Intrafamily Loans: The Good, the Bad and the Ugly

There are many tools in the bag of any good estate planner, one of which is the intrafamily loan. Most planners will recommend this option, depending on a family's internal dynamics and the liquidity needs of the patriarch/matriarch. I've seen intrafamily loans work very well for many families to provide liquidity for the next generation, but I've also been involved in situations where loans lead to the breakdown of family relationships and can even put the lending generation at risk of a cash-flow crisis.

Intrafamily loans are most frequently made from Mom and Dad to one or all of their children or grandchildren. With the gift tax exemption currently at $11.58 million per