Have We Been Doing It Wrong All This Time?Have We Been Doing It Wrong All This Time?

As most estate planners know, intrafamily loans, including loans to intentionally defective grantor trusts (IDGTs), offer a straightforward and efficient way to transfer wealth within a family. There are several benefits to such loans, not least that they can be extended at what are effectively below-market interest rates. Intrafamily loans are also versatile in terms of structure. They allow, for example, interest-only balloon payments at the end of the loan term, amortization of principal and interest over the term or lump-sum repayments at the loan’s maturity. As transactions between family members are subject to heightened scrutiny and presumed to be gifts,¹ any intrafamily loan should be documented and treated in a manner consistent...