As far as I understand it, a billionaire’s wealth is wrapped up in stock, which is used as collateral to borrow money to actually spend. So how do they pay off those loans? With other loans? Loans all the way down?
In: Economics
They also use dividends that they earn from stock which is taxed at a lower rate then income though work.
Take loans against value of stock, and live off those loans.
Die with loans due.
Estate liquidates assets and pays off the loans.
You do not have to pay off loans, well eventually they will have to be paid off but the bank is happy to just let you have your loan as long as you pay the interest. Or even if your collateral grows more in value then the interest they just add the interest to the existing loan.
They don’t. As someone else mentioned, they are usually paid back with borrower assets upon death.
A billionaire may have wealth in form of stock, art and other collectibles, cash and cash equivalents, money market accounts, CDs, bonds, bullion, commodities, real estate, thoroughbreds, airplanes and yachts, etc. etc. etc. Some of it relatively liquid, other harder to convert.
There’s no one way the wealth is held and every billionaire will have a different mix of assets. Some of it may be financed, some of it may be pledged as collateral on loans. They aren’t really a billionaire unless the sum total of the assets exceeds the sum total of the liabilities by at least 1 Billion dollars.
If they’re borrowing off the assets to finance their life style then they pay off the loans as they come due with other assets (likely cash on hand). Or they have to sell other assets to cover the debt. But if their debts exceed the assets, then they’re not really a billionaire at all.
They don’t because they don’t have to really.
If you have a million dollars debt to bank, it’s your problem. If you have a 10 billion debt to bank, it’s bank’s problem.
This is a reddit meme that billionaires never sell stock. For anybody with a large amount of stock, they must make all their trades public. Take Bezos for example, you can see a list of his trades here:
https://www.nasdaq.com/market-activity/insiders/bezos-jeffrey-p-48340
Or Elon Musk:
https://www.nasdaq.com/market-activity/insiders/musk-elon-831665
With dividends or selling stock. Another option is too continue rolling the loan over unril you die then it gets settled by your estate selling the stick.
Which option is chosen depends on current interrst rates and the tax law of the country.
You pay them off with more loans. The theory is the value of the stock, property etc the loans are secured against has gone up, so you can get a bigger loan. And so on.
And then you die with the loans outstanding and your estate settles it up, the tax implications at that point are all different.
And you don’t otherwise pay tax on this cause the increasing value of the stock, property etc is only taxed when you “realize” it by selling it, hence the current talk about taxing “unrealized gains”. I should not for completeness that that tax is mostly being discussed for super wealthy.
You don’t even have to be a billionaire. Whole life insurance is an asset you can take a loan against for about 90% of the value. Take the money out, get a loan secured again a housing property, flip it, pay back the housing loan, take the difference, buy a bigger house, etc. Make sure to keep paying the whole life insurance yearly premiums for about 10 years, until eventually the value of the life insurance pays the premiums itself.
The life insurance becomes a loan vehicle that repays itself on the payout (at the time of your death.)
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