5 ms·
You don't necessarily have to pay back the loan until your death, then it is taken from the estate and the balance passed on to heirs. At that point the step up
by paul_f 5y ago
You don't necessarily have to pay back the loan until your death, then it is taken from the estate and the balance passed on to heirs. At that point the step up basis occurs and the process starts over again. No taxes were paid on the value of the loan. (Correct me if wrong on this)
- throwaway210222 5y agoNo tax perhaps, but interest has to be paid. Of course, in a ZIRP fantasyland the interest is negligible.
- e12e 5y agoIf the choice is 40% tax or 2% interest...
- kristjansson 5y agoI mean, long term rate is 20%, so taking a margin loan at 2% to finance consumption is a bet that you have less than 10 years to go…
- papercrane 5y agoThat's assuming the asset that would've been sold doesn't increase in value. It's likely that the asset will increase in value more than the cost of the loan.
- koheripbal 5y agoYou are conflating assets and liabilities. Are you really suggesting people pay taxes on their liabilities? That would be insane.
- kristjansson 5y agoThat’s one of those things that seems too dumb to possibly be true, but it looks like it is? An estate can sell stocks in probate with cost basis set to date of death, not purchase? Sort of makes sense, the heirs would get the stepped-up basis, the stocks, and the debt if the executor didn’t net them out in probate. I guess it’s a bet you’ll be dead before the interest outweighs the potential tax, or volatility spikes? Betting on your own death seems to macabre, and too tempting too the fates.
- papercrane 5y agoFor ultra-high net worth individuals it's a pretty safe strategy. Typically a low volatility equity that doesn't pay dividends is used and only a small percentage of their portfolio is used. Over the long run it tends to work in their favour as well, since it's very likely that the increase in the portfolio value will outpace the interest paid.
- kristjansson 5y ago> increase in the portfolio value will outpace the interest paid Ah, right. Caught me twice on my fixed-pie thinking :)
- Chamix 5y agoYou pay off the interest with the 40k of equities you can liquidate in 0% capital gains bracket, per year. And yes, a bet that interest rates will remain below effective tax beyond that.