Promissory Note for an Advance on an Inheritance

A parent helps one child buy a house with $100,000. The other two children get nothing at the time. Years later the parent dies, the will splits the estate three ways, and the two non-recipient children find out their sibling effectively got an extra $100,000. The fight that follows ruins the family. A short document at the time of the transfer (a note, an advancement letter, or both) prevents the entire problem.

Two structures

Promissory note (loan). The parent lends money to the child. The child owes it back, with or without interest. If unpaid at the parent\'s death, the balance is collected from the child\'s share of the estate.

Advancement letter. The parent gifts money to the child but documents the intent that it count against the child\'s share of the estate. No repayment expected; the eventual inheritance is reduced by the advanced amount.

The choice depends on intent. If the parent wants the money back during their lifetime, use a note. If the parent wants the child to keep the money but balance the estate at death, use an advancement.

Why intent must be in writing

State law on advancements varies but most follow some version of the Uniform Probate Code:

• A lifetime transfer is presumed to be a gift unless there is contemporaneous writing showing intent to advance
• The writing can be by the parent (declaration of advancement) or by the child (acknowledgment of advancement)
• Without writing, the recipient sibling can keep the money AND take their full estate share

Verbal intent does not count after the parent dies. Document it now.

Sample advancement letter

"To my daughter Jane Smith: This letter confirms that the $100,000 I am paying to you on January 5, 2026 is an advance on your share of my estate. At my death, this amount (without interest) shall be added back to my estate value and your share of the estate shall be reduced by $100,000. This is not a loan; no repayment is required during my lifetime. Signed, [Parent Name], January 5, 2026."

Sample promissory note approach

If the parent wants the money returned during their lifetime, a regular promissory note works:

• Principal: amount advanced
• Interest rate: AFR or zero (interest-free is allowed but creates imputed-interest tax issues above $10,000)
• Maturity: a defined date or "on demand"
• If unpaid at the parent\'s death: outstanding balance offsets the recipient\'s share of the estate

The will should also reference the note: "Any amounts owed to me by [Child] under the promissory note dated [Date] shall be set off against [Child]\'s share of my estate."

Tax considerations

• Gifts (advancements treated as gifts) above the annual exclusion ($19,000 per donor per recipient in 2026) require a gift tax return (Form 709)
• Above the lifetime exemption (~$13.99M federal in 2026), gift tax may be owed
• Interest on a true loan is taxable income to the parent
• Below-AFR loans create imputed interest above $10,000
• Some states have their own gift or inheritance tax rules

How the offset works at death

If a parent has $600,000 in the estate, three children, and one child received a $100,000 advance:

1. "Hotchpot" the advance: notional estate is $700,000 ($600k + $100k advance)
2. Each child\'s share: $700,000 / 3 = $233,333
3. Recipient child\'s share: $233,333 minus $100,000 already received = $133,333 from estate
4. Other two children: $233,333 each from estate
5. Total estate distributed: $133,333 + $233,333 + $233,333 = $600,000 ✓

What to put in the will

Even with a clear advancement letter, mention it in the will:

• Reference the date and amount of the advancement
• Reference any letter or note documenting the advancement
• State that the advancement is to be hotchpotted (added back) for distribution purposes
• Clarify that the executor has authority to apply the offset

Without will language, the executor and family have to interpret the advancement letter alone, which creates room for dispute.

Multiple advancements

If a parent makes several lifetime gifts to the same child (or to multiple children), maintain a running ledger:

• Date of each transfer
• Amount
• Whether it was an advance or a separate gift
• Letter or note reference

Keep the ledger with your estate-planning documents. Update it after each transfer.

Forgiving an advancement later

The parent can change their mind and forgive the advancement. Do this in writing:

• Forgiveness letter dated and signed
• Will updated to remove the offset language
• Tax filing if the forgiveness exceeds the annual gift exemption

Without written forgiveness, the executor will follow the original advancement letter even if the family thinks it was forgiven.

Common pitfalls

• Verbal intent never recorded
• "Loan" with no interest, no maturity, no documentation (treated as gift)
• Advancement to one child during life, then will divides the residue equally without offset
• Multiple advancements with no running record
• Forgiveness assumed but never documented

When to involve an estate attorney

For amounts under $20,000, a parent can usually self-document with a clear letter. For amounts above $50,000 or where the family dynamics are complex (blended families, business transfers, real estate), an estate attorney should coordinate the advancement letter, the note (if any), and the will so they all align.