Intrafamily Loans: The Good, the Bad and the Ugly

Before you lend a family member money, make sure you understand how these loans work. There's a minimum interest rate that must be charged, for example. And examine some pitfalls that can make these loans perilous.

(Image credit: kutay tanir)

There are many tools in the bag of any good estate planner, one of which is the intrafamily loan. Most planners will recommend this option, depending on a family’s internal dynamics and the liquidity needs of the patriarch/matriarch. I’ve seen intrafamily loans work very well for many families to provide liquidity for the next generation, but I’ve also been involved in situations where loans lead to the breakdown of family relationships and can even put the lending generation at risk of a cash-flow crisis.

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David E. Redding, CTFA, AEP
Market President, Argent Trust Company

David E. Redding, Market President and Senior Wealth Advisor at Argent Trust Company, helps clients navigate the complex world of estate planning, trust administration, wealth transfer and closely held business strategies. His 30 years of experience in the industry give him a depth and understanding to tackle real life problems faced by high net worth families as they plan for the transition of business interests and wealth to future generations.