If structured properly, an intra-family loan may be beneficial to both parties. Even if the child does not have a specific need for the money, this strategy may help families transfer a portion of the earnings on wealth to the next generation without reducing the lender’s lifetime estate tax exemption (currently $11.7 million per person for 2021) or paying gift taxes. If structured improperly, however, this arrangement may cause adverse and unintended tax consequences.
In this article from Fidelity.com, it discusses various benefits of and considerations for intra-family loans.