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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)

#191

Post by mschuster91 »

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…

> 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.

Well, "homestead" exemptions are usually already a thing in most countries' inheritance laws. There is no need to draw stocks into the mix.

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

It actually is obvious, at least if you want to prevent a return of feudalist eras.

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

#192

Post by vintermann »

KingOfCoders wrote: post #176
roenxi wrote: post #152

Earlier quoted context omitted.

Or the issue is the money printing that tends to be going on. This strategy should be too risky to work. They'd be losing interest on the money each month and they'd go bankrupt in the long term due to eventually borrowing money into a market downturn. If interest rates are too low though then they wouldn't pay interest each month and the market will keep inflating - so the strategy will work. Basically, this looks l…

One of the best things when you are rich, you can buy when everyone wants to sell, and sell when everyone wants to buy. At one level of money you are not impacted by a market downturn or crisis. Many very rich people in Germany became very rich during or after WW2 - but they already were rich. Normal people just get poor in a crisis or market downturn.

Piketty's point in a nutshell, wasn't it? Only he talked about it in terms of insurance.

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

#193

Post by echoangle »

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…

> 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.

So make an exception for a single home the inheritor personally lives in and tax everything else.

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

#194

Post by traceroute66 »

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…

> The framing is deceptive.

Indeed the framing is very deceptive.

Yes, it helps to have a relationship with a private bank. But as pointed out, some brokerages will let you do it too if you are too poor to be allowed to enter through the door of a private bank.

BUT

The main thing that is skirted around in the article is that it still needs to go through the financial institution's credit committee.

So, for example, you cannot just rock-up with a million in Tesla shares and expect a loan against them, or at least not at a sensible LTV ratio.

The financial institution will want a boring portfolio with government bonds and low-risk corporate shares.

Any bank that would be willing to lend against a high-risk portfolio is probably not the sort of bank you want to do business with anyway.

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

#195

Post by gadders »

theshrike79 wrote: post #142
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…

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.

>> 3) put it in storage or a tax loophole between countries

I think some of the Swiss Freeports would be up there with some of the world's best museums: https://medium.com/@girivasishta07/switzerlands-freeports-se...

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

#196

Post by SomeHacker44 »

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…

This is not true: "very low rate." My brokerage starts at 12+% which I would not call low. It never even reaches prime at millions of borrowing, and I do not have remotely enough to get much better a rate.

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

#197

Post by kman82 »

SomeHacker44 wrote: post #196
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…

This is not true: "very low rate." My brokerage starts at 12+% which I would not call low. It never even reaches prime at millions of borrowing, and I do not have remotely enough to get much better a rate.

Wrong brokerage. Interactive Brokers lends at 5% on large amounts and around 6% on small amounts.

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

#198

Post by gambiting »

zeroonetwothree wrote: post #130
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…

You still need income to pay the interest. Moreover, unless you are nearly dead, it doesn’t make sense to optimize for far off estate tax avoidance since (a) you will be dead anyway, (b) tax laws change all the time, and (c) it would have to be discounted appropriately so it may not even be a win. Personally I think we shouldn’t have capital gains taxes at all so this avoidance method doesn’t bother me.

>>Moreover, unless you are nearly dead, it doesn’t make sense to optimize for far off estate tax avoidance since

It's the other way around. This strategy allows you to not pay any taxes during your lifetime, so you have more money to play with and enjoy. Your inheritors might not have to pay tax on this money, but that's not your concern because like you said - you're dead at this point.

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

#199

Post by impossiblefork »

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…

Yes. As a Swede, I don't even think of individual ownership of assets.

I see a line of descent as the unit which holds property, rather than individuals from that line, and from that PoV inheritance tax of course makes no sense, but similarly, disinheriting somebody, and some other notions, don't make sense either, so it's a different perspective.

I think the Swedish state actually takes my perspective on this, because in Swedish inheritance law you can't disinherit somebody, and we don't have inheritance tax.

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

#200

Post by htrp »

SomeHacker44 wrote: post #196
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…

This is not true: "very low rate." My brokerage starts at 12+% which I would not call low. It never even reaches prime at millions of borrowing, and I do not have remotely enough to get much better a rate.

you need to look at the Lombard landing products offered by banks, not margin loans on brokerage or personal loans
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