Managing an estate can lead to a catch-22 where estate tax bills must be settled before the beneficiaries can access the estate but the beneficiaries do not have sufficient liquidity without the funds held in estate. Similarly, clients facing large Capital Gains tax bills have normally liquidated assets to use the funds for a specific purpose and may find themselves with a cash shortfall when the tax bill is due. Paying unexpected tax bills or raising further capital without increasing tax liability can be very challenging. Many advisers with clients in need of a solution for tax bills have a limited number of options to offer, most commonly just a recommendation to speak to someone else.
There is, therefore, a case for advisers to go further, and look to provide clients with workable options that allow them to fund tax bills without delaying other projects. While, the ability to raise money against brick and mortars is well established in these cases, the timescales and paperwork involved can be an issue. Whatever business the client is conducting must stop while the loan is approved and then funded. As an alternative route, luxury assets such as fine art, classic cars, as well as jewelry and luxury watches may be used instead of property.
What makes borrowing against luxury assets particularly attractive solution for tax bills is the speed and simplicity with which funding can be made available. Proper valuation of the assets is a key determinant of the final loan amount and a lender employing expert appraisers will ensure clients receive the highest amount possible in the shortest amount of time. The fundamental focus of underwriters will be the asset itself, although more complex situations (e.g. those involving a trust or an asset with multiple owners) will require more diligence. Nonetheless, the focus on the assets themselves allows the process to move quickly providing every client with a fast solution.
So, whether clients require speed or simply a discreet solution, borrowing against luxury assets provides the solution for tax bills. The process avoids public sale and funds are made available on the same day the loan is accepted. Additionally, and often most importantly, borrowing will not trigger a tax event so it avoids creating more complications for clients.
Loaning against luxury assets also protects the value of the assets whilst still addressing the financial needs. Selling assets in a short amount of time, requires offering them at a significant discount. Clearly, ‘fire selling’ assets does provide a fast solution, but it also means that sellers lose out on value permanently. By lending based on that value, clients can protect it long term, allowing them to sell at their own speed if they decide to and therefore maximize the eventual value achieved.
For clients who do wish to sell assets, luxury asset lender, Borro, offers a Sale Advance product. The Sale Advance provides immediate liquidity while Borro manages the sale of an asset or a collection. This allows clients to avoid the losses associated with a fire sale. Borro has an extensive network of dealers and auction houses enabling it to secure favorable prices and fees, maximizing the return to the client.
In summary, short term borrowing against luxury assets can be a very effective means to help clients raise funds quickly and efficiently, not just for tax reasons but also in divorce cases, where settlement is required to provide financial closure between the parties. With this facility available, protracted and potentially stressful situations can be expedited.
Learn more about short term borrowing against luxury assets with Borro.