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Intra-family loans for the purchase of real estate vs intrafamily trusts and fiduciary loans

By on July 20, 2021 0

Intra-family loans, to buy a house or other important items, are sometimes confused with intra-family trusts involved in the purchase of a sibling inheriting a property, or multiple beneficiaries who have inherited the property from their parents but wish to sell their ownership shares to an outside buyer, keeping the property base low or a loan to an irrevocable trust which is also associated with the exclusion of land revaluation.

The components of these processes have been discussed at length on a number of premium websites, such as National exam which informs us in no uncertain terms, that:

“… many clients use intra-family loans to help a relative buy a home, finance a business, or invest in some other asset. If structured well, intra-family loans also provide clients with an excellent tax planning strategy. To prevent part of an intra-family loan from being considered a gift for tax purposes, a client should follow specific guidelines, including charging a minimum interest rate, documenting the loan, and demanding payment on the terms of the loan. ready.… “

As well as the ever popular economics bible for serious finance students, Kiplinger – where they tell us: “Intra-family loans generally use AFR (Federal Applicable Rate), the lowest interest rate that can be applied to a loan so that it is not considered a gift. The IRS has three rate levels for the three different “terms” of loans: a short term loan (0-3 years), a medium term loan (3-9 years), and a long term loan (9 years). or more ). “

If you think about it seriously, you will inevitably come to the conclusion that it makes very little sense to involve the government in family loan matters. In fact, it does not make sense to involve the government in personal matters – financial or otherwise.

Let’s say you borrow $ 250,000 from your wealthy dad – and pay it back every time you pay it back, usually interest-free, if that sounds like close family from a distance. If your father goes so far as to charge you interest, it is none other than yours, between the two of you, as to what the interest might be, or if there is even interest. , which is usually not when it comes to internal family loans.

While the concept of involving the government in family relationships and intra-family loans is counterintuitive, California Intra-Family Trusts, Irrevocable Trust Loans, and the Exclusion of Land Reassessment are processes unlike any other tax break. or funding elsewhere in the United States. – and are extremely useful both to trust lenders and beneficiaries inheriting property from family members, with regard to the establishment of a reduced land base, as well as the repurchase of land shares inherited from co-beneficiaries.

This process addresses interesting but often difficult areas when used to resolve disputes and disputes over property inherited from beneficiaries – typically regarding the retention or sale of property inherited from parents.… In addition to enabling new ones. owners and beneficiaries inheriting the property to take advantage of tax breaks under Proposition 19, transfer of property tax from parent to child on an inherited house; and parent-child exclusion from property reassessment on every parental property tax transfer and sibling transfer of property through loan financing in trust; as well as proposal 19 transfer of ownership and Proposition 13 to avoid the reassessment of the property tax when you inherit property taxes, always with the option of keeping your parents low tax base for trust beneficiaries, essentially forever.

Therefore, if you live in California and inherit a house and / or land from a recently deceased relative – and prefer to keep your parents’ tax rate low in addition to requesting an exclusion from real estate revaluation, as well as buying out siblings who insist on selling to an outside buyer – you can always turn to a reliable, trusted lender to accomplish all of the above.

In addition, it ensures that siblings you are in conflict with, who intend to sell their inherited property shares, that they will receive a lot more money in the transaction than any outside buyer would give them for their shares. of ownership… ending in a win-win transaction for all parties involved.

However, let’s be clear on one thing – it’s an intra-family trust that you will be dealing with – not an intra-family loan.

Removing certain taxes is something the CA Legislature can control to reduce the current financial pressure on middle class Californians. Income taxes and sales tax pose greater political hurdles at the review stage, and payroll taxes to a large extent fund Medicare and Social Security – therefore California would do well to carefully consider the reduction or suspension of property taxes, until the pandemic lifts and has returned to normal to some extent.

The California legislature proposing tax deferrals for a few months won’t help the state if thousands of homeowners are about to be foreclosed and evicted – and therefore pay no property taxes afterwards; as an example of non-taxation without which the government will survive for a year or two. The suspension of property taxes would not significantly bother California.

Certainly reducing or eliminating property taxes makes sense for struggling homeowners statewide. Insist that all property taxes be paid, no matter what is a bad answer right now, as long as the Covid crisis continues to cause closures, mass unemployment, widespread underemployment and health problems without previous.

If suspending property taxes is not a realistic possibility, then the state government would be wise to devote more time and energy to educating the public about the property tax relief available to them, for example on how to continue to benefit from Proposition 58, as well as Proposition 13, and who and how people can use Proposition 19. Communications on this to educate the public in California are not as strong as they are could be.

Increased and easy to understand dissemination of information on proposal 13 and proposal 58, as well as proposal 19 and transfer of property tax from parents to child on an inherited house. This would help Californians take more advantage of the CA sibling transfer of ownership in conjunction with Proposition 19; familiarize yourself with parent-to-child inheritance rights – taking advantage of each key tax break … establish an exemption from paying property tax rates in effect upon inheritance or transfer of a primary residence, within 12 months.

More residents should be exposed to information about obtaining a loan in trust, to take advantage of a transfer of property between CA siblings in accordance with proposition 19, to be able to lock in a weak Proposition 13 property tax base – by redeeming the property tax shares inherited from siblings without a problem, plus equal distribution, in fact for more money than an outside buyer would offer, for heirs who want to sell their inherited property shares.

. All of these cuts would help California help residents spend less in taxes, if not implement full withholding on property taxes until the pandemic is completely under control and life returns to normal in California. and all over America as a whole.


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