Been Naughty or Nice?

Loans to your nearest and dearest usually aren't a good idea. But if you feel compelled, do it formally -- and put it in writing.

By Liz Pulliam Weston

With three words, you can sum up the most common advice about lending money to your relatives: "Don't do it."

Financial planners warn that intrafamily loans can lead to trashed relationships, shattered finances and even trouble with the IRS. People who've lent money to family members often complain about ingratitude, missed payments and strained holiday dinners. Even the borrowers grumble, especially when their benefactors start quizzing them about their spending.

"Suddenly, (the lender) is looking at the vacation they took and saying, 'They owe us money, how can they go on vacation?'" said financial planner Karen Ramsey, author of "Everything You Know About Money is Wrong." "The borrowers pick up on that judgment, and they get resentful."...