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Buy, Borrow, Die – Explained

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Re: Buy, Borrow, Die – Explained

#281

Post by elihu »

bhauer wrote: post #51
wmf wrote: post #42

If this is accurate, it finally explains something I've been asking about for years: The loan is paid back after the step-up in basis. That's the loophole. If the loan was paid back before step-up, the estate would still have to pay capital gains tax.

The step-up in cost basis on death is the original sin that underpins the entire debate over unrealized gains. It's disheartening to see so much thought and deliberation going into an obviously toxic idea (taxing unrealized gains) when the obvious solution (removing the cost basis step-up when assets change hands) is being ignored. Inherited wealth is the least earned, so it should be politically palatable to change…

Another thing that could be fixed if we wanted to ensure that wealthy people actually pay taxes during their lifetime would be to treat taking out a loan using an asset as collateral as effectively the same thing as selling the asset and buying it back at the same price. They then have to pay capital gains.ize

Taxing unrealized gains in general I think is impractical since many assets simply don't have well-defined valuations, but if you take out, say, a $10 million loan using, say, shares in a privately traded company, then those shares are apparently worth $10 million dollars because the owner and the bank agreed they were.

Re: Buy, Borrow, Die – Explained

#282

Post by dlp211 »

fallingknife wrote: post #264
treyd wrote: post #217

Earlier quoted context omitted.

> otherwise it will just gradually get worse. The austerity policies of the neoliberal turn has already caused standards of living among the less fortunate to drop over the last few decades already. The 2008 crisis is when it started to impact the middle class and we're still feeling the impacts 16+ years later.

There has been no austerity: https://fred.stlouisfed.org/series/FYONGDA188S

I'm not saying you're wrong, but that graph doesn't show anything with regards to whether or not middle-class folks have been hit with austerity.

Federal outlays are not granular enough and increasing Federal outlays is pretty meaningless.

Re: Buy, Borrow, Die – Explained

#283

Post by gamepsys »

zkelvin wrote: post #114
bhauer wrote: post #51

Earlier quoted context omitted.

The step-up in cost basis on death is the original sin that underpins the entire debate over unrealized gains. It's disheartening to see so much thought and deliberation going into an obviously toxic idea (taxing unrealized gains) when the obvious solution (removing the cost basis step-up when assets change hands) is being ignored. Inherited wealth is the least earned, so it should be politically palatable to change…

Do you consider municipal property taxes (which, when the property value has risen since purchase, effectively taxes unrealized capital gains) also to be "obviously toxic"?

Yes. In regions where real estate prices explode many people are forced out of their homes because they cannot pay the increased tax. This specifically hits senior citizens hard. It's not uncommon for a property to increase it's taxes >30% some years in these boom towns. This creates an economic burden on long term residents, that is mostly used to pay for infrastructure that is needed to accommodate newcomers.

Re: Buy, Borrow, Die – Explained

#284

Post by anon291 »

IncreasePosts wrote: post #15
SeanAnderson wrote: post #8

Earlier quoted context omitted.

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?

I'm going to bring up a point here that no one else is making because they mistakenly believe this to be about taxation.

So firstly I use this strategy. I am not anywhere near $300M in net worth but anyone can do this with a few hundred K in stock and a margins account at IBKR.

Anyway, the reason has nothing to do with tax and everything to do with cash. Cash is dangerous. Once you have cash, the value can decline. On the other hand equity in actual companies is always going to have value. Companies like coca cola, Johnson Johnson, etc provide necessary things. They will always have cash flow regardless of how the dollar is doing. Equity is a huge inflation hedge. For me personally I was unaffected by inflation because stock prices inflated as revenues increase anyway. Cash is dangerous.

If you sell equity, it can be difficult to buy back in. Instead it's better to borrow. The equity will eventually go up and you can borrow more. Also, borrowing is instant, whereas selling is volatile as huge dumps of shares can easily manipulate the price on the open market.

Either way, you de-risk not being exposed to equity, which is a valuable store of income. Cash is an extremely dangerous way to store value, in my view, and I'm guessing many of these people.

Re: Buy, Borrow, Die – Explained

#285

Post by jpfr »

delta_p_delta_x wrote: post #199
danpad wrote: post #109

Earlier quoted context omitted.

I don't think it's that unfathomable when you look at how governments spend the money. E.g. a public Czech university spent 80k euros to change their logo from this: https://cdn.xsd.cz/resize/21404adf37a83977870fe87fe0eb4ea6_r... to this: https://www.em.muni.cz/cache-thumbs/logo_muni_web-1580x790-2... Why does a public university, one of the most popular in the country, need a new logo? And if it needs a new logo, wh…

80K euro might sound like a lot until you realise it is around the combined annual salary for two mid-level employees in Western Europe, and for about a team of four to five in Eastern Europe. To ask a team of designers to do brand and marketing research and design a new logo for a big organisation that will use said logo everywhere is not a 1K euro freelancer job. To be fair, the new logo is a bit crap, but in the g…

You assume that the salary is what it costs for the company to have an employee. You need to at least double that.

There is overhead for the person itself (employer subsidized healthcare, office space, equipment) and there is overhead within the organization. Like a secretary and accounting departments who cannot be billed to a client. And management layers of course…

Most likely the 80k are enough to cover one person-year for a consulting agency in Eastern Europe.

That said, the new logo is atrocious.

Re: Buy, Borrow, Die – Explained

#286

Post by lucianbr »

SeanAnderson wrote: post #69
lucianbr wrote: post #58

Earlier quoted context omitted.

You don't seem to have accounted for "stock appreciation rights" at all, which was the whole point. > At a 0.5% interest rate they would have paid just $20M in interest. Plus these "stock appreciation rights", whatever and however much they are.

I mentioned it at the bottom. The report doesn't provide numbers. I would assume that they would negotiate a rate that results in marginally higher yield than a bond that would mature over the lifetime of the loan. 30 year bond is ~4.2%. You'd pay $60M in interest on a single loan at 10yrs and $183m if you took out repeated loans at 10yr/20yr/30yr and repaid at 35. I assume that the math works out such that if you ha…

This was the question:

> Is there any indication that this would be cheaper than just paying the $17M in taxes?

You wrote a lot of words besides the point, and the only thing that is on point is:

> I assume that the math works out

Maybe it does, maybe it doesn't. We don't know. You don't know, and you assuming it does proves nothing and is not a useful argument.

Re: Buy, Borrow, Die – Explained

#287

Post by jpfr »

fallingknife wrote: post #226
delta_p_delta_x wrote: post #199

Earlier quoted context omitted.

80K euro might sound like a lot until you realise it is around the combined annual salary for two mid-level employees in Western Europe, and for about a team of four to five in Eastern Europe. To ask a team of designers to do brand and marketing research and design a new logo for a big organisation that will use said logo everywhere is not a 1K euro freelancer job. To be fair, the new logo is a bit crap, but in the g…

The point is that a public university doesn't gain anything from a good logo, so really anything over $0 is too much. And that $80K doesn't take into account the probably much larger expense of updating that logo throughout the university.

Universities, cities, regions and countries do have PR departments.

Arguably the public image of a university is its most important asset. Because that attracts the best students, researchers and third party funding (public and private).

Re: Buy, Borrow, Die – Explained

#289

Post by dcchambers »

TL;DR - It's a ridiculously effective way to live a lavish life with minimal taxes if you have large assets.

When this whole "tax unrealized gains" thing first came up I first thought it was absurd...but then I learned how it is abused in ways like this and I have to say I am on board with it if its a way to shut down this loophole.

I think taxing unrealized gains for Joe Schmo sitting on $100K in NVDA isn't going to do any good, but it's also clear there is a real problem here that the ultra wealthy are taking advantage of. I'm not quite sure how you do it fairly, but something has to change.

Re: Buy, Borrow, Die – Explained

#290

Post by smsm42 »

paulryanrogers wrote: post #269
smsm42 wrote: post #228

Earlier quoted context omitted.

Mostly because there's really no way for them to. When I was young and poor, I didn't have much way to pay less taxes (not that I paid that much - but if I wanted to pay less, I couldn't) - I just had my salary, and whatever is deducted from it was it, I had no realistic way to change it. Even such things as charity donations wouldn't change it because to get out of standard deductions etc. I'd have to donate way mor…

Right but why go so far? Until you become like Buffett, surprised to pay less than ones secretary.

> surprised to pay less than ones secretary.

I don't think this is actually true. It's a nice rhetorical soundbite, but if you count properly (e.g. all taxes all assets owned by Buffett actually pay) there's no way he pays less unless his secretary is extremely exceptional for some reason. It is true that her tax structure is probably different from Buffett's, so if you creatively form your query so that taxes that Buffett predominantly pays are excluded and taxes that the secretary predominantly pays are included, you could probably find a way to justify it, but that would not be a valuable insight.

And of course the whole "pays less", as formulated, is a bit deceptive - his rate of one of the taxes is lower as a percentage, but he actually pays vastly more in actual money (Berkshire Hathaway alone, in which he holds a substantial share, pays billions in taxes every year).

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