People commonly think of estate planning as only being relevant after you have passed, but there are many tools for transferring wealth during your lifetime. This article will summarize three ways that you can transfer wealth to your children through helping them purchase a home.
Lend money as an intrafamily loan.
- A family loan can greatly benefit family members purchasing a home because they can avoid the high interest rates that are currently market standard.
- To avoid gift tax implications, parents should formalize the loan with a promissory note and charge a minimum interest rate. See this link for the applicable federal rate:
- One common challenge is that a loan to one family member may strain relationships with other family members who were not given the opportunity for an intrafamily loan.
- Another challenge to be aware of is the complication of a intrafamily loan to a married family member who may subsequently get divorced.
- For more ideas about the benefits and drawbacks of an intrafamily loan,
Give money as a gift.
- A gift can be used outright or in the form of loan forgiveness.
- Gift tax exclusion – You can gift up to $17,00 a year to each child, and if the parent is married, both spouses could together gift $34,000 a year per child.
- The lifetime gift exemption is cumulative and applies to all recipients, and under federal life that amount is $12.92 million per person, or $25.84 million for a married couple. (Numbers scheduled to change in 2026.)
Co-sign a loan.
- Another common way for a parent to assist is to act as a guarantor or co-signer on a loan.
- This helps a child who may not have established credit and may help the child secure a better loan.
- The risk is that the parent is likely obligated under the terms of the loan if the child does not pay.
Contact an Experienced Estate Planning Attorney
If you are interested in learning more about methods and tools for transferring wealth during life or after death, contact us at the Law Office of David Knecht. We have extensive experience with estate planning and can help update an old plan or create a new one that meets your needs. Contact us today at 707-451-4502.
