Promissory Note For Family Transactions Including Financed Net Gifts (2 Pages)
This document is a form of a demand Promissory Note that may be used in connection with a family transaction, including a financed net gift. Especially when interest rates are low, it is advantageous to lend money to family members taking advantage of these low interest rates. The stating of the required IRS interest rate for the duration of the loan eliminates any argument that the loan should be viewed as a below market transaction and a gift. Accordingly, parents or grandparents can loan money to children or grandchildren in exchange for a permitted low interest rate with no transfer tax consequences.
This document is a form of a demand Promissory Note that may be used in connection with a family transaction, including a financed net gift. Especially when interest rates are low, it is advantageous to lend money to family members taking advantage of these low interest rates. The stating of the required IRS interest rate for the duration of the loan eliminates any argument that the loan should be viewed as a below market transaction and a gift. Accordingly, parents or grandparents can loan money to children or grandchildren in exchange for a permitted low interest rate with no transfer tax consequences. The hope is that the children or grandchildren can, over time, invest some or all of the borrowed funds and earn more money than the required interest rate so that they will realize an economic gain from this transaction. Where the funds will not be invested by the children or grandchildren, the low interest rate and "friendly" status of the lender will permit the loan to remain outstanding for a long time while preserving the favorable interest rate. In some circumstances, the lenders may decide to forgive this loan as they so determine.
Author:
Steven G. Siegel is president of The Siegel Group, a Morristown, New Jersey - based national consulting firm specializing in tax consulting, estate planning and advising family business owners and entrepreneurs. Mr. Siegel holds a BS from Georgetown University, a JD from Harvard Law School and an LLM in Taxation from New York University.
He is the author of several books, including: Planning for An Aging Population; Business Entities: Start to Finish; Taxation of Divorce and Separation; Income Taxation of Estates and Trusts, Preparing the Audit-Proof Federal Estate Tax Return, Putting It Together: Planning Estates for $5 million and Less, Family Business Succession Planning, Business Acquisitions: Representing Buyers and Sellers in the Sale of a Business; Dynasty Trusts; Planning with Intentionally-Defective Grantor Trusts; The Federal Gift Tax: A Comprehensive Analysis; Charitable Remainder Trusts, Grantor Trust Planning: QPRTs, GRATs and SCINs, The Estate Planning Course, The Retirement Planning Course, Retirement Distributions: Estate and Tax Planning Strategies; The Estate Administration Course, Tax Strategies for Closely-Held Businesses, and Tort Litigation Settlements: Tax and Financial Issues.
Mr. Siegel has lectured extensively throughout the United States on tax, business and estate planning topics on behalf of numerous organizations, including National Law Foundation, AICPA, CCH, National Tax Institute, National Society of Accountants, and many others. He has served as an adjunct professor of law at Seton Hall and Rutgers University law schools.
The Siegel Group provides consulting services to accountants, attorneys, financial planners and life insurance professionals to assist them with the tax, estate and business planning and compliance issues confronting their clients. Based in Morristown, New Jersey, the Group has provided services throughout the United States. The Siegel Group does not sell any products. It is an entirely fee-based organization.
Contact the Siegel Group through its president, Steven G. Siegel, e-mail: [email protected].