Keeping Mortgage Loans in the Family

Low-interest intra-family loans can be the best way for parents to help their children purchase a property.

The strategy makes the purchase more affordable, increases the size of the home a cash-strapped purchaser can afford, and helps the parent leverage his gift to reduce a taxable estate.

The parent must charge interest at a market rate on family loans, says Ken Kilday, an adviser with USAA Wealth Management, or face IRS penalties. But parents can then take the $13,000—$26,000 for a couple—that can be gifted without eating into the gift exemption and apply it annually toward paying off their child’s loan.

Kilday also suggests that parents put in their will that upon their death, the loan be fully forgiven.

Source: Dow Jones Newswires, Taylor Smith (10/15/2009)