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What are the benefits of intra-family loans?

You understand that the IRS limits the amount on the gifts you want to give to family members as you carry out your estate plan in Minnesota. It is important to preserve as much of your wealth as possible, though, and you want to help your children and grandchildren get established now. An intra-family loan may be just the estate planning technique you need.

The National Law Review explains that you must charge the federal minimum interest rate in order for all of the money to be considered a loan and not a gift. This interest rate is determined by the U.S. Treasury Department, and it changes frequently. Your child, grandchild or other family member needs to be able to invest the money and earn more from the returns than is owed to you in interest to keep that excess amount without paying gift taxes. 

By loaning money to your beneficiaries, you are keeping all of that interest they are paying out of the hands of financial institutions. The interest rate you are able to give them is much lower than they would probably be able to qualify for otherwise, particularly if they have poor credit or do not have an adequate credit history. Even if your child qualifies for a good rate when seeking a mortgage loan, it is likely to be more than double the applicable federal rate of your loan. 

Interest rates, gift limits and other factors fluctuate, as do estate planning laws; therefore, this educational information should not be interpreted as legal advice.

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Dunlap & Seeger, P.A.
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Rochester, MN 55904

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