Are You Liable for What Someone Does with Money You've Given Them?

Like other happily delusional folks, I have my lottery fantasies. Were I to win the big jackpot (say, the Mega Millions drawing for $667 million tonight), I’d probably put he bulk of what I get to keep in index funds and have a ball off the earnings. I wouldn’t invest a lot in individual businesses or schemes to make big bucks - 5 or 6% annualized is fine by me. If a family member or close friend wanted a relatively modest amount of money to start a business - say $200K - I’d be more likely to just give it to them instead of loaning it.

Given that premise: say I gave my brother (who works in financial services and does reasonably well, but isn’t rich by any definition) funding to start his own firm. Now say that firm makes a few mistakes in judgment and winds up breaking a few laws. Am I on the hook for anything connected to that enterprise because I fronted the money - with no knowledge of any wrongdoing or expectation of return? I would think I would be free and clear, but there are things in Heaven and Earth not dreamt of in my philosophy.

Your funds were legally obtained, they were given without anything expected in return, you were not a partner in the enterprise, you were not involved in running it? Sometimes the law is in accord with common sense, it’s hard to imagine how you could conceivably be held liable for anything the company does.

But I’m trying to imagine some odd situation where (say) you know your brother hates his wife, he has stated a desire to hire a hit man to kill her, and you gift him some money. I could see them making a Law and Order episode where they go after you for that.

Is there a conceivable parallel to the “hit man” scenario if you know your brother is basically a crook, and that he intends to set up a dishonest enterprise funded with your gift to rip people off for much larger sums? I can certainly make a case that you are morally responsible, whether you could be charged with anything seems like a stretch.

Well, since I’M the one winning the Mega Millions tonight, you don’t have to worry :wink:

IANAL, but I’m pretty sure that in order for you to be legally liable for anything, the prosecution would have to prove that you knew that the money would be going to a nefarious organization or for a nefarious purpose - i.e., giving a million dollars to al-Qaeda. And the burden of proof would be on them to demonstrate such intent.

IANAL, so take with a block of salt, but:

Because of the money, would you then be owner (in whole or part) of your brother’s company? And is this company a corporation, a limited liability company, or operating out of the back of a truck? I believe this makes a difference.

If you want to be safe, I’d make the gift with a written statement (notarized if possible) to the effect that I am making a gift, free and clear, to my brother. Unless things were documented, I could see somebody making the case that providing all the seed funding makes you the firm’s owner (and liable) and your brother is merely some kind of chief officer.

Actually, to be safe, I’d consult a lawyer.

That’s more the scenario that I was thinking about, yes. It’s like the common sex worker tagline: any payment given is in exchange for time only, not for any sexual exchange that may occur. Or the old dodge of paying some exorbitant sum for a commonplace item and being given the real commodity - illegal to sell - as a “gift”. If the scenario above were to play out, I can imagine an overzealous prosecutor coming after the benefactor, arguing that a gift of such a sum was unlikely without expectation of return - or indifference to the consequences.

Is there any precedent for this sort of thing? If a bank lends a farmer money to plant corn and they plant cannabis instead, would any jurisdiction come after the bank, especially if the farmer had been prosecuted for raising cannabis before?

IANAL (should probably underline that for emphasis) but I would guess that your legal liability may be dependent on the conditions for the gift. If you get some say-so in the business in return for the $ then I think you could have some liability.

Suppose you give your brother the $200k and, instead of starting a business, he spends it all on hookers and blow. What if anything other than proclaiming, “Gee, bro, you’re a world-class jerk!” would you want to be able to do? If you give the money with the restriction that he spend it on the business, I can see a possibility of you experiencing some problems. Suppose that his financial services company gets into trouble and he misappropriates some clients’ money. Said clients want to sue him. He however has no money. But, wait! His megarich brother invested in the company! Let’s go after him!

I’d like to see the legal types check in here. Suppose StusBlues sees someone begging on a street corner and gives him a C-note. If that person uses the money to buy a gun and hold up a convenience store, I’d think that normally StusBlues would have no liability. But if the beggar is holding up a sign that asks for money to buy a gun, might StusBlues be guilty of facilitating a felony?

But I’d also be interested whether there are circumstances under which even a no-string-attached gift could lead to liability, based on what you could reasonably be expected to know the recipient would likely do with the funds.

At the extreme, a no-strings attached gift to a terrorist organization is certainly a crime.

Could a parallel argument hold up for liability if the recipient of a bona fide no-strings-attached gift is known to be a dishonest businessman?

In my truly dismal view of our litigious society; no matter what steps you take to distance yourself from your relatives actions - once some “injured party” discovers your wealth, you’ll be named a party in the inevitable suit(s). Legally you should have a lawyer provide as much distance as possible from any enterprise like this. That won’t stop them from trying. sigh

I think you would almost certainly be in the clear. Perhaps a crazy hypothetical could be imagined where you might be ultimately held liable, but this is not it.

Well, starting with the scenario that you win the big lottery jackpot, I would hire two lawyer who don’t like each other. One to help your with the money, the other to keep an eye on the first lawyer and make sure he’s not ripping you off.

As for gifting the brother, you would need some sort of contract written up. And, I AM NOT A LAWYER OR TAX ACCOUNTANT but I think gifts of that amount would be subject to taxation paid by you or the brother or both. So, it might need to be structured as some sort of blind trust investment (I’m making this up?) to avoid the taxes and protect you from his misdeeds. This ain’t simple “Oh, you want money? Here it is.”

Well, you could simply pay any taxes due. Seems controversial, I know.:slight_smile:

Another aspect is whether the outcome was one that a reasonable person could expect. If you gave a known heroin addict a bunch of cash and they wind up dead, you may have some exposure to liability. It is reasonable to assume that they’d use some of that money for drugs and that drugs can kill.

Whether one would reasonably expect the brother in the OP to honestly run his business is for the courts to decide.

Uh-uh. I am. PM after the drawing and I may gift you a million. I am nice like that.

Okay, but let’s stipulate that it the gifter knows his brother is dishonest, and is likely to start a dishonest business if he has seed money. And that the money is definitely given as a no-strings gift, with no expectation of anything in return, and the gifter is not subsequently involved in the business in any way.

This seems to me to be a fundamentally much weaker connection than if the gifter knows his brother is a terrorist, of he knows his brother wants to hire a hitman. It’s far from clear cut to me that he has any liability for the consequences of what his brother does with the money if it becomes seed money for running a dishonest business.

Your alternate scenario is an interesting one. It makes logical sense, but I’ve never heard of any entity trying to prove legal liability in a case like that. I wonder if anyone has ever tried to sue someone for giving a loved one money to buy drugs. There is certainly not a dearth of test cases out there.

IANAL but my wife works at a firm that ------------ long story.

Lets say that you hit the PowerBall and give me $100k which I wisely decide to invest in hookers and blow. You had no idea I was going to engage in criminal activities and I never shared any of the profits from said investment property and commodities (ahem) with you. You’re cool as far as PA would be concerned. If I did really really well some Fed could maybe – just maybe – try to push a RICO on you trying to get you to flip on me but again that would require at least some proof of knowledge on your part.

Isn’t it illegal in the US to give money to organizations labeled as terrorists? If yes, then you most definitely can be held liable for what is done with money you give away. You can even be help accountable for what an organization that you give money to does with other money it has.