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Family loans can make trouble for Minnesota estates

Odds are that more than one of our Twin Cities readers has a sibling who borrowed heavily from mom and dad. In most cases, children borrow from parents for legitimate purposes such as financing a home or paying for unexpected expenses like medical care. In some cases, though, kids borrow from parents for all the wrong reasons. When a debt to parents remains unpaid at death, the outstanding obligation can become the source of an ugly probate dispute.

One woman recently found herself on the horns of a debt dilemma complicated by her sister's penchant for gambling. The woman is named in her mother's will as the executor of her estate, which divides estate assets equally between the executor and her sister. The estate assets included two jointly owned certificates of deposit - one naming the executor as co-owner and the other naming her gambling sister as co-owner. With her mother having been recently diagnosed with early stage Alzheimer's disease, the woman wondered what she could do to balance out the value of the estate given that she had no expectation of her sister repaying a $59,000 family loan.

Unfortunately, the fact that the mother had been diagnosed with Alzheimer's disease makes changing her will a risky option. That could open the door to a probate dispute in which the gambling sister claims undue influence or lack of capacity to make a will.

Attempting to take the sister's name off one of the CD accounts poses a problem as well. Banks usually require the signature of both bank account holders to authorize a change in ownership.

Fortunately, the mother has a signed IOU for the loan to the gambling sister. That may give the executor a legitimate basis to treat the IOU as a debt owed to the estate and to reduce her sister's distribution accordingly. Even that approach, however, might lead to a fight over the siblings' inheritance. The gambling sister could easily decide to challenge the validity of the IOU. That outstanding loan could end up straining family ties for some time after the mother passes on.

Source:, "Biz Brain: Gambler in the family leads to financial concerns about mom's will," Karen Price Mueller, Nov. 26, 2012

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