Photo of Professionals at Rebecca W. Geyer & Associates P.C.

Caring For Generations

First National Bank of Grandma and Grandpa

by | Jan 31, 2024 | estate and tax planning, Estate Planning, intrafamily gifts

“With interest rates rising on credit card interest and mortgage rates, more people are borrowing from their parents or grandparents, Kelly Phillips observes in the December ’23 special issue issue of Forbes.

Older relatives can use their annual gift tax exclusion ($18,000 per recipient in 2024, $36,000 if a couple makes a split gift) to offer outright help to younger family members, the author notes.. Beyond that, family loans can be made, so long as the loans are documented with signed promissory notes and so long as interest is charged on the loan at the current AFR (applicable federal rate).

At Geyer Law, while our attorneys discuss intra-family lending as an important estate planning option, particularly for high net worth clients, we are quick to point out that there are important questions and “loose ends” that clients must consider as part of the planning.

  • If a loan remains outstanding at the time the lender dies, it will be considered an asset, adding to the value of the taxable estate.
  • If your intention is to forgive the loan upon death, do you want to make bequests to other children to equalize the inheritances?
  • Advanced planning techniques, include placing assets in IDGTs (intentionally defective grantor trusts) can be considered.

When business owners decide to gift shares of their company to children or grandchildren, they may be envisioning having those beneficiaries actually come into the company to help run it. Sometimes, though, the motivation for making gifts may have less to do with “succession planning” so much as a way to help with an adult child or grandchild’s current financial needs by shifting dividend income to them (plus a share of the proceeds in any future sale of the business), while taking advantage of tax savings for the business owner.

“Like many other parents, my wife and I have helped our children financially. But, if we give serious amounts of money to the children, why not the grandchildren? If the Bank of Mum and Dad, why not the Bank of Grandma and Grandad?”, Brit Stefan Wagstyl confided in s 2021 Financial Times article.  

As our attorneys at Geyer Law work with clients’ tax advisors, realtors, and financial planners to help Grandma and Grandpa accomplish their “bank founding” goals, there is one piece of advice mentioned in Financial Times with which we heartily agree: Grandparents wanting to help their grandkids should discuss those plans with the children to avoid the risk of disputes.

– by Rebecca W. Geyer