After college, I was accepted to optometry school. My parents, who paid for college, offered to help by offering me a student loan for the amount, with the understanding that I pay it back at 4% interest starting when I was in practice and earning money. At that time, I offered to sign a contract or write a promissory note, but was told that this wasn't necessary, and that this way, my ability to obtain credit later wouldn't be impacted. Over the years, I've brought up paying the loan, and each time was told not to worry about the loan now, and to keep in mind that with my parents getting older, they might need help in their old age. Perfectly reasonable, I thought.
In the years since, I graduated and I'm now a young doctor about to buy a practice and begin serving the public trust. I finally found a practice with a motivated seller in a good location. The overall price would be approximately $500,000. I met with my parents' CPA, who agreed that this practice would likely be an excellent fit, and he told me that as a young doctor with no loans on the book, I would likely have no issues obtaining credit.
I expected my parents to be pretty excited. Instead, they immediately said that we would be meeting with their lawyer within a week to sign a promissory note for the entire amount of their original loan to me. They explained this as a need to ensure that everything is on the up-and-up with the IRS and to ensure that at no point would I potentially be deceptive/accidentally fraudulent in my bank loan paperwork.
I don't think of myself as particularly deceptive. The "loan" was my parents paying my tuition and college costs, and I 100% acknowledge that support. I have every intention to pay them back. However, to the best of my knowledge, a private debt of this sort doesn't require disclosure. However, once the suddenly necessary promissory note is signed, I'm officially in the red to the tune of $500,000 in the eyes of a bank, which I expect will dramatically harm my ability to get credit to buy a practice, as I'll go from a net of $0 to $500,000 in legal debt with no collateral.
I feel a bit blindsided by all of this. As the original loan was simply in the form of my parents paying my tuition and bills, it would seem that I could simply classify my repayments as gifts to them, without the need for a legal promissory note that would impact my ability to obtain credit. My parents have never been anything less than 100% supportive and trustworthy up to now. Is there something I'm missing? I'm a doctor, not a tax expert.
Thank you in advance for your help.
Submitted July 22, 2017 at 12:54PM by StudentLoanAway1 http://ift.tt/2tzjnHO
