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This is a good time to make family loans

With interest rates at historic lows, this can be a good time to make loans to your children so they can buy a home, start a business, or invest.  Giving your children an outright gift can subject you to the gift tax, but giving your children a loan doesn’t have any effect on estate or gift taxes as long as your children pay you back at an interest rate set by the IRS.  Right now, the IRS rate is extremely low- and considerably lower than the rate banks usually charge for a mortgage or business loan.

In effect, the difference between what your children pay you in interest and what they would have to pay the bank amounts to a completely tax free gift from you.  Plus, any appreciation in their investment is an additional gift on which you don’t have to pay a gift tax. This can be an especially good idea for children who would have trouble getting a bank loan because they don’t have a good credit score, don’t have sufficient credit history or don’t have enough of a down payment for a home.

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