Smiling man with his father behind him, laughing

Meet Arnold

He’s a successful client who has built an investment portfolio of non-qualified assets worth $2 million. He would like to gift $250,000 to his only child during his lifetime.

Arnold may have 3 options to reach his objective.

1

Sell the securities and give the proceeds to his child.

However, liquidating securities would have immediate tax implications for Arnold, and his child would lose the possibility of a step-up in basis for the liquidated securities.

2

Transfer securities to his child as a gift.

Doing so could have negative tax consequences for both your client and the recipient of the gift. In addition to potential gift taxes for your client, the recipient may incur capital gains taxes if the securities appreciated in value since they were purchased.

3

Borrow $250,000 by leveraging securities in his portfolio.

Opening a securities-backed line of credit (SBLOC) could offer Arnold a tax-advantageous way to make a gift to his child today while allowing him to maintain his existing investment portfolio and estate-planning strategies.

The solution is Nationwide Smart CreditSM

Nationwide Smart Credit is a SBLOC solution that offers a simpler way to access cash without disrupting your client’s portfolio. Using the following assumptions, let’s see how using Nationwide Smart Credit could have long-term benefits for Arnold and his child.
  • Your client, Arnold, borrows $250,000
  • Nationwide Smart Credit payments are interest only, with an interest rate of 7.55% and an annual percentage rate (APR) of 7.65%1
  • Arnold retains his investment portfolio and its value increases an average of 10.41% per annum (based on the average annual return of the S&P 500)
  • The applicable capital gains tax rate is 20%. Arnold has had his money invested in the S&P for the past 10 years, yielding a cost basis of $92,863 
  • Arnold has available the full $12,920,000 federal lifetime gift/estate tax exemption and has made no annual exclusion gift to his child for the year2
  • Arnold is unmarried and lives in a state that does not impose an estate or inheritance tax, but he has an estate that will be subject to a 40% federal estate tax
  • Arnold dies 10 years after making the gift, and his child is his sole beneficiary
Smiling man next to smiling daughter, both looking at laptop screen
Smart Credit could deliver long-term benefits to Arnold and his child
Dollar amount Description
$250,000 Original gift of cash provided by borrowing through Nationwide Smart Credit
$406,736 Stock value by Year 10 on the $250,000 that was not liquidated
$31,427 Capital gains tax saved by not liquidating
($188,750) (Less cumulative note interest)
$499,413 Total value of the gift to the child, including preservation of the step-up in basis
($250,000) (Repayment of debt)
$249,413 Total amount gained by borrowing
Borrowing through Nationwide Smart Credit would allow Arnold – and potentially many of your clients – to save money while borrowing to meet current needs. They could preserve their portfolio and avoid being subject to various taxes.

Nationwide Smart Credit offers benefits for you

Having Nationwide Smart Credit as part of your services portfolio enables you to:

  • Retain assets under management rather than seeing them go to another solutions provider
  • Serve unmet client needs
  • Strengthen long-term relationships and consolidate more of your clients’ business
  • Broaden your ability to provide holistic planning to your clients
  • Deliver transparency and ease of use to those clients

As with most financial products, using Nationwide Smart Credit involves risks

The risks include, but are not limited to, the fact that the lender may:

  • Suspend and/or terminate the borrower’s line of credit
  • Declare all indebtedness immediately due and payable
  • Sell any collateral to maintain the line-to-value requirement
  • Require additional collateral from the borrower to meet the line-to-value requirement
  • Require the borrower to pay down the principal to meet the line-to-value requirement

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[1] Nationwide Smart Credit is a securities-backed line of credit. All rates are subject to change without notice and may vary. The interest rate and annual percentage rate for Nationwide Smart Credit is variable and may increase. The rate is based on the standard rate sheet as of 7/31/2023.

All Credit Advances will bear interest at a variable rate based on an index plus a margin. The index is the 1-Month Term Secured Overnight Financing Rate ("SOFR") as published by the CME Group each Monday morning (the "Index"). The margin is a percentage that is determined by the total loan amount at origination (the "Margin").

Nationwide calculates the interest charges for each billing period by first determining the interest charge for each day in the billing period and then totaling the interest charges for all days in the billing period. The interest charge for each day of the billing period will be calculated by multiplying the daily balance for that day by the applicable interest rate in effect that day and dividing the resulting amount by 360. The daily balance for each day is equal to the beginning outstanding balance for that day, plus all new credit advances taken that day, less any payments or credits that are applied to reduce the outstanding balance.

[2] An estimate of your capital gains tax liability based on your adjusted gross income, tax filing status and cost basis in your investments. Cost basis is calculated by assuming the funds have been invested in the S&P 500® throughout the investment holding period that you selected. Taxes are based on the IRS income tax rates for the current tax year.

Representatives do not give legal or tax advice. An attorney or tax advisor should be consulted for answers to specific questions.

The purpose of a Nationwide Smart Credit line of credit must be for personal, family or household purposes and not for securities investments or to purchase or carry margin securities, which include: (1) stocks that are registered on a national securities exchange, or any over-the-counter security designated for trading in the national market system; (2) debt securities (bonds) that are convertible into margin stock; and (3) shares of most mutual funds.

California: Loans made or arranged pursuant to a California Lenders Law License. Delaware: Nationwide SBL is licensed by the Delaware State Bank CCL commissioner to engage in business in this State under license number 035414, expires 12/31/2025. Maryland: License Number 1804109. Missouri: Consumer Credit Loan Company registered by the Missouri Division of Finance, license number 367-25-8932. Oregon: License number 1804109. Rhode Island: Rhode Island Licensed Lender. Washington: License number CL-1804109. Click here for state license information and rate and fee disclosures.

Not available in Mississippi and Nevada.

Nationwide, the Nationwide N and Eagle, Nationwide Smart Credit and Nationwide is On Your Side are service marks of Nationwide Mutual Insurance Company.

Nationwide SBL, LLC dba Nationwide Smart Credit (NMLS): 1804109 NMLS Consumer Access: https://www.nmlsconsumeraccess.org/
NFW-11097AO.3