Family Office Lending: When High-Income Families Should Borrow Instead of Sell

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

Family office lending means borrowing against assets the family already owns, instead of selling them, to cover a large short-term need. For a high-earning W-2 household, the three forms that matter are a securities-backed line of credit against a taxable brokerage account, a loan from parents or grandparents documented at the IRS applicable federal rate, and a mortgage structured around a pledged portfolio. Used well, it can defer a large capital gains bill and keep the portfolio invested. Used carelessly, it adds leverage to a household that is often already concentrated in one employer’s stock.

This guide is written for families earning $750,000 to $3 million in California or Washington, typically with RSUs, a sizable taxable account and young children. It covers when borrowing beats selling, what it costs in each state, the risks lenders do not put on the first page, and what to write down so the decision makes sense to your kids later.

What family office lending looks like for a W-2 household

Large single-family offices negotiate credit lines with private banks against hundreds of millions in assets. The same tools exist at a smaller scale for a Bay Area or Seattle household with $1 million to $5 million in a brokerage account. The difference is that nobody on staff is watching the loan. A family office’s job, at any size, is to decide whether to borrow at all, coordinate the lender with the tax and estate plan, and monitor the collateral so a market drop does not force a sale.

The common reasons our families consider borrowing:

• Bridge financing for a new home before the old one sells, as an alternative to a bank bridging loan.
• A down payment without selling appreciated stock in the middle of the year.
• A large tax bill, for example an April balance due after RSU vests were under-withheld at the flat supplemental rate.
• Help from grandparents who want to fund a home purchase but keep the money as a loan rather than a gift.

The three lending tools compared

A 401(k) loan is sometimes suggested as well, but federal law generally caps it at the lesser of $50,000 or half the vested balance, if the plan offers loans at all (IRS retirement plan loan FAQs), which is small relative to a home purchase at this income level.

Worked example: borrowing versus selling for a $400,000 bridge

Assumptions (all illustrative): a married couple, a physician and a biotech scientist, with $1,000,000 of W-2 income. They have a $1,800,000 diversified taxable portfolio. They are buying a larger house and need $400,000 for six months until their current home sells. The $400,000 of stock they would sell has a cost basis of $200,000, so selling triggers a $200,000 long-term gain.

Option A: sell the stock

Federal tax for 2026: their taxable income is above the $613,700 joint threshold, so the gain is taxed at 20%, plus the 3.8% net investment income tax because income is above $250,000 (Rev. Proc. 2025-32, IRS NIIT page). That is 23.8% of $200,000, or $47,600.

In California, capital gains are taxed as ordinary income with no lower rate (FTB). Using the 2025 brackets (2026 schedules were not yet published), and assuming $900,000 of California taxable income before the sale, the gain is taxed at 11.3%, and the $100,000 of it above $1,000,000 also pays the 1% Behavioral Health Services Tax (FTB 2025 rate schedules). California tax: $22,600 plus $1,000, or $23,600. Total tax from selling: $71,200.

In Washington, there is no state income tax on wages in 2026 (a new 9.9% income tax on AGI over $1,000,000 starts January 1, 2028, per WA DOR). The 7% capital gains tax applies only to long-term gains above the standard deduction, which was $278,000 for 2025 (WA DOR; the 2026 amount was not yet published). With no other gains this year, the $200,000 gain owes no Washington tax, so the total is the federal $47,600.

Option B: draw $400,000 on a securities-backed line

Assume a variable rate of 6.5% (hypothetical; rates move with short-term benchmarks). Six months of interest on $400,000 is $13,000. The line is repaid from the old home’s sale proceeds, and the portfolio stays whole.

That $13,000 is personal interest, not deductible. The money bought a home, so it is not investment interest (IRS Pub. 550), and it is not mortgage interest because the debt is secured by securities, not by the home (IRS Pub. 936).

What the numbers say

Two honest caveats. First, borrowing defers the tax; it does not erase it. If the family sells those shares later, the gain is still there. Heirs generally receive a stepped-up basis at death (IRS Pub. 551), but that is not a reason to hold a six-month loan for thirty years. Second, the comparison only holds if the loan really is short. If the old house takes eighteen months to sell and rates rise, the interest grows and the collateral risk below applies for longer.

The risk lenders do not lead with: collateral calls

A securities-backed line lets you borrow a percentage of the pledged account’s value, called the advance rate. The rate depends on what you hold. Diversified funds get a higher advance rate than a single stock. If the account falls, your borrowing capacity falls with it, and the lender can demand cash or sell your securities, usually at the worst moment.

Using the same $400,000 draw and hypothetical advance rates:

This is where the W-2 household is most exposed. An Apple, Amazon or Genentech employee whose taxable account is mostly company stock is borrowing against the same asset that pays their salary. Unvested RSUs cannot be pledged at all, and many public companies’ insider trading policies restrict or prohibit pledging company stock, especially for officers. Check your employer’s policy before assuming the shares count.

A sensible rule for our families: keep any draw well below half of your capacity, pledge diversified holdings rather than employer stock, and have a named source of repayment (a home sale closing, a known bonus, an RSU vest) before you sign.

Intra-family loans: when grandparents are the lender

Many Bay Area and Seattle families get help from their own parents on a first or second home. A loan, rather than a gift, lets grandparents keep the money for their own retirement while still helping. It only works if it is treated as a real loan.

• Charge at least the applicable federal rate (AFR). The IRS publishes these rates monthly (IRS AFR tables). A below-market loan can cause the IRS to impute interest income to the lender and treat the forgone interest as a gift (26 U.S.C. §7872).
• Know the exceptions are small. Section 7872 exempts gift loans of $10,000 or less, and limits imputed interest on loans up to $100,000 to the borrower’s net investment income. A family with a large brokerage account usually has enough investment income that this second exception does little.
• Record a deed of trust. If the loan is secured by the home and recorded, the interest can qualify as mortgage interest, subject to the federal limit on home acquisition debt of $750,000 ($375,000 if married filing separately) described in IRS Pub. 936, made permanent from 2026 by P.L. 119-21 §70108. The limit counts the family loan together with any bank mortgage. An unsecured family note does not qualify.
• Forgive on purpose, if at all. Grandparents can forgive part of the balance each year as a gift. For 2026 the annual exclusion is $19,000 per giver per recipient (Rev. Proc. 2025-32), so two grandparents forgiving debt owed by two parents can cover up to $76,000 a year without filing a gift tax return. Larger forgiveness uses part of each grandparent’s lifetime exclusion ($15,000,000 per person for 2026) and requires Form 709.

For Washington grandparents, keep in mind that Washington has its own estate tax with a much lower exclusion ($3,000,000 for deaths from July 1 to December 31, 2026, per WA DOR). An outstanding loan to their children is an asset of their estate, and that should be part of their plan.

The decision a family actually has to make

1. Is the need temporary, with a named repayment source? If not, selling or rethinking the purchase is usually cleaner than borrowing.
2. What does selling actually cost? Run the real tax number for your state. In Washington, gains under the standard deduction may cost only the federal tax, which narrows the case for borrowing.
3. What happens in a 40% drop? If the answer is a forced sale, reduce the draw or change the collateral.
4. Who watches the loan? Someone has to check collateral value and rate changes monthly. For a delegating household, that is exactly the job a family office takes on.

Common mistakes

• Assuming SBLOC interest used for a home is deductible.
• Pledging concentrated employer stock because it is the biggest holding.
• Treating a loan from parents as a handshake, with no note, no AFR interest and no payment history.
• Letting a “six-month” bridge line become a permanent part of the family’s balance sheet.

What to document for your kids

Borrowing is one of the decisions children see the result of (a new house) without ever seeing the reasoning. Write a one-page Decision Memo: why you borrowed instead of sold, what it cost, what would have forced repayment, and how you paid it off. If grandparents lent the money, record their terms and why they chose a loan over a gift. Your kids will face the same choice with their own homes one day. Conversations fade. Documentation compounds.

Frequently asked questions

Is interest on a securities-backed line of credit tax deductible?

For a W-2 household, generally only when the borrowed money is used to buy taxable investments, in which case it may be deductible as investment interest up to your net investment income if you itemize, under the rules in IRS Publication 550. If the money pays for a home, a car or a tax bill, the interest is personal and not deductible. Tracing depends on how the funds are actually used, so keep the loan proceeds separate.

Can I borrow against my RSUs?

Not unvested RSUs, because you do not own the shares yet. Once shares vest and land in a brokerage account, a lender may accept them as collateral, usually at a lower advance rate than diversified funds. Your employer’s insider trading policy may restrict pledging, particularly for officers, so check it before applying.

Does a loan from my parents have to charge interest?

For loans above $10,000, charging less than the IRS applicable federal rate can lead to imputed interest income for your parents and a deemed gift. Charging at least the AFR, signing a note and making scheduled payments helps show it is a genuine loan. A tax adviser should review loans that are large or secured by your home.

Next step

Before you draw on any line, run the sell-versus-borrow comparison with your own cost basis and state, and stress-test the collateral at a 40% drop. If you would like help with that and with documenting the decision, our investment and risk management and tax management work covers both, and the estate planning side covers intra-family loans. You can also read what a family officer does, how a family LLC for investments is set up, and what a family wealth office does day to day.

This is general education, not individual tax, legal or lending advice. The right move depends on your family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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