loan is virtually always an awkward situation for inheritors. Many honest, hardworking individuals are not able to make ends meet at some point in their lives. There could be a serious and expensive illness; a family crisis; an economic downturn affecting their job; or losing a job through no fault of their own.

It isn’t possible to generalize, but I think the most important distinction is found in a little story I made up to illustrate my point. Imagine a man in his forties with a good job, married with two children, one of them in university. His wife also works but her salary is modest. Suddenly he loses his job through no fault of his own. He and his wife have many bills to pay, and they can’t make ends meet. Now imagine that this man is frantically thinking: who can I ask to lend me $50,000 for a year (the time period he and his wife calculate they will need to get through a tough period). Next, imagine that this man is trying to decide whether to ask one friend, who is a self-made millionaire (toward the low end, a few millions). The other is an inheritor who has never had a job, although she is public spirited and philanthropic. Does this man regard his two friends differently in terms of asking them for a one-year loan? What if he finds himself unable to repay the loan after a year? Would the fact that one friend is “self made” and the other has not earned any of her wealth make a difference to him?

There is no simple answer to this hypothetical story, but I think what makes a difference lies in his attitudes about the source of wealth for these two individuals. Most likely (I believe) he would be more inclined to admire and respect the self-made millionaire. He doesn’t necessarily disrespect his heiress friend, but—here is the crux of the question—if he is unable to repay the wealthy woman in full and on time, might he feel less guilty and less responsible, knowing that her wealth is unearned? He may prefer to allow himself this “exit.”

This shift in attitude makes a difference—not just when a request for a loan is for $50,000 but at much lower levels. I know from experience.

I had a friend I’d known for many years who was always finding himself in some kind of financial trouble. Sometimes he had no place to live for several weeks. My husband I took him in, fed him, considered him a temporary part of the family. At one point when he was feeling particularly wretched, I gave him a teddy bear that he took to bed with him. He asked me for small loans several times, and to his credit, he repaid them.

Then he moved to Europe, and we pretty much lost touch with him, except that he continued to ask for loans from time to time. The last time I loaned him money he asked me for five hundred dollars “until I’m on my feet again.” I felt cornered and told him, “I don’t really want to do this, but I will.” I asked him to write an agreement to repay me within a year. After eighteen months I called him, only to learn that he had actually forgotten about the loan. I continued to wait. Finally I wrote him a letter, saying I thought he was being irresponsible and asking him to demonstrate his friendship by repaying me as promptly as he could.

His return letter contained a fifty-dollar bill. He wrote, “I could read your letter before I even opened it. I apologize that I only kind of read it before I put it in the garbage bin. As for conditionally continuing our friendship based on my repaying you, that’s an interesting one, as I don’t feel five hundred dollars would break the bank. But it seems to have broken you in some ways.”

The loss of the money didn’t matter so much to me as the hurt feeling of having been cynically betrayed.

I decided to use this story as a wake-up call. It is all too easy to be deceived. When someone you know (or hardly know) asks you for a loan, how do you decide what to do? Please consider the following questions and recommendations:

  • Do you consider them a “friend”? Check in with your gut feeling. Do you think you can trust them? Maybe you think you don’t know them well enough to even have a gut feeling, which is particularly awkward. Do you feel uneasy about them and their request?

 

  • If you feel uneasy, just say no. You do not need to feel guilty. If you feel guilty, you are giving away your power.

 

  • If you are unsure whether to say yes, tell them that you need more time to decide. Give them a target date for the answer.

 

  • If you decide to make the loan, create a set of conditions for the borrower. It is very important to take into account the amount you are being asked for. Is it small or smallish (this is personal and subjective) or large? The more you are being asked for, the more there is at stake for both you and the borrower, and the higher the odds that they will be unable to repay you. They may repay you only in part, or not at all.

 

  • Give them a realistic deadline. Ask them to write a brief statement in duplicate, with the amount borrowed, the date of the loan, and the date by which they will repay you in full. Require a signature.

 

You could choose to ask them to repay you in monthly installments (I prefer this approach) or all at the end. Even this, however, is no guarantee of anything, as I have learned the hard way, but it is better than nothing. It also helps you to keep track.

 

  • Some borrowers, I’m afraid to say, never really intend to repay you. They have a concealed cynical attitude toward you because you didn’t earn your wealth, and therefore you are unworthy in their eyes. It is often hard to tell whether they genuinely intend to pay you back, or whether they are comfortable using you. (In my own experience I have been used in this way several times.)

 

  • Consider an alternative: if you think they are genuine but are unlikely to be able to repay you, tell that you will give them the money they have asked for (or part of the amount asked). A gift is straightforward and does not set up the negative dynamics between borrower and lender. Only give, however, if it feels right.