What are intra-family sales and loans?


Intra-family sales and loans are an interesting way to move assets and wealth within a family. We are currently in a very low-interest rate environment. The IRS gives us rates every month that are called the Applicable Federal Rates, which are the minimum rates that can be charged in intrafamily transactions. For example, currently, the Applicable Federal Rate for transactions, loans for zero to three years is less than 1%. For transactions three years to nine years, it’s a little more than 1%. And for any transaction over nine years, even up to a 30-year mortgage a parent would create for a child, the rate is a little over 2%, just under 3%. Well, those types of intrafamily loans are a significant way to move wealth between generations at a very low transfer cost.

Note: The Tax Cut and Jobs Act of 2017 signed into law in December 2017 increased the exemption amounts mentioned in these videos. The personal estate, gift, and generation-skipping tax lifetime exemption was increased to $11.18 million per person. The annual gift tax exclusion was increased to $15,000 per donee per year.

Both amounts are indexed for inflation and may increase year over year until December 31, 2025, when the law sunsets and reverts to 2017 values