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Yeah, I felt like the “you have to be wealthy” hand-waving in the quoted section wasn’t very explanatory. Are lenders giving the ultra-rich great interest rates

Yeah, I felt like the “you have to be wealthy” hand-waving in the quoted section wasn’t very explanatory. Are lenders giving the ultra-rich great interest rates here as a loss-leader to try to attract other business from them? > First, this type of planning is generally not economically feasible unless the taxpayer has a net worth exceeding around $300M. If you’re worth less than that, you’re not going to be able to command attractive loan/line of credit terms from investment banks. You’re going to have to get a plain vanilla product from a retail lender which is going to have relatively high interest rates (typically the Secured Overnight Financing Rate plus some amount of spread) and other terms that make implementing “buy, borrow, die” expensive enough that you aren’t much better off (or you’re much worse off) than you would have been had you sold the asset and taken the after-tax proceeds. (Caveat: even loans/lines of credit at retail interest rates can still be very useful for short-term borrowing needs.) Clients with a net worth exceeding around $300M, however, can obtain bespoke products from the handful of lenders that specialize in this market, and the terms and conditions of these products make “buy, borrow, die” a no-brainer for virtually everyone who has this level of wealth.

2OEH8eoCRo0 2y ago
It's not really a "how to" guide but an explanation of the scheme.
smsm42 2y ago
It's an investment for a bank which is middle way between regular loan/bond (where you get fixed interest and 100% of the loan at the end, but no appreciation) and stock share (where you get no fixed interest and all the appreciation when you sell it). The hybrid product would be you get some interest and some of the appreciation, but not as much interest as for a loan, and not all the appreciation at the end. How much would obviously be negotiated depending on interest rates, projected appreciation, and other factors. The point here would be to defer paying the interest (to make the asset owner's life easier while they are alive) while leave enough enticement for the bank to agree to the whole scheme (banks usually don't just buy shares in people's 401k's). I do not know which combination specifically works but it doesn't seem implausible for me for such combination to exist.
anonfordays 2y ago
>Are lenders giving the ultra-rich great interest rates here as a loss-leader to try to attract other business from them? Banks and investment firms are not allowed to loan money out privately for less than the AFS, which is 3.72% right now: https://www.investopedia.com/terms/a/applicablefederalrate.asp https://www.investopedia.com/terms/a/applicablefederalrate.a... The entire post reads like a LARP.

2OEH8eoCRo0 2y ago

It's not really a "how to" guide but an explanation of the scheme.

smsm42 2y ago

It's an investment for a bank which is middle way between regular loan/bond (where you get fixed interest and 100% of the loan at the end, but no appreciation) and stock share (where you get no fixed interest and all the appreciation when you sell it). The hybrid product would be you get some interest and some of the appreciation, but not as much interest as for a loan, and not all the appreciation at the end. How much would obviously be negotiated depending on interest rates, projected appreciation, and other factors. The point here would be to defer paying the interest (to make the asset owner's life easier while they are alive) while leave enough enticement for the bank to agree to the whole scheme (banks usually don't just buy shares in people's 401k's). I do not know which combination specifically works but it doesn't seem implausible for me for such combination to exist.

anonfordays 2y ago

>Are lenders giving the ultra-rich great interest rates here as a loss-leader to try to attract other business from them? Banks and investment firms are not allowed to loan money out privately for less than the AFS, which is 3.72% right now: https://www.investopedia.com/terms/a/applicablefederalrate.asp https://www.investopedia.com/terms/a/applicablefederalrate.a... The entire post reads like a LARP.