How to Help Family Members Buy a Home with Intra-Family Loans and Other Solutions

June 06, 2023
Wealth Planner Peter Moshang covers considerations for those looking to help family members buy a home.

Motivations and methods for helping a family purchase real estate are varied and deeply rooted in our personal value systems. For some, perhaps this form of support was provided to them and is viewed as a natural and expected familial contribution. Others may view it as a way to help provide financial stability and/or remove financial obstacles for those they care about most, recognizing the plethora of competing financial priorities that exist today. Or maybe it’s just as straightforward as wanting to help simplify an otherwise complicated process. Irrespective of the reason, the menu of options available to those providing assistance looks quite similar.

In their most simplified forms, providing support for a home purchase can fall into two primary categories: financial (tangible) and emotional (intangible). The most obvious, and perhaps easiest, way to help is with financial support. Determining the best way to provide this support, however, can be trickier. On the other hand, emotional support can prove just as valuable as dollars and cents yet equally as challenging to apply. Evaluating the advantages and potential drawbacks of each approach can help ensure your family gets the best return on your investment, which may not always be monetary.

Financial Support

Whatever your intention, before you agree to provide financial support – directly or indirectly – understanding the options available and their implications is vital. Utilizing cash or entities within your family’s wealth plan, structuring private loans, and getting creative with ownership structure are some opportunities you may look to for the purchase.

Perhaps the simplest approach of all, providing a lump sum cash payment allows for immediate liquidity, limited complications, and maximum flexibility. In reviewing this as an option, consider your source of funds, how it may affect your personal tax situation, and your timeline for gathering the necessary amount of cash.

If your family member will be securing a loan in addition to your lump sum gift, allow adequate time for not just the transfer between your respective accounts, but also the necessary documentation to support their source of funds. In the likely event your lump sum gift exceeds the annual gift tax exclusion amount of $17,000 per person, be sure to coordinate with your accountant and file the appropriate gift tax return (Form 709) to accurately track your total lifetime gifts.

While easy, cash is not always the best strategy. You can also help your loved one before purchase or during repayment by accessing your personal balance sheet or indirectly tapping into another entity within your estate plan that could provide an income source, a lump sum distribution, or an ideal structure for property purchase.

For example, you (or perhaps another family member) may have previously created and funded an irrevocable trust that specifically allows for distributions of principal to your loved one for a home purchase. If the distribution provisions and total funds available within the trust align, this could be an ideal source of capital for the purchase. In weighing this option, evaluate the current cash on hand in the trust, total value of the trust in relation to the total anticipated withdrawal, and any tax implications involved. Given that the trust will be the owner of the home, it will need access to sufficient assets after the purchase to maintain the carrying costs of the home to avoid a cash flow issue.

If cash needs to be raised to make the necessary distribution and selling assets to do so will incur a relatively large amount of capital gains, you may look to explore other options. Similarly, evaluate the long-term effects of making such a distribution from the trust, particularly in relation to the grantor’s intention at creation. If the distribution would deplete the trust to a point where its long-term ability to grow, generate income, or otherwise provide for your loved one is affected, there could be other options worth exploring. You’ll also need to check with the current trustee(s), so be sure to include all relevant parties early in the discovery process.

Alternatively, a trust currently in existence may be able to purchase and own the home itself or be used as collateral to borrow funds for the purchase. Owning a home within a trust can be an attractive option from a long-term estate planning perspective. Since the home is owned by a separate entity and not the family member directly, it is not only removed from their estate for estate tax purposes, but also protected from creditors and divorce settlements. Including the trust in this transaction will naturally add more layers to the process (both now and ongoing), though this added complexity may be a small concession to make depending on the items being deliberated and balanced.

You might also consider supporting your family member’s purchase through an ongoing income stream during their mortgage repayment. Investigate whether entities currently within your family wealth strategy can be used to provide recurring income to cover the myriad expenses of home ownership (for example, mortgage payments, taxes, maintenance, etc.). Entities to look to could include, but are not limited to:

  • Family limited partnerships (FLPs)
  • Irrevocable trusts with provisions to “sprinkle” income to beneficiaries
  • Ownership within a family business

In evaluating the possibilities, be sure to include your wealth planner, tax advisor, and/or legal counsel to help you strategize and tailor a solution to meet your objectives. This approach could introduce new or increased income taxes to you and your loved one and is worth exploring in more detail with trusted professionals prior to moving forward.

The Intra-Family Loan

Beyond your current balance sheet and estate plan, one very interesting option emerges: the intra-family loan. This strategy allows you to loan any amount of funds to your family member with a simple agreement that includes the terms for repaying the loan, known as a “promissory note.” The note’s terms are flexible and can be decided by you, for example:

  • An interest-only loan for a certain number of years
  • Forgivable at your death, with the note being paid back by reducing an eventual inheritance
  • Total length of the note at your discretion

The only thing that must be present with this strategy is the application of the IRS-prescribed interest rate.

Released each month, the applicable federal rate (AFR) is the minimum interest rate one must charge on noncommercial loans to ensure it is not considered a gift by the taxing authorities. The rates are set in three separate blocks – the short-term AFR, the mid-term AFR, and the long-term AFR – according to length of the loan:

  • Short-term loan: Up to three years
  • Mid-term loan: Between three and nine years
  • Long-term loan: More than nine years

The AFR rates tend to be markedly lower than any other conventional loan one could secure. It’s also worth noting that, like virtually every other type of loan, intra-family loans can be refinanced if the AFR falls to a level below where your note was originally executed.

Aside from the very real benefits of avoiding gift tax or use of the gift tax exemption, intra-family loans are incredibly simple to complete and can be customized for your specific circumstances. Keep in mind that legal counsel should be engaged to properly draft the promissory note, and any interest payments you receive (or imputed interest you are entitled to) are considered taxable income.

Co-Owning Property

Exploring various ownership structures and strategies could also provide an interesting solution. While co-owning property with a family member is not a decision that should be entered into lightly, sharing ownership can help on multiple fronts:

  • It can partially solve the total amount of capital needed, splitting it among two or more people.
  • It can provide you a natural voice if this is something you’d like to have greater decision-making authority in.
  • It can potentially help grow your personal balance sheet if the investment opportunity pays off.

Of course, this dynamic can also open the door to a bevy of communication and control struggles, garner a considerable and unanticipated amount of your time, and potentially open you to liability. Needless to say, while co-ownership can be a useful strategy for assistance, it should be considered carefully in its execution.

Sales to Family Members         

In a similar vein, purchasing the home and then selling it to your family member could combine ownership and loan strategies. This could be an attractive option in a difficult buyer’s market, especially if an all-cash bid is advantageous, the family member has an unfavorable credit score, or you and your family member simply do not want to go through the financing process. After the initial purchase is complete, the final owner could secure their own third-party financing to purchase the property from you, or you could provide them with an intra-family loan.

The same considerations for any other intra-family loan would apply. However, keep in mind another bonus that comes with intra-family loans: forgiveness of the debt, which allows you to forgive interest and/or principal over time utilizing the annual gift tax exclusion amount. This provides an attractive option to simultaneously help family while avoiding the use of additional lifetime exclusion. Sales to family members are typically more heavily scrutinized and have the potential to introduce various gift tax implications to the outcome. As such, engaging the proper advisors (real estate, legal, and otherwise) should be a natural part of this process.

Emotional Support

While a great deal of focus is generally placed on the financial end of things, keep in mind that there are many other intangible ways you can support your loved one throughout their home purchase process. In fact, these “softer” offerings could prove just as valuable as helping with purchase power. For even an experienced buyer, purchasing real estate can be tedious and time-consuming at best. At worst, the home buying process can be overwhelming as well as emotionally and financially draining.

One of the most effective ways you can help is to simply be present, acting as a sounding board for your family member to voice their concerns and navigate issues that may arise. To this end, your own personal insight could prove extremely useful and much appreciated – just be sure it is delivered mindfully and desired at the moment.

Create a roadmap for what to expect to alleviate pressure or confusion:

  • Share any personal pitfalls.
  • Explain how the process works.
  • Prepare for homeownership (expenses, maintenance, etc.).

Since virtually all properties require some sort of customization to turn a new house into a home, lending a helping hand in the renovations and/or decorations could prove quite useful as well. Whether you give your personal time and expertise in painting or reframing walls or provide referrals to trusted professionals, helping family members settle into their new space is a simple, yet invaluable, way to be of service.

It’s best to voice suggestions at request so as not to commandeer the new space as your own. Your ability to step back and support the homebuyer in their own decisions – without advocating for your personal vision or preferences – is essential to empowering them and encouraging accountability in their tremendous new endeavor. At the end of the day, a mutual understanding and expectation of partnership above all else can go a long way.

Setting the Stage for Success

Whether you have decided to loan your family member money, co-own a property, or take an entirely different approach, one theme persists in all decisions to maximize success: effective communication. Financially engaging with family can add unnecessary personal and emotional complexity if left unchecked. Before offering financial assistance to your loved one, take some time to think through your approach and set your own limitations.

  • How will they react to your offer?
  • Will they navigate the process better with your direct involvement or under the guidance of a third party?
  • Is this something you will need to disclose to other family members or that you feel you should discuss more broadly before any support is given, financial or otherwise?

Consider the following as you frame your approach and open a dialogue with your loved one:

Involvement: While your involvement can take any form you desire, ask yourself: How much do you truly want and need to be involved, and is there a difference between the two? Identifying your comfort level for involvement and aligning it with your offered support can help ensure unanticipated tensions fizzle before flaring.

Collaboration: If instilling accountability or providing a short-term financing bridge to your loved one is one of your goals, defining the obligations and expectations upfront can go a long way to minimizing misunderstandings, avoiding feelings of hurt or inequity, and ensuring a smooth relationship throughout the transaction.

If your assistance comes with an expectation for some form of repayment, be sure to have everything properly documented – and don’t forget to involve your family member in this process. Make sure they understand the terms of repayment, that you understand your options within this arrangement, and how you and your family member will navigate any unexpected derailments to repayment. Setting the stage early and engaging in honest, open dialogue on how you are defining “help” provides a level playing field.

Family Dynamics: Reaffirming your personal values for gifting and wealth transfer within your family is a natural part of this process. Consider any precedents that have been set with prior financial help, your feelings on whether this approach still seems appropriate, and if equalizing with other family members is an expectation, a preference, or both. Once these items have been examined, consider sharing your thoughts and approach with any relevant parties. Again, communicating early, often, and proactively can help ensure everyone involved is truly heard.

Items of Note

In the event your personal estate exceeds your remaining lifetime exemption, reducing the total value of your estate now has the potential to reduce the ultimate tax burden imposed at your passing. As long as it aligns with your objectives, anything you can do to reduce your taxable estate through gifting can be advantageous.

If you’re comfortable providing financial assistance, be prepared to do some paperwork. When providing cash in the form of a gift, you will likely be requested to confirm the gifted funds are in fact a gift. If funds are being accessed from a separate trust or entity, a request for a “proof of funds” letter is common to ensure there are sufficient funds for the purchase.

Each of the strategies could necessitate the filing of a gift tax return, income and capital gains considerations, and the synchronization of multiple entities. In all cases, be ready to help coordinate the involvement of third parties such as trustees, accountants, and legal counsel.


No matter what option seems most appropriate and advantageous, always be sure to review your personal financial situation prior to offering any monetary assistance. Understanding how your generosity will impact your own financial well-being can help bring more joy and peace of mind to the entire process.

As always, your Brown Brothers Harriman team is here to partner with you to help navigate this decision and evaluate alternatives. Reach out to see how we can help.

Contact Us

Up Next
Up Next

The Piggy Bank Moves to the Cloud: Teaching Kids About Money in the Digital Age

CW&W Executive Director Adrienne Penta and BBH Relationship Manager Beth Milkovits explore the complexity of teaching the value of digital currency in a time where we increasingly store and spend money online and in the cloud.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2022. All rights reserved. PB-05768-2022-09-29

As of June 15, 2022 Internet Explorer 11 is not supported by

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction