Intra-Family Loan

Intra-Family Loan

by Richard C. Wilson & Family Offices Group Association Team

Family Office Definition: Intra-Family Loan

Intra-Family Loan definition:  Intra-family loans are loans made to family members at low or no interest rates.  IRS code 7872 discusses taxation of intra-family loans.  Intra-family loans are a viable wealth-transfer strategy in low interest rate environments when the AFR is a low hurdle rate to avoid gift taxes.  When the borrowed funds are reinvested, the wealth transfer is enhanced by the appreciation of the invested funds.  Since the loan remains in the donor’s estate, an intra-family loan is not exempt from estate taxes, but it is fixed at the unpaid loan balance. A formal loan document, appropriate interest rate at or above AFR, and regular loan payments are all important to avoid the loan from being considered a taxable gift.

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