The paperwork is not distrust. It is what keeps it a loan.
Document a family loan with a written promissory note stating the amount, the interest rate, the repayment terms, and the signatures, then keep evidence that the money actually moved and a record of every payment. Charging at least the applicable federal rate published by the IRS avoids the imputed interest rules for below-market loans. Without that paperwork, the transfer is likely to be treated as a gift.
Nobody documents a family loan for the pleasure of it. It gets documented because three different audiences will eventually ask what the money was, and none of them were in the room.
Writing it down is not a statement about trust. It is what makes the answer the same for everyone later, including the people who were not there.
A promissory note can be short. It cannot be vague. The terms that carry weight:
A signed note and a disbursement nobody can prove is half a record. The transfer wants the same treatment the note gets.
Bank transfer or wire, from the lender’s account to the borrower’s. Cash is the one method that leaves no record for the people who will ask.
A memo naming the note makes the connection without anyone having to remember it.
The lender’s outgoing record and the borrower’s incoming one. Two records of one event, and they should agree.
Date, amount, and the balance after. A note with no payment history and a story about payments is the situation everyone wants to avoid.
Every note ends one of four ways, and each one is a recordable act rather than a fading away.
| The ending | What records it |
|---|---|
| Repaid in full | The final payment, the balance reaching zero, and a written acknowledgement from the lender that it is satisfied |
| Forgiven | A dated written waiver, treated as a gift of the outstanding amount, with a gift tax return where one is required |
| Offset against an inheritance | The estate or trust records the outstanding balance against that beneficiary’s share, per the will or trust terms |
| Written off | A decision by the lender that it will not be collected, with whatever tax treatment counsel determines applies |
This is an explanation of how a transaction works, not legal or tax advice. Termn is not a law firm, a bank, an escrow agent, or a money transmitter, and it never holds your money. What is right for your situation is a question for your own counsel, who decides it and drafts the documents that carry it.
Termn runs the note from signature to confirmed disbursement and keeps it visibly outstanding, in both parties’ records, until it is repaid, forgiven, or offset.
How Termn runs personal and family loans Your first workspace is free, and nothing goes out until you send it.
No schedule, no maturity date, and no reason it should be forgotten.
Money showing in the account is not the same as money you get to keep.
The file is finished when a stranger can read it without asking anyone anything.
Papering a note to a family member so it survives review. Free PDF, emailed to you.
Everything else is in the learning center.
Your first workspace is free: one live workspace, unlimited agreements inside it, no card.
Close your first deal freeRather talk it through first? Contact us at sales@termn.ai.