• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Parman & Easterday

Oklahoma Estate Planning Attorneys

Call Now: (405) 843-6100
(913) 385-9400

Attend a Webinar - OK Attend a Webinar - KS/MO
  • Home
  • Our Firm
    • About Our Firm
    • Attorney and Staff Profiles
    • What Our Clients Say
  • Estate Planning
    • Asset Protection
    • Estate and Gift Tax Figures
    • Estate Planning Services
    • Family-Owned Businesses & Farms
    • Financial Planning Assistance
    • IRA and Retirement Planning
    • Legacy Planning
    • LGBTQ Estate Planning
    • Pet Planning
    • Powers of Attorney
    • Probate
    • SECURE Act
    • Special Needs Planning
    • Trust Administration and Probate
    • Young Families
  • Elder Law
    • Coping With Alzheimer’s
    • Elder Law
    • Emergency Medicaid
    • Guardianship & Conservatorship
    • Hospice Care
    • Medicaid Planning
    • Veteran’s Benefits
  • Resources
    • Asset Protection Worksheet
    • DocuBank
    • Elder Law
      • Elder Law & Medicaid Definitions
      • Elder Law Reports
      • Elder Law Resources
        • Edmond Elder Law
        • Oklahoma City Elder Law
        • Overland Park Elder Law
        • Yukon Elder Law
      • Medicaid
      • Nursing Home Resources
    • Estate Planning
      • Estate Planning Checkup
      • Estate Planning Definitions
      • Estate Planning Reports
        • Advanced Estate Planning
        • Basic Estate Planning
        • Estate Planning for Niches
        • Trust Administration
      • Incapacity Planning Definitions
      • Is Your Estate Plan Outdated?
      • Top 10 Estate and Legacy Planning Techniques
    • Free Estate Planning Worksheet
    • Free Seminars
    • Frequently Asked Questions
      • Estate Planning
      • Elder Law
      • Frequently Asked Questions for Families Without an Estate Plan
      • Legacy Wealth Planning
      • LGBTQ Estate Planning
      • Probate
      • Trust Administration
      • Trust Administration & Probate
      • Wills and Trusts
    • Newsletters
    • Probate and Trust Administration
      • Bereavement Resources
      • How to Know if You Need Extra Help With Your Grieving
      • Loss of a Loved One
      • Probate Checklist
      • The Mourner’s Bill of Rights
      • Things You Need To Do When a Loved One Passes Away With a Trust
      • Things You Need To Do When a Loved One Passes Away With a Will
      • Trust Administration & Probate Definitions
    • Probate Resources
      • Leawood Probate
      • Midwest City Probate
      • Moore Probate
      • Oklahoma City Probate
      • Overland Park Probate
    • Published Books
    • Pre Consultation Form
  • Communities We Serve
    • Kansas
      • Johnson County
        • Fairway
        • Mission
        • Overland Park
        • Prairie Village
        • Shawnee
      • Wyandotte County
    • Oklahoma
      • Edmond
      • Midwest City
      • Moore
      • Norman
      • Oklahoma City
      • Yukon
  • Reviews
    • Our Reviews
    • Review Us
  • BLOG
  • Contact Us
Home » Estate Planning » Low-Interest Loans: An Estate Planning Technique

Low-Interest Loans: An Estate Planning Technique

July 1, 2020 by Courtesy of Parman and Easterday

The coronavirus has caused upheaval in society and the economy. But, this unique time also opens up opportunities in estate planning. Read on to learn more.

by Steve Hartnett

CoronavirusThe novel “coronavirus” (also called “SARS-CoV-2”) causes the disease “COVID-19.” It first appeared in late 2019 and was reported to the World Health Organization (WHO) on December 31, 2019. Here’s a link to the WHO’s site for the latest global information. COVID-19 has impacted the lives of millions of people and countless events around the world.

The coronavirus has caused an unprecedentedly steep increase in unemployment and has roiled stock markets around the world. The resulting low-interest rates open the door to unique estate planning opportunities.

The IRS sets the “Applicable Federal Rate” or “AFR,” which is the rate the Service determines is the going interest rate. As long as you charge at least that rate, you will not be deemed to have made a gift in charging the interest rate. The AFR is set in the middle of the month for the next month. The AFR for May 2020 is historically low. Those rates are .25% for a loan of up to 3 years, .58% for a loan term of 3 to 9 years, and 1.15% for a loan over 9 years duration. The rate for certain estate planning transactions, such as life estate and remainder interests, is .8%.

One common way to help loved ones without using any lifetime exclusion is by lending money at a very low-interest rate. If you charge no interest, then (with an exception for small loans between individuals), the Service will deem that the borrower paid interest to the lender and the lender gave it back to the borrower. This would cause taxable income to the lender and a taxable gift by the lender. (In a future article I’ll examine these so-called “gift loans” under Section 7872.) A loan at the AFR faces no such imputation of income or a gift.

Let’s look at an example: John lost his job due to the coronavirus pandemic. He had a good job at a major retailer that had to close due to stay-at-home restrictions. As a result, John is considering moving his family closer to his mother, Mary, as she’s getting older and needs more help as she ages. Mary has excess funds and decides she wants to benefit John. She wants him to have a good start and wants to make it easier for him and his family to move closer to her. She doesn’t want to use any of her gift tax exclusion as she has other uses for it. She lends John the money for his house, charging interest at the AFR, 1.15% for a 30-year loan (in the month she lends the money). She also lends John money to start a new business. This helps John immensely. He doesn’t have a job and will be moving to a new city. He would have had difficulty qualifying for a loan. Even if he could have gotten a loan, it would have been at a much higher interest rate.

Mary was able to provide a real benefit to John. This helped make it possible for John (and her grandchildren) to move closer to her. It allowed John to save money on his mortgage and business loan. It allowed Mary to help John without using any of her exclusion. It also allowed her to slow the increase in the size of her taxable estate.

This transaction worked to benefit both Mary and John. It allowed John and his family to move closer to Mary and for them to become even closer, both geographically and personally.

This pandemic is difficult, but we can get through this get through…together!

Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
www.aaepa.com

  • Author
  • Recent Posts
Courtesy of Parman and Easterday
Latest posts by Courtesy of Parman and Easterday (see all)
  • “Last Will and Testament” Origin - April 7, 2021
  • Beneficiary Designations and the SECURE Act Basics - March 17, 2021
  • Updating Your Plan Part 3: Beneficiary Designations - March 3, 2021

Filed Under: Estate Planning, Legal Education Tagged With: Coronavirus, Covid-19, Estate Planning, loans

Other Articles You May Find Useful

estate planning
Estate Planning: It’s Simpler Than You Think
“Last Will and Testament” Origin
estate planning
You Should Have These Estate Planning Documents
Oklahoma estate tax
Is There a State Estate Tax in Oklahoma?
Dynasty Trusts
beneficiary
Beneficiary Designations and the SECURE Act Basics

Primary Sidebar

Parman & Easterday, LLP

DOWNLOAD OUR FREE ESTATE PLANNING CHECKLIST

There's a lot that goes into setting up a comprehensive estate plan, but with our FREE worksheet, you'll be one step closer to getting yourself and your family on the path to a secure and happy future.

Subscribe to Our Blog

Follow Us

  • Facebook
  • LinkedIn
  • Twitter
  • YouTube

Where We Are

OKLAHOMA CITY, OK
13913 Quail Pointe Drive, Suite B
Oklahoma City, OK 73134
Phone: (405) 843-6100
Fax: (405) 917-7018
parman_sidbr_map

Where We Are

OVERLAND PARK, KS
10740 Nall Avenue, Suite 160
Overland Park, KS 66211
Phone: (913) 385-9400
Fax: (913) 385-9422
parman_sidbr1_map

Office Hours

Monday9:00 AM - 5:30 PM
Tuesday9:00 AM - 5:30 PM
Wednesday9:00 AM - 5:30 PM
Thursday9:00 AM - 5:30 PM
Friday9:00 AM - 5:30 PM

Footer

footer-logo

The information on this Oklahoma and Kansas Attorneys & Lawyers / Law Firm website is for general information purposes only. Nothing on this or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. This information on this website is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.

Privacy Policy | Contact Us | Disclaimer | Site Map | Powered by American Academy of Estate Planning Attorneys


© 2021 American Academy of Estate Planning Attorneys, Inc.
  • Facebook
  • LinkedIn
  • Twitter
  • YouTube