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Buy, Borrow, Die – Explained

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Re: Buy, Borrow, Die – Explained

#11

Post by 2OEH8eoCRo0 »

radpanda wrote: post #10
2OEH8eoCRo0 wrote: post #5

I don't understand what's in it for the lender in the borrow stage.

Yeah, I felt like the “you have to be wealthy” hand-waving in the quoted section wasn’t very explanatory. Are lenders giving the ultra-rich great interest rates here as a loss-leader to try to attract other business from them? > First, this type of planning is generally not economically feasible unless the taxpayer has a net worth exceeding around $300M. If you’re worth less than that, you’re not going to be able to…

It's not really a "how to" guide but an explanation of the scheme.

Re: Buy, Borrow, Die – Explained

#12

Post by tmorton »

WorkerBee28474 wrote: post #4

EDIT: I'm not sufficiently sure that this comment was accurate on US tax laws so I'm going to delete it.

> Rather, it will use the original cost basis, pay tax on gains up to the adjusted cost basis, and the inheritors will use the new cost basis should they sell in the future.

This is just incorrect, at least in the US. The estate does not have to pay capital gains tax for assets passing through to the inheritors.

It's a great policy proposal though - this is one fix for the problem!

Re: Buy, Borrow, Die – Explained

#13

Post by nkurz »

WorkerBee28474 wrote: post #4

EDIT: I'm not sufficiently sure that this comment was accurate on US tax laws so I'm going to delete it.

This is obviously a very important correction if it is correct.

That said, I think you may be correcting only the simplified strawman version at the top of the post, while the "actual" version offered at the bottom corrects for this by substituting borrowed cash for the actual asset. That is, I think the version at the top (1A,2A,2C) is intentionally flawed, and represents the popular misconception, while the version at the bottom (1B,2B,3B) corrects for this.

The author might not have chosen a clear format for his argument, but I don't think this is an actual error he is making. I think he addresses this directly in the bottom half of the post. But if you read through the whole thing and still feel he's wrong, I'd certainly like to hear more!

Re: Buy, Borrow, Die – Explained

#15

Post by IncreasePosts »

SeanAnderson wrote: post #8
2OEH8eoCRo0 wrote: post #5

I don't understand what's in it for the lender in the borrow stage.

The article clarifies this? > Generally, in exchange for such favorable terms (i.e., interest-only, matures on death), the bank will ask for a share of the collateral’s appreciation (essentially, "stock appreciation rights"), and this obligation will be settled upon the borrower’s death along with the loan. The amount of the bank’s share of the collateral’s appreciation depends on many factors and it is fundamentally…

Ok, so now the costs are the servicing of the loan for 40 years, and paying some percent of the appreciation. Is there any indication that this would be cheaper than just paying the $17M in taxes?

Re: Buy, Borrow, Die – Explained

#17

Post by sbarre »

nkurz wrote: post #3
beretguy wrote: post #2

[flagged]

Upvoted, but that's a bad reason to stop reading. This isn't a how-to guide. This is an explanation to the rest of us of about how our tax laws are so full of holes and that the very rich can create schemes for multigenerational transfer of wealth without ever paying tax. The people with the money to do this already know it's possible, and know how to hire the people to do it. This article is to help the rest of us u…

> that the very rich can create schemes for multigenerational transfer of wealth without ever paying tax

Also important to note that the major financial institutions are complicit in these schemes because of the financial upside they get out of it even in a limited number of transactions, due to the large amounts of money involved.

One wonders if in today's digital self-serve world, a retail bank could implement a version of this scheme that is totally self-serve (and therefore super low margin) and make it accessible to everyone.

I suspect if that happened, the rules would be changed quickly.

Re: Buy, Borrow, Die – Explained

#18

Post by jandrewrogers »

2OEH8eoCRo0 wrote: post #5

I don't understand what's in it for the lender in the borrow stage.

The lender gets to write a secured loan with an excellent risk profile and an interest rate that, on average, generates net profit that is at least as good as other lending opportunities.

From the lender's perspective this is a relatively straightforward transaction. A lender will lend to just about anyone if the spreadsheet numbers work out.

Re: Buy, Borrow, Die – Explained

#19

Post by sbarre »

IncreasePosts wrote: post #16

Is there any indication the ultra rich structure loans like this to avoid taxes? Or is this just a meme that, for the most part, financially illiterate redditors like to throw around?

I mean if you RTFA, and take it at face value, it was posted by a lawyer who has been doing this for 20+ years for hundreds of clients.

If it's a fake post, someone put a lot of time into making it convincing? They cite tax law and precedent cases etc..

I have not personally validated any of it myself though.

Re: Buy, Borrow, Die – Explained

#20

Post by sxp »

IncreasePosts wrote: post #16

Is there any indication the ultra rich structure loans like this to avoid taxes? Or is this just a meme that, for the most part, financially illiterate redditors like to throw around?

One famous person who did this was Larry Ellison using Oracle shares. This almost caused a problem for him in the 90s due to the stock dropping in value:

https://www.sfgate.com/news/article/Inside-look-at-a-billion...

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