October 17, 2018
The new tax law, which took effect on Jan. 1, 2018, doubled the exemptions from federal estate, gift and generation-skipping transfer tax to $11.18 million per individual, with inflation adjustments going forward and a reversion to the base $5 million exemption (with inflation adjustment) on Jan. 1, 2026. This temporary increased exemption presents a number of planning opportunities, one of which is to forgive outstanding intrafamily debt.
One by-product of the historically low interest rate environment of the past several years is the increased use of intrafamily transactions involving promissory notes. These notes play a key role in many estate planning transactions, and their prevalence has made them a worthy target for the Internal Revenue Service. For certain clients, using the temporarily increased exemption amount to forgive these notes now could both eliminate a number of potential headaches down the line and open up some interesting new planning avenues.
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