Keeping investments working for you
Trisha Knake, Head of SBL & Accounts Product Management at UBS, recalls one family that faced a multimillion-dollar tax bill on an estate with a large investment portfolio. Selling a portion of those investments to pay the tax bill would have meant disrupting the estate's investment strategy.
Working with a UBS Financial Advisor and a UBS Wealth Management Banker, the family arranged for a securities-backed line of credit using eligible investments as collateral. Although the securities-backed line of credit, like most loans, charged interest monthly, “they realized the portfolio was likely to earn more than the interest they would be charged on the loan,” Knake says. “They saw this as a way to help appreciate their overall wealth, versus liquidating the assets and not investing.” Your UBS Financial Advisor can provide an objective perspective to help you keep your focus on your overall wealth plan, and can alert you to solutions you may not have considered, like securities-backed lending.
Anticipating a tax bill
Securities backed loans may also be useful if you’re planning your own estate—for example, if you want to set aside money to cover anticipated taxes that your heirs might have to pay. Selling investments to raise that money could subject you to sizable capital gains taxes, assuming the investments have grown in value, Knake says. A securities-backed line of credit could help you establish a liquidity option so you can pass along your estate to your heirs intact.
Consider all the risks
Even with their advantages, securities-backed lines of credit may expose you to risks that you should fully consider, says Knake. For example, you would be subject to a margin call if your collateral no longer supports the outstanding loan balance. In this instance, you may be asked to pledge additional assets or pay down a portion of the loan. Or, your assets could be sold to cover the outstanding balance. Another risk associated with market performance could be that the interest on the loan could outpace your portfolio returns.
Consult your team
Before making any decisions regarding your estate, taxes or investments, be sure to speak with a variety of experts, such as a tax attorney, your accountant and your UBS Financial Advisor. With their help, you can explore the various ways to meet your estate tax obligations and help ensure that the inheritance serves its underlying purpose: helping the next generation of loved ones follow their dreams.