Orange County Estate Planning Attorney Says Make Sure Family Loans Are Structured Properly to Avoid Tax Implications

8:36 pm Estate Planning, Tax Planning

loan 150x150 Orange County Estate Planning Attorney Says Make Sure Family Loans Are Structured Properly to Avoid Tax ImplicationsIn this difficult economy, the incidences of intra-family loans have increased over the past few years.  An Orange County estate planning attorney warns that those who make family loans need to be sure they are structured properly to avoid income and gift tax implications.

Here are some tips on properly structuring a family loan:

Be clear about the terms of the loan – are you giving a gift or a loan?  If it is not clear, it could lead not only to tensions within the family, but also questions from the IRS if it is really a gift subject to tax.

Document the loan – create a written agreement that spells out the terms of the loan, including repayment and interest rates.

Set an interest rate.  You will need to set an interest rate or the IRS will do it for you.  However, if the loan is less than $10,000, you will not need to charge interest.

Follow tax laws – depending on the size of the loan, lenders may be required to report income on interest earned, and could be liable for gift taxes if the loan does not meet certain criteria.  If the borrower plans to deduct the interest, the loan must be set up properly in order to do so.

Estate planning issues – if the lender or borrower dies before the loan is paid off, will the loan be forgiven?  Discuss estate planning implications with your Orange County estate planning attorney.

Help is available to you by contacting your Southern California financial planning experts today.

 

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