Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
Updated August 3, 2026. Quick answer: a family loan you are still owed when you die does not quietly disappear. The note is an asset of your estate, valued at unpaid principal plus accrued interest — and your executor has a duty to it. Forgiving it in your will does not erase it; it hands that value to one person in front of everyone else.
What the regulation says
The fair market value of notes, secured or unsecured, is presumed to be the amount of unpaid principal, plus interest accrued to the date of death, unless the executor establishes that the value is lower or that the notes are worthless.
Treas. Reg. 20.2031-4.
Read the default: face value plus accrued interest, with the burden on the executor to prove it is worth less or worthless. Not what the family thinks it is worth. Not nothing because everyone assumed it had been forgotten.
What that means for your executor
The executor is a fiduciary to the estate and its beneficiaries, which means an uncollected family debt is not theirs to overlook. If one child owes the estate money, the executor — frequently another child — is in the position of having to raise it.
That is a genuinely awful job to leave someone, and it is left by default every time a family loan is made without deciding what happens to it at death.
One argument for a neutral institutional executor is precisely this kind of conflict.
Your executor can only prove what the note says
The default is unpaid principal plus accrued interest, and the burden sits on the executor to establish anything else. That is not a burden anyone can discharge from memory. It takes a document stating the principal, the rate and what has actually been repaid. LawDepot builds a state-specific loan agreement, which is the paper your executor will be reading.
LawDepot pays us a commission if you buy through this link — it costs you nothing extra. We are not a law firm and this is not legal advice. Affiliate Disclosure.
Forgiving it in the will
The note is an asset the lender owned at death, included in the gross estate at face value plus accrued interest by default, with the burden on the executor to prove otherwise. Forgiving the debt by will does NOT make the receivable disappear from the estate’s value – it reallocates who receives that value. The sibling who borrowed and the siblings who did not can all see the number.
So a will that says “I forgive my son’s debt” is, in substance, a specific bequest to him of that amount. That may be exactly what you intend. It is worth knowing that it reads that way to the others.
The three honest options
- Forgive it now, in writing, while you are alive to explain why. It is a gift in that year — how that works — and nobody discovers it in a document after the funeral.
- Forgive it in the will, and say so plainly, ideally with an equalising provision for the others if that is the intent.
- Leave it collectible, and tell the borrower that is the plan. A debt that everyone expects is a debt nobody discovers.
All three are defensible. The one that causes damage is not choosing — leaving a note in a drawer and an executor to work out what you would have wanted.
Related: where unequal treatment is already a live issue · what a cosigner is actually on the hook for.
General information drawn from IRS, Medicare, HUD and state statute and regulation, not legal, tax or financial advice. Continuing-care law is state law and differs materially between states; every figure here is year-labelled and every source named. Powers of attorney, guardianship and trusts are governed by STATE law and differ change, and interest rates published by the IRS change every month – never rely on a rate quoted on any page, including this one. We are not a law firm or a tax adviser, and this is not legal or tax advice.