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
Hang on there. Here’s the loophole. Instead of
1. Have stock that appreciates
2. Borrow against that stock
3. Sell Stock
4. Pay Taxes on appreciation
5. Repay loan
Its
1. Have stock that appreciates
2. Borrow against that stock
3. Die and pass your stock to your children
4. Stock enjoys a [“step up in basis”](https://smartasset.com/financial-advisor/stepped-up-basis) – its cost is “stepped up” to its value at the time of inheritance
5. Sell stock, do not pay taxes because there is no appreciation to pay taxes on
6. Repay loan
This is how the taxes on the appreciation of the stock are avoided. In 2021 the [Biden administration tried and failed ](https://www.apslaw.com/insight-on-estate-planning/2024/02/06/its-time-to-take-another-look-at-the-stepped-up-basis-rules/#:~:text=And%20it’s%20worth%20noting%20that,may%20again%20be%20in%20question)to limit the value of inherited assets that could enjoy a step up in basis.
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