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
They may eventually sell assets and pay off, but when timing is right due to asset value increases or changes in tax law. Run up 10 years of 2% interest while stock is appreciating 10% and have a lot more left even after paying loans. Or pay after selling part of real estate portfolio because it’s right time to sell, then use freed up cash to pay. Or sell shares when government reduces capital gains taxes.
Or just keep rolling debts until death and let estate pay off before assets move on to heirs.
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byu/Crazy_Tumbleweed8509 from discussion
inexplainlikeimfive
This comment should explain your concern
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.
What is this loan against securities called and any bank will do this?
Is there a way an average poor person can do something similar?
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