Tapping into the "Family Bank"
An intra-family loan may help loved ones buy real estate, invest in a business, or pay down high-interest debt.
In addition, an intra-family loan is one of many available strategies that may enable families to transfer growth on their wealth without making an outright gift. Families should consult with their legal and tax advisors to determine if an intra-family loan may be appropriate for them.
However, care must be taken to structure the loan properly so that the Internal Revenue Service does not consider the transaction a gift, which could have unintended estate-planning implications.
While this may seem like a simple transaction, it can have very pronounced consequences if not done properly (and remember that in most cases, it is the IRS that will determine whether it is “done properly!”). Here's a very detailed discussion of the benefits, considerations, and potential mistakes that can complicate this seemingly innocuous transaction.