“Buy, Borrow, Die” for America’s wealthy: Why don’t the rich rush to sell their assets?
A wealth management strategy often discussed in the United States is called Buy, Borrow, Die.
At its core, it is not a mysterious tax-avoidance tool, but a way to take advantage of the relationship between asset appreciation, secured loans, and inheritance tax rules.
Step one: Buy assets that appreciate in value.
If assets such as stocks and real estate continue to rise in value, their owners can build wealth. But as long as they are not sold, the gains on paper are generally unrealized, meaning that an increase in an asset’s value alone usually does not trigger capital gains tax.
Step two: Borrow against your assets instead of selling them.
Suppose you buy $1 million worth of stock, and its value later rises to $5 million.
If you sell, you may have to pay tax on the realized capital gains. But if you borrow against the stock, you can get cash while continuing to hold the shares.
In the United States, a bona fide loan is generally not considered taxable income because the money must be repaid.
However, loans are not cost-free. Interest, falling collateral values, margin calls, and forced liquidation can all pose risks.
Step three: Take advantage of applicable inheritance tax rules.
Under current U.S. federal tax law, many inherited assets can generally have their tax basis reset to their fair market value at the time of the original owner’s death. When the requirements are met, this may reduce the tax burden on unrealized capital gains that accumulated before the owner’s death.
But estate taxes, asset type, the details of the transaction structure, and individual circumstances all affect the final outcome. The same rules do not apply to every asset.
The strategy is essentially about combining asset appreciation, cash flow, and the timing of tax payments.
The advantage the wealthy have is sometimes not just that their assets appreciate quickly, but that they can continue to access funds without having to sell their assets in a hurry.
Keep in mind that this is a U.S. tax strategy with significant requirements and risks. It cannot necessarily be applied in the same way in other countries or regions.
A wealth management strategy often discussed in the United States is called Buy, Borrow, Die.
At its core, it is not a mysterious tax-avoidance tool, but a way to take advantage of the relationship between asset appreciation, secured loans, and inheritance tax rules.
Step one: Buy assets that appreciate in value.
If assets such as stocks and real estate continue to rise in value, their owners can build wealth. But as long as they are not sold, the gains on paper are generally unrealized, meaning that an increase in an asset’s value alone usually does not trigger capital gains tax.
Step two: Borrow against your assets instead of selling them.
Suppose you buy $1 million worth of stock, and its value later rises to $5 million.
If you sell, you may have to pay tax on the realized capital gains. But if you borrow against the stock, you can get cash while continuing to hold the shares.
In the United States, a bona fide loan is generally not considered taxable income because the money must be repaid.
However, loans are not cost-free. Interest, falling collateral values, margin calls, and forced liquidation can all pose risks.
Step three: Take advantage of applicable inheritance tax rules.
Under current U.S. federal tax law, many inherited assets can generally have their tax basis reset to their fair market value at the time of the original owner’s death. When the requirements are met, this may reduce the tax burden on unrealized capital gains that accumulated before the owner’s death.
But estate taxes, asset type, the details of the transaction structure, and individual circumstances all affect the final outcome. The same rules do not apply to every asset.
The strategy is essentially about combining asset appreciation, cash flow, and the timing of tax payments.
The advantage the wealthy have is sometimes not just that their assets appreciate quickly, but that they can continue to access funds without having to sell their assets in a hurry.
Keep in mind that this is a U.S. tax strategy with significant requirements and risks. It cannot necessarily be applied in the same way in other countries or regions.