Taxes

Accessing Liquidity for Financial Flexibility

Financial obligations should not dictate your investment strategy. Moving money in and out of markets, or holding large cash reserves, to meet such obligations can result in missed investment opportunities. Therefore, many clients utilize a personal line of credit to meet their liquidity needs—such as tax payments—to keep their investment plan on track.

Establishing a line of credit can be a cost-efficient way to use liquidity strategically: You can make tax payments or fulfill other short-term obligations without having to sell assets or deplete cash reserves, which disrupt your carefully constructed investment plan.

“Most people think about paying taxes once a year, on April 15, but the fact of the matter is that many high-income earners are paying estimated quarterly taxes,” says Scott Milleisen, U.S Head of Capital Advisory for J.P. Morgan Private Bank. “So having access to a line of credit allows you to smooth your cash flows, and separate your investment decisions from your liquidity needs.”

Maintaining financial flexibility

Using a line of credit to separate your investment decisions from your liquidity needs is particularly helpful when you have a substantial investment portfolio, illiquid assets or concentrated positions that would take time to sell or require other considerations.

A line of credit can also help you postpone liquidating assets to defer capital gains tax, keep long-term wealth planning on track, and preserve cash for emergencies or other needs.

“Many clients tell me that the thing they value most is financial flexibility, and having access to credit gives them the dry powder to fund business deals, to meet personal obligations, and to execute on their aspirations, whether that’s buying a dream home or making a gift to charity,” Milleisen says.

Liquidity for a range of uses

Beyond tax payments, a line of credit can be an effective way to access liquidity for a variety of needs or goals, including:

  • Moving quickly to buy an ideal property
  • Starting, acquiring or expanding a business
  • Funding an estate planning or gifting strategy
  • Creating liquidity to bridge the sale of a business
  • Furthermore, a line of credit can potentially be structured in a tax-efficient way, which may enable you to preserve and grow your wealth more effectively.

    Regularly review your liabilities

    At J.P. Morgan, we believe it is important to periodically review your borrowing strategy, similar to how you review your investment portfolio. By doing so, you can ensure your liabilities are aligned with your financial goals, the current rate environment and changing market conditions. “There’s a lot of value to bringing rigor and discipline to planning the liability side of your balance sheet,” Milleisen says “That means planning for your liabilities ahead of time—having access to credit before you identify a need.”

    Learn more

    We can help evaluate your liquidity needs over the short, mid and long terms, and determine the right borrowing strategy for your specific needs and overall wealth picture.

    To learn more about lending solutions at J.P. Morgan Private Bank, please contact your J.P. Morgan representative.

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    IMPORTANT INFORMATION

    This material is intended to help you understand the financial consequences of the concepts and strategies discussed here in very general terms. The strategies discussed often involve complex tax and legal issues. Your own attorney and other tax advisors can help you consider whether the ideas illustrated here are appropriate for your individual circumstances. JPMorgan Chase & Co. does not practice law, and does not give tax, accounting or legal advice. We are available to consult with you and your legal and tax advisors as you move forward with your planning.

    The discussion of loans or other extensions of credit in this material is for illustrative purposes only. No commitment to lend by J.P. Morgan should be construed or implied. Lines of credit are extended at the discretion of J.P. Morgan, and J.P. Morgan has no commitment to extend a line of credit or make loans available under the line of credit. Any extension of credit is subject to credit approval by the lender in accordance with the terms contained in definitive loan documents. Loans collateralized by securities involve certain risks and may not be suitable for all investors. Assets used as collateral for a securities based line of credit are subject to liquidation to meet collateral/maintenance calls. Collateral/maintenance calls may include the sale of the asset serving as collateral if the collateral value declines below the amount required to secure the line of credit. In exercising its remedies, J.P. Morgan will not be required to marshal assets or act in accordance with any fiduciary duty it otherwise might have.

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