Charlie is a high-bracket taxpayer who has accumulated a good-sized portfolio of assets. Charlie Jr. is a pretty sharp 10-year-old who is likely material for five or six years of college when he gets older.

So instead of putting away after-tax dollars to accumulate a stash of cash in anticipation of the Ivy-League days to come, Charlie Sr. lends Charlie Jr. $25,000 on a no-interest demand note. Now all the income from that $25,000 is taxable to Charlie Jr., starting at the 11 percent tax bracket, instead of to Charlie Sr. at 50 percent.

Sound like a great idea? It was -- until passage of the Tax Reform Act of 1984 this summer. All of a sudden no-interest demand loans -- known generally as "Crown" loans after the applicable Supreme Court decision -- are no longer very attractive.

The new law imputes interest at the "applicable federal rate" to these no-interest loans, as well as to loans made at a rate of interest that is lower than the federal rate. The "applicable federal rate" is to be determined periodically by the Secretary of the Treasury based on guidelines in the Act. (That rate has been set at 10 percent for the period from June 6 to Dec. 31, 1984.)

There are three separate factors that have to be looked at. Charlie Sr. will now have to report as income on his tax return the imputed interest deemed to have been due on the loan to Charlie Jr. Charlie Jr. will be considered to have a comparable amount in interest expense; but unless he itemizes deductions on Schedule A -- highly unlikely under the circumstances -- this "expense" has no tax value to him.

And finally, the amount of interest imputed to the loan (but of course not actually paid) is considered a gift from Charlie Sr. to Charlie Jr., subject to gift tax. In this example there is no problem because the $2,500 of imputed annual interest is well below the annual $10,000 gift tax exclusion ($20,000 if both husband and wife agree to a gift); but it could be an important consideration if a large amount of money is involved.

There are some exceptions. The rules do not apply to those cases where the aggregate of all loans outstanding at any one time between the same borrower and lender is less than $10,000.

And loans as high as $100,000 may be exempt when the funds are used for something other than the generation of income -- to pay college expenses directly, for example, or to buy a house. The technical application of this exemption requires that the borrower have investment income of $1,000 of less for the year, thus demonstrating that the money was not invested.

The new rules apply to all loans made after June 6, 1984. They also apply to demand loans made before that date, unless the loan has been repaid before the 60th day after the date of enactment. Enactment was July 18, 1984 (the day the President signed the Act), making Sept. 15 the cut-off date for recall and repayment of a loan to avoid being subject to the imputed interest charge.

This drastic curtailment -- virtual elimination, really -- of the tax advantages of Crown loans makes Clifford trusts the principal remaining technique for shifting tax liability from one member of a family to a lower-bracket member (except for outright gifts, of course).

If Charlie Sr. places $25,000 in a Clifford trust with Charlie Jr. as the income beneficiary, he will accomplish the same purpose as he did with the Crown loan. That is, the income from that $25,000 will be taxable to Charlie Jr. at his much lower tax rate.

The disadvantage of the Clifford trust is that the assets placed in the trust must remain there and may not revert to the grantor (Charlie Sr.) for at least 10 years and a day. The principal of the demand loan, on the other hand, was available to Charlie immediately if he needed it simply by calling the note -- that is, by requesting repayment from Charlie Jr.

If you were thinking about shifting tax liability to someone else in a lower tax bracket by means of a Crown loan, forget it. And if you have a no-interest demand loan already in being, you have only a couple of weeks left -- until Sept. 15 -- to arrange for repayment to avoid coming under the new imputed interest rule. Sorry, Charlie.