The Intra-Family Loan, A Tax & Estate Planning Tool Many Don’t Know About

TheIntra-Family Loan is a tax and estate-planning tool that many estate plannersdo not know about. As a result, it is not used often. The idea of an Intra -Family Loan is an older generation serving as a lender of cash or other assetsto a younger generation serving as the borrower. Typically, the loan is cashand the understanding is summarized in a promissory note. The Intra – FamilyLoan is less complicated than many other advanced estate planning tools. Thistype of loan could allow a borrower to pay the interest and principal afterdeath by using life insurance as payment.

The interest rate for the loan shouldbe equal to or greater than the minimum Applicable Federal Rates (AFR) to avoidtax regulations. According to JDSupra.com, a long-term loan, classified as anine year period or more, cannot have an interest rate lower than 2.63%.JDSupra.com continues to explain the advantage of an Intra- Family Loan”the idea that if you can borrow money at the long-term AFR and earn aninvestment rate of return on a tax-advantaged bas in excess of the long-termAFR, outside of the taxpayer’s estate, the taxpayer wins by a landslide.”Currently, interest rates are low which makes the Intra-Family Loan a tool thatcan come in handy for tax and estate planners. Additionally, the Intra-family loan maybe a more manageable tool than other related options because of its simplicity.

See Gerald Nowotny, The Family Loan Shark-Leveraging The AFR In The Taxpayer’s Favor Intra-Family Loans And Private Placement Insurance Products- Part 1, JDSupra.com, Mar. 13, 2013.