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Asset protection planning and intrafamily loans

On Behalf of | May 21, 2015 | Asset Protection |

For those in New Jersey who have amassed a significant volume of wealth, a higher level of estate planning is often required. Once wealth has surpassed the estate tax exemption amount, currently $5.43 million per individual, more complex asset protection strategies are necessary. A solution that can work for many families lies in an intrafamily loan.

An intrafamily loan is a tool by which wealthy individuals can provide their children, grandchildren or other family members with access to wealth at a very low cost. The Internal Revenue Service outlines a key interest rate that can be used within estate planning. This rate is published on a monthly basis, and in May 2015 was set at just 1.8 percent, which is significantly lower than the rates available from traditional lending sources. The IRS also publishes rate guidelines that must be met in order to avoid gift taxes. The rate limit set for mid-term loans (terms from three to five years) was 1.53 percent as of May.

So, using these guidelines, family members can make a loan to a someone within their family for a range of purposes. Loans can be used to purchase a home, start a new business venture or make a range of investments. As long as the return on those investments exceeds the rate guidelines set forth by the IRS, the proceeds are not included as part of the lender’s taxable estate and will also be exempt from the gift tax.

Intrafamily loans are just one option available to those in New Jersey who are looking for creative asset protection solutions. Each family has a unique set of assets and estate planning needs, but a customized strategy can be created to meet those needs. The first step is to schedule a meeting with an estate planning attorney who can go through the various options and answer any questions about how to preserve wealth from one generation to the next.

Source: thinkadvisor.com, “3 Estate Planning Strategies for a Low-Rate Environment“, Gavin Morissey, May 6, 2015