Tax season can create a liquidity crunch for almost anyone, including high net worth families and investors. Business owners may be trying to pay both business and personal taxes. Executives may be trying to maximize retirement account contributions for the previous year. Homeowners may have recently paid quarterly or semi-annual property taxes. When working toward several financial goals at once, generating short-term liquidity can help keep your long-term financial goals on track.
Carefully review your choices for generating liquidity
If you need to generate liquidity for tax payments, you may have several options. Selling securities can provide instant cash, but may also disrupt your financial strategies and/or incur tax liabilities for the current tax year. Borrowing cash from a credit card may come with high interest rates. Applying for a short-term loan with your local bank may come with a long application process. As a convenient alternative, consider an LMA account, which may allow you to use your investment securities as collateral for a flexible line of credit with a competitive interest rate.
How does an LMA account work?
Your LMA account is a convenient, flexible way to borrow funds. When you open an LMA account, your total available credit will be based primarily on the combined value of all your eligible assets used as collateral. You can easily access funds, generally within one day of approval. Choose from both variable-rate and fixed-rate2 loans and manage multiple loans through a single account. Best of all, you can continue to manage your brokerage accounts even when you've used them as collateral (subject to certain restrictions, including maintaining sufficient collateral to support your outstanding loans). There is no annual fee and no minimum balance required after your credit line is established, so you can access your funds whenever you need to.
Three questions to ask your financial advisor
- How can I keep my financial strategy on track while still generating liquidity for taxes?
- What are the pros and cons associated with different liquidity options?
- How can I balance different life priorities at the same time?
Risks of LMA Borrowing
Securities-based financing involves special risks. You should review the LMA Loan Agreement and related documents and disclosures carefully and consult with your own independent tax and legal advisors.
- A decline in the value of your collateral assets may require you to provide additional funds or securities to avoid a collateral maintenance call. You can lose more funds than are held in the collateral account. The LMA account is a full-recourse loan and you will be liable for any deficiency.
- The Bank can force the sale or other liquidation of any securities or other investment property in the collateral account and, unless otherwise required by law, can do so without first contacting you.
- You are not entitled to choose which securities in the collateral account are liquidated or sold.
- The Bank can change its collateral maintenance requirement at any time without notice to you.
- You are not entitled to an extension of time to satisfy the Bank’s collateral maintenance requirement.
- There may be adverse tax or other consequences to you if securities are sold or otherwise liquidated by the Bank.
- The LMA account is an uncommitted facility, although loans to individuals and trusts may be committed in an amount not to exceed $100,000. The Bank may demand full or partial repayment at any time and any commitment may be immediately terminated.
- For fixed-rate advances and term loans, principal payments made in advance of the end of the applicable fixed-rate period, whether voluntarily or involuntarily, (due to demand or liquidation by the Bank,) may be subject to a substantial breakage fee as determined by the Bank.
- Some restrictions on the use of LMA account proceeds may apply under the terms of the loan documents and applicable laws and regulations.
Talk to your Merrill Lynch financial advisor about a broad range of liquidity options available through Merrill Lynch and Bank of America.
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1 The Loan Management Account (LMA account) is a demand line of credit provided by Bank of America, N.A., Member FDIC. Equal Opportunity Lender. The LMA account requires a brokerage account at Merrill Lynch, Pierce, Fenner & Smith Incorporated and sufficient eligible collateral to support a minimum credit facility size of $100,000. All securities are subject to credit approval and Bank of America, N.A. may change its collateral maintenance requirements at any time. Securities-based financing involves special risks and is not for everyone. When considering a securities-based loan, consideration should be given to individual requirements, portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. The securities or other assets in any collateral account may be sold to meet a collateral call without notice to the client, the client is not entitled to an extension of time on the collateral call and the client is not entitled to choose which securities or other assets will be sold. The client can lose more funds than deposited in such collateral account. The LMA account is uncommitted and Bank of America, N.A. may demand full repayment at any time. A complete description of the loan terms can be found within the LMA account agreement. Clients should consult their own independent tax and legal advisors. Some restrictions may apply to purpose loans and not all managed accounts are eligible as collateral. All applications for LMA accounts are subject to approval by Bank of America, N.A.
2 For fixed-rate and term loans, principal payments made in advance of the due date are subject to a breakage fee as determined by the Bank.
Equal Housing Lender