Today I received an article from the October 3rd/4th, 2009 Wall Street Journal from a client. It was entitled “Transferring Wealth via the Bank of Mom & Dad” (written by Jason Zweig, front page of the Money and Investing Section). The topic of the article was a creative way to not only alleviate your children(s) lending needs, but also transfer wealth tax free.
With interest rates at an all time low, parents can, as an example, lend their children money for a term of nine years at an interest rate of 2.63% per year (these rates are adjusted by the IRS monthly and you should consult your tax advisor and/or attorney before pulling the trigger). If that wasn’t incentive enough, the parents could forgive up to $52,000 of the loan annually ($26,000 if the child is unmarried) without triggering current gift taxes! The parent would want to ensure that an agreement was drafted outlining the transaction including all of the key information such as principal amount, interest rate, term, payments, etc and plan on collecting the interest payments for at least one year before forgiving any part of the loan (otherwise the IRS may deem the loan an outright gift).
I want to thank my client, who is also my dad, for sending me this article. Dad if you are reading this, give me a call. As your CPA and trusted advisor, I think this would be a perfect strategy for you to implement! 
About the author: Shannon Pope is a CPA serving North Houston from The Woodlands, TX to Kingwood, TX. For more information on her background and services offered, please visit the website www.shannonpopecpa.com.
The information contained herein is general in nature and provided for informational purposes only. It is not intended or provided to constitute tax or legal advice or to be used for (a) avoiding any tax related penalties that may be imposed on you or any other person/entity under the Internal Revenue Code, or (b). promoting, marketing or recommending to another person any transaction or matter addressed in this communication. Please consult with your CPA and/or attorney regarding your specific legal or tax situation. Please contact us if you with to have formal written advice on this or any other matter.
