Bank of Mom and Dad Offers Great Rates
Bank of Mom and Dad Offers Great Rates

Banks are criticized for inadequate loans and for making too much profit. While some of these claims are dubious, there is one bank that undeniably offers very low-interest rates with potentially high loan capacity: Mother and Father Bank.

Lending money to children, both teenagers, and adults, is a valuable way to increase family wealth, provide opportunities and avoid burdensome gift and inheritance taxes. With both interest rates and asset values ​​low, now is a good time to consider low-interest family loans.

Tax Regulations

Under the current law, 2010 does not have a land tax. However, in 2011, the release rate will return to the 2001 level of $ 1 million. So, even though inheritance tax is no longer applicable, you don’t have to rely on a tax that remains that way.

The amount that you can pass to heirs tax-free before your death is also limited. Each year, an individual taxpayer can give only a limited amount to any other individual (including their child) without having to report the gift. For 2010 the cap is $13,000. Gifts beyond that amount count toward a lifetime limit on tax-free gifts, set at $1 million. Prizes above the $ 1 million lifetime exception will be subject to the gift tax. In 2010 the highest prize tax rate was 35 percent.

Family Loans

Family loans offer a way to reduce or avoid this inheritance gift and tax. It works like this: A parent gives a loan to a child, which can then be invested by the child, who tries to earn more than the annual interest he pays. If the parent had invested the money directly, those gains would belong to that parent and could potentially be subject to estate or gift tax when passed on to the child. Instead, using the loan strategy, …