Crown Loan

DEFINITION of 'Crown Loan'

A loan with no set maturity date, These loans are typically made by a wealthy parent or grandparent to a lower income child or grandchild. They are named after Harry Crown, a Chicago industrialist, who first used this type of loan so the borrower could invest the loaned funds and pay less taxes on the income because they were in a lower tax bracket.

BREAKING DOWN 'Crown Loan'

For many years, high-income individuals were able to make loans to lower-income individuals at zero-interest rates or significantly lower rates than those available elsewhere. The borrower could then invest the funds and pay little to no taxes on the earnings from the investment. In 1984, the U.S. Supreme Court finally caught on and ruled that these loans would be subject to gift taxes unless they were made at similar interest rates to the prevailing market rates.

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