How Wealthy Parents Dodge Taxes By Taking Out Cheap Loans To Buy Their Adult Children Houses

  • 43% of millennial homeowners in a 2018 survey say they received financial assistance from their family to buy a home— and their parents saved on taxes in the process.
  • “It’s one way to start the wealth transfer between generations,” said Whit Magruder from a division of Goldman Sachs’ private bank.
  • “It’s hard to imagine the market will stay at these highs forever and ever,” Bell said. “Take the win. We can’t just be greedy pigs.”

Hayley Cuccinello from Insider writes:

“Every week for the past 14 months, the wealth advisor Aaron Bell has had to help his affluent clients buy houses.

Many of them aren’t buying for themselves but for their adult children. It’s common in the US for parents to help their children buy their first home, with 43% of millennial homeowners in a 2018 Legal & General survey saying they received financial assistance from their family. But the affluent and wealthy, with savvy advisors, are able to make all-cash offers by borrowing against their investment portfolios — and save on taxes in the process.

With interest rates on loans as low as 2%, clients can save money by taking out loans they don’t need, rather than liquidating their stock and incurring hefty capital-gains taxes.

“We’re coming off of a 13-year bull-market run,” Bell, an advisor at Cannataro Family Capital Partners, a Northwestern Mutual firm, told Insider. “Every parent should pause before selling stock to buy the house.”

The housing market has turbocharged borrowing against securities

Securities-based lines of credit (SBLOCs) have been popular for years thanks to low interest rates, but the fever pitch of the real-estate market has made them crucial.

“What we’re seeing now is most people have to go in with cash offers and be willing to close within 30 days,” Jason Field, a financial advisor at the boutique firm Van Leeuwen & Co., told Insider. “These type of SBLOC loans are quick because you don’t have to go through all the underwriting a mortgage would entail because you’re using your account value as the collateral.”

You don’t have to be ultrawealthy to take out a securities-based line of credit, but they can be taken out only against nonretirement assets and typically have a higher minimum than margin loans, which, unlike SBLOCs, can be used to buy stock. Larger lines of credit also typically incur lower interest rates…”

See full story here.



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