How do the super-rich pay back loans that they take out against their assets to unlock cash?

Question

I’ve seen in a few places that the super-rich can unlock their wealth ‘tax free’ by taking out a loan secured against their shareholdings or other assets, then use the cash from the loan to buy real stuff.

But how do they pay back the loan?

In: 196

Answer 1

You take out a slightly bigger loan to pay off the interest and principal of the original. Then you take out another even slightly bigger loan to pay off that one, and so on until you die.

Then whoever inherits your assets gets a step-up in basis (you’re only taxed on gains, which is current market price minus basis). And then they immediately sell some of those assets to pay off those loans, before the market price has a chance to increase beyond the stepped up basis.