Estate Planning Made Simple and How to Handle Family Loans

9:27Elizabeth Ayoola:I do, and I'm going to start with my favorite one, which is a low lift. I want or would love for everyone to review their beneficiaries on financial accounts like retirement accounts, bank accounts, investment accounts, life insurance, annuities. And I want you to make sure that the people that you have on there, you want on there or make sure that you have anyone on there at all. So listing primary and contingent beneficiaries on retirement, bank, and brokerage accounts can help you to avoid probate. Now the beneficiaries that you leave on your retirement accounts override what you put in your will.

10:00Elizabeth Ayoola:I slowed that down because I think it's so important to know and lots of people may not know that. So you want to ensure that you have people that you actually want on there. This is a cue to remove your ex if you're no longer with them or your best friend that you broke up with. You also want to avoid putting underage kids as beneficiaries because that could lead to expensive issues if you prematurely pass away since some financial institutions often require court-appointed conservators to manage the funds on the child's behalf. Now also if you have older teens or young adults I want you to think about whether you want to leave them as a beneficiary because they might not be prepared to handle those assets.

10:37Elizabeth Ayoola:It could be safer to set up a trust and assign a beneficiary to distribute those assets to them on your terms. In my trust, I put stipulations for each age for my son. So maybe like every five years, every decade, he gets a certain amount of money. Now, last but not least, if you don't have a beneficiary, that could also lead to probate. It could lead to exorbitant legal fees and potential estate tax issues. So you want to check that you have one on your accounts.

11:03Sean Pyles:And one thing I always like to emphasize when it comes to setting your beneficiaries is that this can be done in a matter of minutes. You just log into your bank account or your 401k and you can set the beneficiary. It doesn't take long. Setting up a will can take a little bit of time to do and a trust as well. This is one of the fastest and most effective ways to do estate planning.

11:21Elizabeth Ayoola:Now, Sean, give us a second tip. What you got?

11:23Sean Pyles:So do your beneficiaries and then look into getting a will at least. Make it easy for your loved ones to know where you want your assets to go and what your last wishes are. A will will likely still have to go through probate, but at least it can determine what happens to your assets. By the way, if you die without a will, you are deemed to die what's called intestate, which is one of the ugliest words in the English language and not one that I want to be associated with. And if you do die intestate, your property will be distributed according to state law, which may not be what you want to have happen.

11:55Sean Pyles:Just make sure it's a valid will. So even if you do use one of those online services, it's worth it to pay to have an attorney to review it to make sure everything looks just as it needs to.

12:04Elizabeth Ayoola:That's right. And if you keep putting it off because you think it's expensive, it'll be more expensive for your family to have to go through probate. If you already have an estate plan in place, do not forget to update it when major life changes occur. As Sean said, he's getting married, so him and his partner are going to have to sit down and update that. So, Sean, I'm going to popcorn to you on that note.

12:23Sean Pyles:if you've had any major life changes like getting married, a death, getting divorced, maybe having a new child, or even a career change, that could be a good time to update your estate planning documents, whether that's a will, a power of attorney, healthcare proxy, trust and beneficiaries on financial accounts, all of that stuff. And you also want to ensure that you have a fiduciary in the right roles for the task at hand. Make sure that your team that's helping you through this process is the right set of people. And also, maybe you've changed your mind about how you want to distribute your assets.

12:52Sean Pyles:Like maybe you're suddenly in good graces with your sibling that you haven't talked to in half a decade. Maybe you decide that you want to be composted in a mushroom suit instead of cremated or buried in the ground. And you want to update that in your will. Make sure your desires are known and you can have them taken care of. So all of these things would require updating your will and other documents.

13:09Elizabeth Ayoola:Yeah, this might be too much information, but I'm happy to share anyway. But in my will, I have that I would not like to be buried in a graveyard. I would like to be cremated and planted as a tree. So poetic, isn't it?

13:22Sean Pyles:That's beautiful. Yeah. I want to be composted. That's why I mentioned that mushroom soup, because you can be composted and also put into a tree in a forest grove.

13:27Elizabeth Ayoola:See, we were supposed to be co-hosts.

13:29Sean Pyles:We're so morbid, Elizabeth. I love it.

13:31Elizabeth Ayoola:I love it. I love it. See, guys, estate planning can be, I don't want to use the word fun, but you know, these are important things to think about in terms of your legacy and things that you want to happen when you're no longer here. I want to say it might be best to speak with a financial advisor or estate planning attorney, especially if you have a complicated estate. Now we're about to dig into informal lending, including whether it's a good idea to lend your money to friends and family.

13:55Sean Pyles:But first, listeners, you know the drill. Take a second and think about what questions you have for us nerds and how we can help you.

14:02Elizabeth Ayoola:Maybe you have no clue how to approach estate planning or want to figure out how to approach tax planning for your retirement savings. Whatever your money question is, we nerds are here to help you. Leave us a voicemail or text us on the nerd hotline at 901-730-6373. That's 901-730-NERD.

14:19Sean Pyles:You can also email us at podcast at nerdwallet.com. All right, let's get to this episode's money question segment. That's up next. Stay with us. Today's episode is sponsored by Rula. Finding a therapist is hard enough, but finding one who actually takes your insurance, that's where most online therapy platforms fall short. Many don't work with insurance at all, which means you're stuck paying the full cost out of pocket or paying for an expensive monthly subscription.

14:45Elizabeth Ayoola:Rula does things differently. They partner with over 100 insurance plans, making the average copay just$15 per session. That's real therapy from licensed professionals at a price that actually makes sense. I mean, think about it. You use your insurance benefits to maintain your physical health, so why won't you do the same for your mental health?

15:04Sean Pyles:Rula isn't just affordable. The experience is tailored around you. Other online therapy platforms might match you with the first available provider, whether or not they're the right fit. Rula considers your goals, preferences, and background to provide you with a curated list of licensed in-network therapists who are actually aligned with what you need, because they know that finding the right therapist can make all the difference.

15:24Elizabeth Ayoola:No wait list, no frustrating back and forth. Rula makes it easy to find a mental health provider who is accepting new patients, and appointments are available as soon as tomorrow. Plus, Rula sticks with you throughout your journey, checking in to make sure your care is helping you move forward.

15:39Sean Pyles:Go to rula.com slash smart money to get started today. That's R-U-L-A dot com slash smart money for quality therapy that's covered by insurance.

15:48Elizabeth Ayoola:The average copay for Rula patients is$15, but depending on your benefits, your copay could be as little as$0 per session.

15:56Sean Pyles:Rula partners with a network of over 15 ,000 therapists and psychiatrists nationwide, enabling you to find your personalized solution and the right therapist for you based on your needs, preferences, and state requirements.

16:06Elizabeth Ayoola:Thousands of people are already using Rula to get affordable, high-quality therapy that's actually covered by insurance. Visit Rula.com slash smartmoney to get started.

16:17Sean Pyles:That's R-U-L-A dot com slash smartmoney. You deserve mental health care that works for you, not against your budget. The following is a paid sponsorship, not an endorsement by NerdWallet's editorial team. Today's episode is sponsored by Built.

16:29Elizabeth Ayoola:You've heard me talk about Built as the loyalty program that lets you earn points on rent wherever you live. and they just leveled up even more. As of 2026, renters and homeowners can also earn up to 1.25X points on their housing payments.

16:45Sean Pyles:This is thanks to Built's three new credit cards, the Palladium card, Obsidian card, and Blue card. All three can turn your housing payments, rent or mortgage into flexible rewards. So you can choose the card that fits your lifestyle without missing out on points and exclusive benefits.

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17:33Elizabeth Ayoola:Subject to approval and eligibility. Built cards are issued by Column N.A., member FDIC, pursuant to license from MasterCard International Incorporated.

17:45Sean Pyles:We're back and answering your money questions to help you make smarter financial decisions.

17:49Elizabeth Ayoola:This episode's question comes from a listener named Jenna, who sent us an email. Hello, I graduated from undergrad with$26 ,000 in loans. the cost of taking out four years of loans for the program on top of my undergraduate loans was going to be a tremendous burden. My wonderful parents offered a solution. If I used my almost entire savings to pay for the first year of tuition, they would pay the other three years of tuition and help with other miscellaneous expenses. Thankfully, I was able to obtain multiple smaller scholarships to decrease the cost of tuition each year as well. Since graduating about two years ago, I have worked hard on my undergraduate loans and will have them entirely paid off at the end of this year.

18:30Elizabeth Ayoola:I would love to take the money I've currently budgeted every month for my loans,$1 ,000, and start paying back my parents for their loan. We initially agreed upon paying back the full amount,$82 ,000, with 3 % interest for inflation. They told me to use the money for other expenses. I am so thankful for all they have done for me and would still love to pay them back the full amount. My plan was to open some type of account and auto deposit$1 ,000 every month for the next six to seven years and surprise them with the money. What is the best type of account to open knowing that the money will be accumulating for years and is intended for my parents and not for me?

19:06Elizabeth Ayoola:Thanks, Jenna. To help us answer Jenna's question on this episode of the podcast, we are joined by Kate Wood, an authority on lending and not a stranger to the pod either. Not at all. Thanks for having me.

19:18Sean Pyles:Welcome back to Smart Money, Kate.

19:19Elizabeth Ayoola:Thank you.

19:20Sean Pyles:So Kate, our listener Jenna has some pretty generous parents. They offered their daughter a loan for undergraduate education, something which isn't totally unheard of, but I find it really interesting as an alternative to traditional forms of lending, especially as someone with plenty of student loans myself. And in this case, it's what we'd call a family loan. A quick aside, I want to note that it seems like this loan is a really good deal for Jenna. They got$82 ,000 with a 3 % interest rate for inflation, they said. And considering that the federal graduate student loan rate is currently at just under 8%, that's not too bad.

19:55Sean Pyles:But alternative forms in lending, which are essentially loans that aren't from a financial institution, come in a variety of forms. Some are better than others. And family loans are probably the best because hopefully you're on good terms with your lender. So, Kate, can you give us a little more information about how these work?

20:11Elizabeth Ayoola:This was a really generous family loan that, you know, comes from the user's family. But I'd also mention that, you know, borrowing from different sorts of people would still be considered a family loan. So the lender could be a friend, it could be chosen family, a coworker, a group that you're part of. The main point with informal lending and family loans is that there is not a financial institution involved. And a lack of a financial institution sounds to me like a lack of red tape too. So what are some benefits of this type of informal lending, Kate? Well, you already mentioned one with the red tape, right?

20:46Elizabeth Ayoola:So there are definitely benefits to borrowing from someone who's not a like quote unquote real lender. there's not a qualification process. They aren't going to run a credit check depending on their situation, how much you're borrowing. You might be able to get the funds really quickly. Also, like Sean mentioned, you might get a much lower interest rate or perhaps pay no interest on the loan. Although that might depend on the amount because there's a really big difference between asking someone if you can borrow a couple hundred bucks for something short term versus borrowing thousands for a larger expense as Jenna did.

21:21Elizabeth Ayoola:Also, since you know the lender, they're your friend, you know, they're your family member, they also might be more sympathetic and more flexible if something comes up that makes it harder for you to pay back that loan. I'm having an intrusive thought, guys. I'm thinking about Judge Judy and friends suing their friends for not paying them back$20. So with that said, And what are the risks of informal lending? Exactly. So the biggest risk really is to the relationship, right? So in this listener's case, her family offered to help pay for graduate school. But for folks who are having to ask someone else for help, that asking, that can be a really stressful situation.

22:03And if they turn you down, that could potentially put a strain on the relationship.

22:08Elizabeth Ayoola:even with a successful loan there can also be potential relationship damage because it could alter or sort of create a power dynamic right say someone lends you a large amount of money you might then feel like they're looking at your social media like looks like she ate out a couple times this week right you can feel like they're following you and judging you and say what you will about you know real lenders a real lender doesn't care uh what you're doing the other downside. So say you have a loan, again, like the listeners, that's significant and you're being charged interest. But like, say in this case, you're making repayments in installments.

22:47Elizabeth Ayoola:If you're in that situation and you're handling those payments successfully, like, okay, one, that's awesome. You're doing great. But two, you know, if you'd had an actual personal loan from an actual lender, those on-time payments would be reported to the credit bureaus. That would potentially be helping you, right? So an informal loan on one hand, no qualifications, not going to hurt your credit score, but it's not going to help it either.

23:10Sean Pyles:Do you have an idea of how common it is for parents to do sort of informal loans to their kids? Is that a thing that's widespread in the education space?

23:20Elizabeth Ayoola:It's a little hard to say because again, informal lending is informal. Because this is person-to-person, because it's not going through lenders, it's harder to get a grip on, right? So if I borrow$5 from you for coffee, technically that's informal lending, right? But again, even if it's a much larger amount of money, even if you have a written agreement, something like that, you're not going through a lender, you're not going through institutions. And so nothing is really being tracked about the loan. If we are just talking more in general, money for higher education, like that you can put some numbers on.

23:52Elizabeth Ayoola:So Sally May every year does a study of how Americans pay for college. And so it doesn't get into whether these funds are being used with an expectation of repayment. So is this essentially a gift or is it being lent? But it does show us that in general, parents make a pretty sizable contribution. So during the 2024-2025 school year, on average, parents in income or savings covered 38 % of college expenses. So that's the largest share. So if you're looking at every way that the average student got money, Almost 40 % coming from their parents. Parent borrowing, so in that case, that would be a parent who's taking out a loan on behalf of the student, covered another 11%.

24:34Sean Pyles:Another type of informal lending that I find really fascinating is the idea of a lending circle. This form of saving and lending money has been around for centuries. It's been used around the world as well, and it's really effective. And here's how it works. So a group of people gets together, maybe friends or coworkers or family members, and each person puts in a certain amount of money into the pool on a regular basis, maybe like$100 or$50 a month. Then each person takes their turn getting that pot of money. It's really one of the most effective forms of direct mutual aid. And I recently read this article about how in South Korea, some lending circles will help one another save for group vacations together, which sounds so sweet and wholesome.

25:16Sean Pyles:I just love that. And in some places, lending circles will also develop into broader mutual aid organizations. Like there's a nonprofit in Portland called Equitable Giving Circle, which provides community support for the local BIPOC community. And the thing is that lending circles are really built on trust, and they can be more common in societies like South Korea that have greater amount of trust among its members. So I would love to hear your thoughts on this idea and also whether either of you would ever join a lending circle.

25:44Elizabeth Ayoola:I don't know if I would necessarily join one. I think it would really depend on who the group was and what the amount was. Like if it was a small amount of money and it's a group of people I trusted, absolutely. But if it was something more general, I'd probably be pretty hesitant. One thing I would mention, like, so I have heard of these referred to as saving circles, but because there's this rotating payout, depending on when it comes to you, it might be more of a saving circle or it might be more of a lending circle. So like if you're someone who gets the pot relatively early, it feels more like lending, right?

26:17Because you're sort of getting this money and then you're gradually paying it back, right?

26:21Elizabeth Ayoola:Because you're paying in. But then for someone who gets it later, it's a little more of like a savings mechanism since you're basically putting money away and then eventually you're getting a payout.

26:30Sean Pyles:Elizabeth, would you ever use one of these?

26:32Elizabeth Ayoola:Well, I have. So I'm Nigerian for anyone who doesn't know, and we have something called Adjo. So years ago, I joined an Adjo with a group with other women and we all contributed. Maybe it was around the time when I was living in London, 150 pounds a month. And it was nice, as Kate said, to be on the later end of that because I would get a large sum of money when it was my turn that I could use for whatever I needed to use it for. So I participated in it for probably about two years and I found it really helpful.

26:57Sean Pyles:And did you find that you joined it because you could trust the women that were in it or how did you handle that aspect of this? Because it is all about trust.

27:04Elizabeth Ayoola:That's a huge one. And honestly, I didn't know all the women in it, but the woman who invited me is someone I trusted. So people I trust, I usually tend to trust people they trust. So definitely a gamble, but we never had an issue where someone didn't pay or we came up short. Everyone did their part. So.

27:18Sean Pyles:I love that. I have never joined one, but I would with the right people with the right amount, like you said, Kate, like if it was my really close college friends and we were all trying to save it for a vacation together, I would love to do that. Because it means that some people who maybe wouldn't be able to afford to go on an international vacation could join us for that if we're each putting in a certain amount of money on a regular basis. But I wouldn't do it with maybe like my neighbors or co-workers. No offense. Hey, no, absolutely not.

27:43Elizabeth Ayoola:Love you guys still, though. All right. I think there's a good segue to what guardrails people should have in place before going into the informal lending route. I say have everything in writing when possible. I really, really, really hate when relationships and over money. Totally agree. And you are right. So this is one of those things, you know, like getting a prenuptial agreement or a cohabitation agreement. If you're rooming with somebody where creating that formal agreement feels really awkward, but if you have more than a handshake to go on, it's going to help a lot if anything arises later.

28:21Elizabeth Ayoola:That said, informal lending, this isn't something where, you know, you need a lawyer. Although I will say if you make an agreement and you get notarized, that will boost its credibility just because you do have a neutral third party who can attest that like, yes, everything was good. The lender and the borrower signed off on it. This is legit.

28:39Sean Pyles:If you do have to go to Judge Judy, you can bring that. You can bring that, right? You can bring it.

28:42Elizabeth Ayoola:You can show Judy like, no, they said they would do this, right? And so the agreement can be pretty simple. You know, it can just state the amount, the repayment schedule, how interest is going to be dealt with. And then also, you know, what would happen if the borrower fails to repay the loan. Obviously, again, this is not something you're using in a like, hey, can you spot me 20 bucks? These days, really, for a lot of people, they just use Venmo, right, or something like that to just ask for that money to be paid back. But if we're talking about a loan that is a significant amount of money for the borrower, the lender, or, you know, both, it's really important to hash these things out before that cash changes hands.

29:18Sean Pyles:Yeah, I think your note about Venmo is interesting because we're all kind of doing informal lending at a micro level all the time through covering a friend when you're going out to eat or grabbing a quick drink. But in a broader sense, if you're not just doing 20 bucks for a beer and night out, when should people consider informal lending options over more traditional options?

29:36Elizabeth Ayoola:Informal lending can be helpful in a couple of different ways. So it can help a lot if you are in a situation where you might not qualify for a formal lending option. and it can also be really helpful if you're in a spot where you do have lending options, but they would be really costly. So a payday loan would be a good example of that. On the other hand, if you are someone who qualifies, you don't have to get into that messy emotional stuff, right? If you're working with a lender, a mispayment dings your credit, but the lender's not mad at you. You aren't going to have awkward holidays because they're holding a grudge.

30:12Elizabeth Ayoola:Again, though, there's a really big difference between the listener situation where her parents are making this really generous offer and one where you are you know basically like cold approaching cold calling like cold cold going up to me right someone that you know to ask if you know they'd potentially lend you money like this is this is a delicate situation and so you know you want to be really sure that you're clear about okay this is what I need you know this is how much this is when this is why this is you know how I can pay it back ideally you don't want to put them super on the spot you want to give them a little bit of time to think it over and bear in mind too that okay you know they aren't running a credit check but they might ask you about your finances and in this circumstance that is very fair right it's also important to think about how you might not know everything you think you do about their finances you could be looking at someone who has a high-paying job, they seem super well-off, you know, you're sure they have plenty of money, they could actually be living paycheck to paycheck, and you don't even realize that.

31:14Elizabeth Ayoola:That reminds me of some advice that my mom gave me that lives rent-free in my head, which is don't lend what you can't afford to get back. Let's move on to the MetaGenest question. They want to know the best place to house$1 ,000 a month for the next six to seven years to get maximum growth on the money they want to repay their parents. What would you do in this situation, Elizabeth? Well, since you asked him, although this is a medium term goal, I personally would place it in a high yield savings account. So assuming Jenna made an initial deposit of, let's say,$1 ,000 in an account that compounded monthly and gave her, let's say, 4 % interest and also contributed$1 ,000 a month, they'd have about$98 ,000 after seven years.

31:58Elizabeth Ayoola:Now, the only major risk here is that the interest rate on their high yield savings account could fluctuate. And also Uncle Sam would get his cut because interest earned on high-yield savings accounts is taxable, guys. Sean, where would you put that money? Jenna mentioned potentially putting it into a brokerage account.

32:14Sean Pyles:I think that your route going to high-yield savings account option is a really conservative and smart approach. But we often suggest that people don't invest money they need within five years. Well, Jenna wants this money within six to seven. So I'm going to say, quick disclaimer, that I'm a certified financial planner, but I'm not everyone's certified financial planner, and this is not investment advice. But I would probably put this money into a taxable brokerage account to try to get as much growth as possible in the time that I have. Because six to seven years isn't nothing. You'd want to see something come of that more than what you could get at a high-yield savings account, and investing would likely give you that.

32:48Sean Pyles:So I would put it in some sort of taxable brokerage account, invest in a few ETFs to have a diversified portfolio, and just see what I can get, kind of roll the dice there.

32:57Elizabeth Ayoola:All right, Kate. So in conclusion, what should people keep top of mind if they are considering informal lending, either lending or asking someone to borrow the money? I would say the biggest thing to keep in mind is what risk you might be putting the relationship under. You know, I keep using these examples where it's like, oh, it's really minor. like we're all going out to brunch kind of thing. That's different than if you're looking at three, four, five digits in terms of how much you're trying to borrow or how much you're willing to lend. So really knowing that you could be putting the relationship at risk, but also if you trust this person, this is something that could theoretically actually strengthen your relationship, right?

33:40Elizabeth Ayoola:Because then it's something that you've gone through together.

33:42Sean Pyles:Well, Kate, thanks for coming on and chatting with us today.

33:44Elizabeth Ayoola:Of course. Thank you for having me.

33:46Sean Pyles:That's all we have for this episode. Remember, listener, that we're here to answer your money questions. So turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Join us next time to hear us answer a listener's question about car buying. Follow Smart Money on our favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

34:13Elizabeth Ayoola:And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy information is provided for general educational and entertainment purposes, and it just might not apply to your specific circumstances. This episode is produced by Tess Vigland and Anna Helhosky. Hilary Georgie helps with editing. Nick Karisamy mixed our audio. And we want to say a humongous thank you to NerdWallet's editors for all the wonderful ways they help us.

34:37Sean Pyles:And with that said, until next time, turn to the nerds.

34:49Elizabeth Ayoola:I'm not giving up. I am selling the building.

34:53Sean Pyles:The final season of FX is the Bear.

34:57Elizabeth Ayoola:The restaurant is flooded.

35:00Sean Pyles:Everything's either going to be okay. No, stop! Or not.

35:05Elizabeth Ayoola:We are outgunned and we are outmanned. We have each other.

35:11Sean Pyles:FX is the Bear, the final season. All episodes now streaming on Disney+.