Personal Finance Mailbag: Can You Write Off Your Child’s Loan Tax-Free? Beware This Costly Trap

Parents may be able to forgive their children’s debt as tax-free gifts, but the legal distinction between different types of gift arrangements is crucial, lawyer Allan Ohms explains.

In the personal finance advice column, Ohms discusses how parents can legally write down or cancel a child’s loan without creating a tax charge. He warns that an annual decision to give a gift is not the same as a binding promise to provide gifts in future years.

The column also examines interest-free loans between family members. Long-term gift agreements can create legal pitfalls if they bind the parties to future transfers, making the structure of the arrangement important.