• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Oral agreement for loan

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

Zigner

Senior Member, Non-Attorney
The federal gift tax, perhaps? :D
Perhaps, heck...PROBABLY, but I was trying to clarify exactly what the OP was incorrect about. You covered the possibilities nicely. :)
It's also possible that the OP was concerned about state gift taxes of some sort.
 


zddoodah

Active Member
due to my very recent health condition, we want this loan to be oral agreement, and I do not want my nephew, who is more than my own children, be in trouble if I passes away before he pay back the loan if there is a written agreement (I cannot elaborate more).
You can elaborate more. You just choose not to. I don't really care why, but intentionally leaving out relevant information makes it difficult for folks to provide helpful feedback. In any event, and based only on the limited info provided, you could put a term into a written agreement that says any amounts remaining unpaid at the time of your death will be automatically forgiven. However, I'm getting the sense that the enforceability of this intended loan agreement is not terribly high on your list of concerns.
 
"What you want to accomplish?" I want to see and prove true nature of some people.
In my youth I had sold cars and motorcycles to people who has promised faithfully to make payments.
Having learned from those costly lessons; never again.
I don't think people have changed for the better since then.
 

LdiJ

Senior Member
I am going to add something that I think needs to be more thoroughly addressed. Your money is your wife's money and vice-versa for most tax purposes. Therefore transferring money to your wife is not a "gift" as far as the IRS is concerned. It might be a gift or loan as far as you and she are concerned, but not as far as the IRS is concerned.
 
Many thanks to all of you.
"the enforceability of this intended loan agreement is not terribly high on your list of concerns. " It is true but if I live longer, I want to get the money back, but my long term survival chances are slim.

This is what I understood from the above responses and request to correct me if I misunderstood:
1. a demand loan (loan that should be repaid whenever it is demanded) agreement can be oral, as it can be performed within 1 year.
2. between wife and husband, no interest needs to be paid for a loan or gift as far as IRS or government is concerned, and such loan or gift need not be reported in IRS.
3. I can give $15k gift to someone and, in the same year, I can pay his college tuition directly paid to college, and I need not report any of these matters to IRS.
4. Finally, better to have written loan agreement.
 

zddoodah

Active Member
This is what I understood from the above responses and request to correct me if I misunderstood:
1 and 4 are correct. I'll leave it to others to address the tax issues in 2 and 3.


But if you don't demand the repayment within 366 days you may be SOL.
That's not correct. The case that the OP quoted on the first page of the thread indicates that his/her state's courts interpret the one year statute of frauds consistent with every other state of which I'm aware: if it is at all possible for the agreement to be performed within one year of it's making, it is not unenforceable if it is not memorialized by a signed writing. What actually happens isn't relevant to this issue.
 

PayrollHRGuy

Senior Member
That's not correct. The case that the OP quoted on the first page of the thread indicates that his/her state's courts interpret the one year statute of frauds consistent with every other state of which I'm aware: if it is at all possible for the agreement to be performed within one year of it's making, it is not unenforceable if it is not memorialized by a signed writing. What actually happens isn't relevant to this issue.
So if I get a #500K loan it doesn't have to be memorialized because I could, in theory, pay it back in a year?
 

Taxing Matters

Overtaxed Member
I am going to add something that I think needs to be more thoroughly addressed. Your money is your wife's money and vice-versa for most tax purposes. Therefore transferring money to your wife is not a "gift" as far as the IRS is concerned.
No, that is NOT correct. It is a gift. However, a person who is giving a gift to his/her citizen spouse is entitled to a deduction against gift tax for the gifts of a present interest made to the spouse. The result is that for these gifts there is no federal gift tax regardless of the amount of the gift and for that reason the IRS does not require reporting of these gifts. However, certain gifts of a future interest or terminable interest to a spouse, as well as some gifts to noncitizen spouses, must be reported on the gift tax return and could result in gift tax. See the Form 709 instructions starting at the bottom of page 7.
 
Last edited:

Taxing Matters

Overtaxed Member
2. between wife and husband, no interest needs to be paid for a loan or gift as far as IRS or government is concerned, and such loan or gift need not be reported in IRS.
For loans between spouses no interest will be imputed on a below market loan. However, if there is interest charged and collected on the loan that interest earned would be included as taxable income on the return. In most cases, of course, you'd not want to do that unless the spouse is also entitled to a deduction for that interest payment (e.g. a loan for the spouse's business). Most gifts between spouses do not result in any gift tax consequences and need not be reported, but see my earlier reply that addresses gifts between spouses.

3. I can give $15k gift to someone and, in the same year, I can pay his college tuition directly paid to college, and I need not report any of these matters to IRS.
If those are the only gifts made to that person during the year then you are correct.
 

zddoodah

Active Member
So if I get a #500K loan it doesn't have to be memorialized because I could, in theory, pay it back in a year?
Correct. I can't say I've done exhaustive analysis of the statute of frauds under every state's law, but the case law I have read is unanimous that an agreement to pay money (regardless of the amount) is never subject to the one-year SOF (unless the agreement expressly prohibits full performance in less than a year, which would be really odd).
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top