Houston Estate Planning and Elder Law Attorney Blog
Be prepared to demonstrate that the loan is legitimate, and that repayments are being made regularly. This documentation can also help sort matters out if the lender should die before the full value of the loan has been repaid.
If you are compelled to help out a family member by way of an intra-family loan, make sure you are aware of all the ins and outs before you extend the offer. The benefits of incorporating family loans into your estate plan were pointed out a short time ago in an article titled “Estate planning benefits of intra-family loans” on LifeHealthPro.com.
The benefits of making a loan are not immediately obvious because that means, by definition, the loaned assets are to be returned to the estate of the one granting the loan, plus interest. Yes, if you make a loan to a family member you still have to expect it back and charge interest at the federally mandated interest rate, the Applicable Federal Rate (or AFR) for the relevant time-frame of the loan. Otherwise, it is not a “loan,” but a “gift” and is subject to an entirely different set of rules.