When family members ask for money, it can be difficult to refuse, especially if you're in a comfortable financial position. According to Investopedia, when people face financial hardships, they often turn to family or friends for help, particularly if they don't qualify for traditional bank loans or wish to avoid high-interest debts. However, providing financial support to family can be a slippery slope; it may lead to a cycle of repeated requests that strain your finances and relationships. Kevin O'Leary, known for his role on Shark Tank, recently discussed his unique strategy on YouTube for handling these situations without compromising family ties.
Kevin O'Leary's "One-Time Gift" Strategy
In his video, O'Leary explains that he only helps family members once to avoid ongoing dependency. He shared that if a family member were to ask him for $150,000 to launch a restaurant, he would consider giving a one-time gift of $50,000. This isn't a loan, O'Leary stressed, meaning he doesn't expect repayment. Instead, it's a single, no-strings-attached gift with one major stipulation: they must agree never to ask for financial help again. He believes this approach preserves his finances and protects his family relationships from becoming strained by financial dependence, which he believes could "ruin Thanksgiving dinner."
This approach reflects his philosophy that financial interactions with family should be clear and final, avoiding entanglements that could complicate future interactions. O'Leary admits his method might not be suitable for everyone. However, it has allowed him to sidestep repeated loan requests while still helping his loved ones in a manageable and sustainable way.
Treat Family Loans Like Business Deals
For those who may not feel comfortable with O'Leary's approach, financial experts recommend treating loans to family members with the same caution as any business transaction. Steve Trumble of American Consumer Credit Counseling advises that lending money to family members should come with clear terms and expectations. Many people, particularly younger generations, loan money to loved ones despite having debt. However, such loans can easily result in unmanageable debt if borrowers fail to repay promptly.
Experts recommend approaching family loans with a formal agreement to protect your finances and relationships, even if it's just written between you and the borrower. This can outline the loan amount, repayment terms, and potential consequences for non-payment. Trumble also emphasises accepting that any family loan could become a gift if the borrower is unable or unwilling to pay it back, which may mean you never see that money again.
Assess the Borrower's Financial Situation
Before lending money, it's wise to assess the borrower's financial situation and history with money. Consider factors such as their reason for borrowing, previous loan habits, and their repayment strategy. Setting clear boundaries can help reduce the risk of non-repayment and keep both parties on the same page. Additionally, if you're considering gifting a substantial amount, the IRS requires you to file a gift tax form if you exceed the annual limit of $19,000 (in 2025). You may also apply the gifted amount to your lifetime exemption, which, in 2025, will be $13.99 million. However, keep in mind that this reduces your remaining estate tax exemption.
For lenders, having a checklist or criteria in place can be valuable. Some elements to consider include the borrower's level of financial responsibility, their current income, and whether they have a concrete plan for repayment. If they borrow due to financial irresponsibility, a loan may only enable further issues, and direct help with financial planning could be more beneficial.
Avoiding Gift Tax Pitfalls
If you plan on giving a large sum of money to family, it's essential to understand gift tax regulations. For 2025, the annual gift tax exemption is set at $19,000, and amounts exceeding this limit will incur tax liabilities unless you apply them to your lifetime exemption. This option allows you to transfer wealth within your family without immediate taxation, though it reduces the available estate tax exemption.
By structuring family loans as business transactions, providing one-time gifts, or establishing clear boundaries, individuals can offer financial support in a way that protects their wealth and family relationships. Kevin O'Leary's approach highlights the benefits of being upfront with loved ones about financial boundaries, ultimately allowing family gatherings to remain about family rather than finances.
