Wealth Transfer and Borrowing Strategies to Help Preserve Family Funds
By Brian Famigletti, Managing Director & Head of Marketing
Can Financing Support Wealth Transfers?
For many families, wealth transfer strategies include operating trusts destined for children, grandchildren, or charitable organizations.
While some fund these transfers by selling assets outright, strategic borrowing can provide an alternative that allows individuals to preserve their investment portfolios while meeting their wealth transfer objectives.
Borrowing against personal assets — or assets held within a trust — can provide liquidity without requiring the sale of investments during unfavorable market conditions. When incorporated into a broader estate plan, financing may help families maintain flexibility while supporting long-term legacy goals.
If this sounds like an intriguing approach, here are four strategic borrowing strategies to consider utilizing.
1. Intra-Family Loans
Loans between family members can allow wealth to be transferred at interest rates that may be more favorable than traditional lending options. These arrangements can support trusts or other estate planning strategies, and they have the potential to preserve family assets.
It’s important to note that intra-family loans must be properly documented and structured. Failure to comply with applicable tax rules could result in unintended tax consequences or penalties.
2. Financing Trust or Annuity Structures
Certain trust and annuity-based wealth transfer strategies may benefit from financing that helps meet required payment obligations without forcing the sale of underlying investments.
This additional liquidity can help preserve long-term investment strategies during periods of market volatility. At the same time, borrowing increases financial complexity, and poor investment performance could make repayment more challenging.
3. Managing Tax Efficiency
Strategic borrowing may also support tax planning objectives. For example, financing charitable contributions or other wealth transfer strategies may allow individuals to preserve invested assets while potentially benefiting from available tax deductions.
Tax outcomes depend on how borrowed funds are used, and interest payments may not always be deductible. Investors should evaluate these strategies alongside qualified advisors or tax professionals.
4. Reducing Risks During Asset Transfers
Borrowing can provide flexibility when transferring concentrated holdings or privately held business interests. Rather than selling assets immediately, financing may help families avoid unfavorable market conditions or concerns surrounding changes in ownership or control.
While this approach may preserve long-term investment opportunities, additional leverage can also increase financial risk. Borrowers should carefully evaluate repayment capacity and the potential impact of shifting market conditions before implementing these strategies.
Financing Can Complement Estate Planning
Strategic financing can be a valuable component of a comprehensive wealth transfer plan. Whether supporting trusts, charitable giving, or multigenerational estate planning, borrowing may provide liquidity, flexibility, and tax planning opportunities while allowing families to preserve long-term investments.
Because these strategies involve complex legal and tax considerations, they are generally most effective when coordinated with experienced financial advisors, estate planning attorneys, and tax professionals.
If you would like to discuss how strategic borrowing can fit into your financial plan, contact Griffin Asset Management to speak with an expert today.
Source:
Goldman Sachs: Transferring Wealth Through Strategic Borrowing
