Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Friday, August 14, 2020

Need A Loan? Tax Rules Now Let You Borrow From Family At Ultra Low Interest Rates

LoanThe coronavirus pandemic has pushed small business owners to seek for cash to keep their businesses alive and many of them are reaching out to their families for loans. These loans, with low interest rates are a lifeline. 

“People are risking their own money for their brother, sister, kids, grandkids,” says Rebecca MacGregor, an estate planning lawyer with Bowditch & Dewey in Boston, Massachusetts.

Surprisingly, the intergenerational generosity is not rare, as 71% of retirees said they would offer financial support if their family needed it due coronavirus, even if there was a possibility that it would jeopardize their own financial future.

The Internal Revenue Service has announced special interest rates, those rates are as follows:

Short-term — Three years or less: 0.17%

Mid-term — More than three years and less than nine years: 0.41%

Long-term — More than nine years: 1.12%

“You can’t get these rates at a bank! The rates are incredibly low, but the risk is incredibly high. That’s the nature of a family loan,” MacGregor says. 

See Ashlea Ebelin, Need A Loan? Tax Rules Now Let You Borrow From Family At Ultra Low Interest Rates, Forbes, August 6, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.


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Well, that's ridiculous actually -- we should not have the IRS telling us what level of interest we should use to lend money to people we supposedly love. That reminds me of Mark Salitan, a relative, who actually charged his own father rent when he bought out the apt. the old man was renting in New York City. If we want to lend money to a close relative we can charge of not charge interest, or just give it away, better yet. This is not the governments concern, what we do with our money where our relatives or friends are concerned.

Anyway, that being said, A more businesslike way of lending money to a relative, if you live in California, is to do it through a trust. The way the Commercial Loan Corp in Newport Beach does it, for example -- not $20,000 or $30,000 to a sibling... but $400,000 or $500,000 or more, to buyout a sibling's share of inherited property. A real loan... for real money. Low interest, and a fast turnaround, 5, 6 days -- with easy terms. Moreover, things, as we all know, can get very sticky with relatives when cash is involved. And going with a reliable trust lender give you Proposition 59 to work with, with Proposition 13 offering a solid foundation backing up the passing of a low base property tax rate, basically forever. And if we lose all this due to yet more poor judgement and special interest greed -- California will be very sorry, and regret the loss of our ability to lower taxes and transfer parents property taxes when inheriting property... and of course inheriting property taxes.

Our right to keep parents property taxes during all property tax transfer scenarios, regardless of the type or financial value of the property tax transfer, is near to being a religion in this state. If we lose the parent to child transfer or exemption, also referred to as a parent to child exclusion from present day property tax rates -- the level of regret when people start going broke in the middle class... will be immense and profound. So folks should all weigh in to learn more about using trust loans as a lending vehicle... and vote no on the prop 15 and Prop19. And maybe go get some cash if you are expecting to inherit property soon, between now and 2022 let's say. I'd suggest going to https://propertytaxtransfertrusts.com to get an objective all around picture if you need one. Or, you can go to a well known trust lender... an established source of trust loan funding in conjunction with CA Proposition 58, like https://cloanc.com/california-proposition-58 or https://loantoatrust.wordpress.com or apply for a trust loan, to see what happens, at https://cloanc.com/apply-online. The more we know, the smarter we get. And the way things look, with the pandemic looming over us, unemployment out of control, and the economy in California about to spiral downward if these property tax measure pass -- we need to be as smart as possible going forward.

Posted by: Geoffrey Sadwith | Oct 10, 2020 3:45:39 PM

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