Why Borrowing Against Shares Is a Smart Way for Americans to Undertake Inheritance Tax Planning

Enness has a rapidly growing business in the US but most of our enquiries so far have involved financing real estate transactions, either onshore in the US, or internationally in locations such as Europe or the Caribbean.

However, we are starting to see an increasing awareness from US based clients about how effective it can be to borrow against public traded shares to reduce inheritance or estate taxes.

Borrowing against shares, also known as securities-backed lending, allows individuals to use their single stock holdings, or equity portfolios, as cost-effective collateral for fixed term loans or revolving lines of credit.

Trust or estate planning structures are becoming increasingly popular as a tool for wealthy Americans to preserve wealth for future generations, or to legitimately reduce taxes. However, selling shares to fund trusts, gifts, investments or estate planning structures can trigger significant capital gains tax liabilities. Borrowing avoids the need to sell stock and, in turn, eliminates the need to create a chargeable tax event, whilst also preserving the upside potential of the stock or portfolio which would otherwise have been liquidated.

Aside from purchasing property, investing in other asset classes or buying a boat or plane, proceeds from a securities backed loan can be used to make large lifetime gifts or fund irrevocable trusts which could lower the taxable estate and help in utilising lifetime exemptions more strategically.

Securities-backed loans generally carry lower interest rates than other forms of debt, so with proper structuring, interest costs can be significantly outweighed by tax savings and market appreciation. Unlike outright asset transfers, security backed loans allow individuals to retain full ownership and voting rights in the shares while still freeing up liquidity.

In addition to being an effective tool for US domestic tax planning, borrowing against shares for Americans with global assets or heirs abroad, can optimise cross-border tax opportunities, equalise inheritance distributions, or release liquidity to be used to invest in diversified global opportunities such as overseas real estate.

It is also important for clients to understand the risks involved with securities, like stocks and shares, the value can go up or down and this must be a factor they take into consideration and how that affect any borrowing against such assets, as well as the affects it may have on the assets themselves.

Enness is not a tax advisor but we routinely work with ultra-high-net-worth individuals, family offices, professional trustees and tax attorneys to structure these transactions in line with international estate planning strategies.

With a deep understanding of complex ownership structures, unparalleled access to global lenders, and experience in managing the most bespoke borrowing needs, Enness Global is uniquely positioned to assist wealthy Americans looking to leverage shares for strategic estate planning or general liquidity purposes.

Borrowing against shares can be way more than just a short-term liquidity tool. It can be a flexible, forward-thinking, tax-efficient component of a broader inheritance planning strategy, and when paired with expert advice can safeguard wealth for generations to come.

If you are considering how best to manage your estate tax exposure, Enness Global can help structure a lending solution that is fully aligned with your long-term legacy goals.

Please contact James Martingale, Group Head of US and Offshore, at [email protected] if you would like to explore securities backed lending in the US (or any other means of securitised borrowing) further.