INTRA-FAMILY LOANS
GIVING THE GIFT OF A LOAN
Intra-family loans can provide tax benefits to both lenders and borrowers if properly structured.
JOHN O. McMANUS
JOHN O. McMANUS is a top AV-rated estate planning attorney and the founding principal of TriState Area-based McManus & Associates (www.mcmanuslegal.com).
When it comes to wealth management, sometimes the gray area is the sweet spot. There are often legitimate opportunities for growing and preserving assets beyond the welldefined, black-and-white tax rules. Identifying these legal loopholes can greatly benefit a client and his or her loved ones, without breaking any laws.
Gifting as a loan, or intra-family loans, is an estate planning technique which, under rules set forth in the Code, allows a significant amount of money to be transferred to a family member with a customized repayment plan—sans the gift tax implications. Also, there are no concrete limitations on the family members who can be borrowers or the trusts for their benefit. With carefully structured lending— through a promissory note, for example—the borrower is able to take advantage of interest rates below those charged by commercial lenders, as the government allows relatives to pay a very low, “safe harbor” interest rate. In a parent-child relationship, the child then pays back the loan over time.
Freda’s December 27th story “IRS Shuts Down Online EIN Applications, Complicating Year-End Gift Transactions” cites John’s thoughts on the IRS’s “planned outage” of online applications for employer identification numbers, from December 27th through January 2nd. It was the publication’s most-read article of the day.
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