Intra-Family Loans

An intra-family loan can be a simple and effective estate planning tool for wealthy parents to transfer assets to their children without gift tax implications. These loans can be made at interest rates lower than those available for commercial loans because children can borrow from parents and grandparents with interest payable at the applicable federal rate. This article covers loan basics for income and gift tax purposes with an emphasis on transactions common in the family context. Additionally, income and gift tax consequences of debt forgiveness is addressed as many intra-family loans are later pardoned.