| 2011 federal law taxes estates exceeding $1 million for | | | | investments purchased with an intra-family loan in 2010 |
| an individual or $2 million for a married couple at as | | | | will appreciate more than the loan's cost. |
| much as 55 percent. Any gift to an individual of more | | | | The rate for a three year intra-family loan made in |
| than $13,000 in any given year may also be taxed as | | | | January 2010 is currently 0.57 percent. The rate is 2.45 |
| much as 45 percent with the exception of a $1 million | | | | percent for a loan of three years to nine years and |
| lifetime exclusion per donor. For any individual | | | | 4.11 percent for a loan of nine years or more. These |
| concerned about these tax consequences, intra-family | | | | rates compare favorably with an average rate of |
| loans can be used for estate planning purposes, since | | | | 10.55 percent for a personal bank loan and 12.51 |
| any realized gains will be treated as free of all estate | | | | percent for a credit-union loan. |
| and gift taxes. | | | | Parents can loan their children money to buy a |
| During our preliminary consultation with all of our estate | | | | business and the children can repay the loan using |
| planning clients, our firm will determine if our client is | | | | profits from the firm. Any future appreciation or |
| subject to the estate tax and if they can use | | | | income derived from the business beyond the loan |
| intra-family loans to reduce the value of their estates. | | | | amount are then considered part of the children's |
| The appreciation of any investment made with the | | | | estate and the parents' estate remains protected. |
| loan accrues outside of our client's estate, as long as it | | | | Moreover, any amount above the 1.65 interest rate will |
| is above the IRS rate. Rates for intra-family loans | | | | pass to the children free of all estate and gift taxes. |
| have declined as much as 53 percent since 2008. | | | | Family members should be aware the loans must be |
| Since the interest rates are low and most asset | | | | repaid in full with interest at the rate specified by the |
| values -such as stocks and real estate- are | | | | IRS. If the borrower doesn't repay, it may be |
| depressed, there is a much greater possibility that any | | | | considered a gift subject to the gift tax. |