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The richest people borrow against their stock (2021)

forbes.com

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Re: The richest people borrow against their stock (2021)

#181

Post by chx »

doe_eyes wrote: post #2

By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your ho…

It's not at all simple what they do.

https://reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/...

Important quote:

> this type of planning is generally not economically feasible unless the taxpayer has a net worth exceeding around $300M.

Re: The richest people borrow against their stock (2021)

#183

Post by koolba »

Shaanie wrote: post #149
hackernewds wrote: post #140

Earlier quoted context omitted.

transfer the basis to whom? better not inherit anything

If I buy something for $10 and it's worth $10,000 when you inherit it, you should (obviously?) be taxed on the increase in value from $10 -> $10,000 if/when you sell. The purchase price shouldn't be "reset" to $10k. It'sutterly insane to me that the step-up basis exists in the US, it's such an obvious loophole that can fairly easily be closed without many adverse effects. In my country (Sweden) if you don't know the…

> If I buy something for $10 and it's worth $10,000 when you inherit it, you should (obviously?) be taxed on the increase in value from $10 -> $10,000 if/when you sell. The purchase price shouldn't be "reset" to $10k.

There’s nothing “obvious” about tax policy. It’s an arbitrary determination of what’s in and what’s out.

Taxing capital gains at all is not “obvious”.

Taxing transfers of assets to your children, whether it’s while you’re alive or after you die is not “obvious”.

> It'sutterly insane to me that the step-up basis exists in the US, it's such an obvious loophole that can fairly easily be closed without many adverse effects.

The same law is the one that lets the surviving spouse or children to continue to live in a home rather than be forced to sell due to a sudden realized capital gain. You can argue that you don’t care about keeping multi millionaires in their childhood homes after their parents die, but it’s hardly “obvious” that it should be taxed.

Re: The richest people borrow against their stock (2021)

#184

Post by theshrike79 »

Shaanie wrote: post #145
theshrike79 wrote: post #142

Earlier quoted context omitted.

You can also buy art. 1) buy a painting for X 2) have it evaluated, sometimes the price is higher than X 3) put it in storage or a tax loophole between countries 4) use said painting as collateral for low interest loans Now you have money to invest, as long as you make more than the low interest loan, you're making profit.

But then you have X money tied up in some presumably illiquid art with questionable value. Seems better to just invest the X money from the start.

Art is like Schrödinger's cat, its value is only determined when it changes owner.

If someone pays 1M€ for a piece of art, it is "valued at $1M" and you can use it for collateral for a loan at some percentage of its valuation.

Will it actually be 1M€ if it needs to be liquidated? Nobody knows. It can be worthless or it can be worth 10M€ - it all depends on what the next person is willing to pay for it. But until that point it's "worth" 1M€.

---

This is why there are so many empty (commercial) properties, they were valued at a specific €/m2 price and were used to take loans based on that value.

Until they're rented/leased again, that is their worth and value. Could the owner get someone in the property by lowering the price? Definitely.

Would that also cause a rolling cascade of loans not having enough collateral to back them up? Yup.

Re: The richest people borrow against their stock (2021)

#185

Post by rijoja »

chgs wrote: post #170
bruce511 wrote: post #116

Earlier quoted context omitted.

The reverse approach has issues as well, primarily for assets that aren't easily divisible. The obvious example is family farms, or indeed the family house. Capital taxing the asset on death means a (potentially large) tax bill happens in many cases this can't be paid without selling the asset. If the sale was to another family looking for a farm, then that could be argued is neutral. But it won't be. It'll be sold t…

> in many cases this can't be paid without selling the asset. Ok. And? Why should someone get $5m for doing bugger all. If they were paid $5m for cleaning a car they would lose a fortune in tax.

idk, maybe because their parents liked them? Do you really want to incentivize against people working hard to make sure their offspring, has a good life? Also a family-home might have sentimental value, and this really doesn't only apply to rich people, quite the contrary actually.

Re: The richest people borrow against their stock (2021)

#186

Post by SuchAnonMuchWow »

refurb wrote: post #158
hn_throwaway_99 wrote: post #35

Earlier quoted context omitted.

I disagree the framing is deceptive. A big reason this is done is to avoid paying taxes altogether - borrow against your equity, and then when you die your heirs receive a step-up in basis, so the gains are never taxed. To make it worth while you need to have a crap ton of money, such that the interest on your loans is less than the estate taxes you'd pay. Only very, very rich people pay any estate taxes in the first…

This sounds like a great idea but really fails the sniff test: - you’d need to borrow for decades, where, even at low interest rates were burn through significant capital (more than taxes would) - you’d need low interest rates to exists for decades which we know doesn’t happen - finally, all these Uber rich (Bezos, Musk) have all sold significant portions of their equity and paid taxes on it This seems like nothing m…

The article goes into great detail and gives several example of several CEOs borrowing for actual decades, so it passes the sniff test because it does actually happen.

Re: The richest people borrow against their stock (2021)

#187

Post by Hikikomori »

koolba wrote: post #183
Shaanie wrote: post #149

Earlier quoted context omitted.

If I buy something for $10 and it's worth $10,000 when you inherit it, you should (obviously?) be taxed on the increase in value from $10 -> $10,000 if/when you sell. The purchase price shouldn't be "reset" to $10k. It'sutterly insane to me that the step-up basis exists in the US, it's such an obvious loophole that can fairly easily be closed without many adverse effects. In my country (Sweden) if you don't know the…

> If I buy something for $10 and it's worth $10,000 when you inherit it, you should (obviously?) be taxed on the increase in value from $10 -> $10,000 if/when you sell. The purchase price shouldn't be "reset" to $10k. There’s nothing “obvious” about tax policy. It’s an arbitrary determination of what’s in and what’s out. Taxing capital gains at all is not “obvious”. Taxing transfers of assets to your children, whethe…

Is it obvious that we should have roads, running water, someone that builds up the basics of society?

Re: The richest people borrow against their stock (2021)

#188

Post by NotYourLawyer »

koolba wrote: post #183
Shaanie wrote: post #149

Earlier quoted context omitted.

If I buy something for $10 and it's worth $10,000 when you inherit it, you should (obviously?) be taxed on the increase in value from $10 -> $10,000 if/when you sell. The purchase price shouldn't be "reset" to $10k. It'sutterly insane to me that the step-up basis exists in the US, it's such an obvious loophole that can fairly easily be closed without many adverse effects. In my country (Sweden) if you don't know the…

> If I buy something for $10 and it's worth $10,000 when you inherit it, you should (obviously?) be taxed on the increase in value from $10 -> $10,000 if/when you sell. The purchase price shouldn't be "reset" to $10k. There’s nothing “obvious” about tax policy. It’s an arbitrary determination of what’s in and what’s out. Taxing capital gains at all is not “obvious”. Taxing transfers of assets to your children, whethe…

Getting rid of the stepped up basis doesn’t require that we realize the gain at death. Just transfer the basis to the heirs, and if/when they sell, then realize the gain.

Re: The richest people borrow against their stock (2021)

#189

Post by mackman »

Shaanie wrote: post #149
hackernewds wrote: post #140

Earlier quoted context omitted.

transfer the basis to whom? better not inherit anything

If I buy something for $10 and it's worth $10,000 when you inherit it, you should (obviously?) be taxed on the increase in value from $10 -> $10,000 if/when you sell. The purchase price shouldn't be "reset" to $10k. It'sutterly insane to me that the step-up basis exists in the US, it's such an obvious loophole that can fairly easily be closed without many adverse effects. In my country (Sweden) if you don't know the…

If you exceed the inheritance tax exemption then you are taxed on the $10k so LTCG would be double taxing. You could argue that the inheritance tax should have a much lower exemption but double taxation is harder to justify.

Re: The richest people borrow against their stock (2021)

#190

Post by NotYourLawyer »

Zenzero wrote: post #121
hn_throwaway_99 wrote: post #35

Earlier quoted context omitted.

I disagree the framing is deceptive. A big reason this is done is to avoid paying taxes altogether - borrow against your equity, and then when you die your heirs receive a step-up in basis, so the gains are never taxed. To make it worth while you need to have a crap ton of money, such that the interest on your loans is less than the estate taxes you'd pay. Only very, very rich people pay any estate taxes in the first…

At the time the estate tax is being considered isn't that usually down to a single surviving individual? I imagine it's uncommon for a couple to die at once to qualify for the 27m exemption.

You don’t have to die at the same time. If you leave everything to your surviving spouse, it’s also possible to transfer the benefit of your remaining estate tax exclusion.
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