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Lending Money as an Estate Planning Tool - Is it Right for You?

Lending Money as an Estate Planning Tool - Is it Right for You?

Is your high net worth contributing to your estate planning anxiety? The Law Offices of James C. Shields can help you to explore the options available to avoid the loss of your hard-earned money to Estate Taxes upon your death. One of those options is lending money as an estate planning tool.

As noted here, lending money within your family can effectively move assets from your estate, while at the same time providing your trusted beneficiaries with funds for whatever purpose they see fit. Loans could be used for investments, school expenses, or purchasing a home, for example. The interest rate required by the IRS for this purpose is lower than prevailing market rates, making this option favorable to your borrower as well, and keeps interest within the family, rather than being paid out to a banking institution.

For example, your borrower can also use this lower interest rate and invest the funds for a return at a higher interest rate, thereby creating an advantageous situation for themselves and providing you, the lender, with the security that the funds will be paid back. Upon your death, the only taxable funds associated with your estate will be the unpaid loan balance and the accrued interest. Whatever the asset that is acquired by the family member with the loan proceeds, if the value of that item is higher than the interest rate of the loan, equity is created for the beneficiary. Lending in this manner gives you the assurance of a transfer of wealth without the tax ramifications associated with a gift from an estate.

For further information on lending and other estate tax planning strategies, contact one of our experienced attorneys today to set up a consultation to discuss your personal estate tax planning needs.