Crown Loan

Rich families stay rich by exploiting loopholes in the tax code. Which was why, in 1984, Congress and the Supreme Court shut down the loopholes that made Crown Loans a popular vehicle for families to pass along wealth.

Named for the industrialist Henry Crown, this type of loan provides money to a lendee without an interest rate or a maturity date. Crown was giving his children and grandchildren money under the guise of a loan, but never demanding payment. The loan would effectively only be collected on demand of the lender. Of course, the lender didn't demand payment, a way for him to dodge gift taxes.

The loans were allowed after the U.S. Court of Appeals ruled in favor of one of Crown's son's in 1978. The IRS had been seeking gift taxes on these loans. It would take the Supreme Court six years to review this case, and the Tax Reform Act of 1984 shut down loopholes on interest rates that were below market value, effectively ending the practice of Crown Loans.