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I disagree the framing is deceptive. A big reason this is done is to avoid paying taxes altogether - borrow against your equity, and then when you die your heir

I disagree the framing is deceptive. A big reason this is done is to avoid paying taxes altogether - borrow against your equity, and then when you die your heirs receive a step-up in basis, so the gains are never taxed. To make it worth while you need to have a crap ton of money, such that the interest on your loans is less than the estate taxes you'd pay. Only very, very rich people pay any estate taxes in the first place because a couple's estate tax exemption is currently over $27 million.

creer 2y ago
> avoid paying taxes altogether At some stage in wealth, perhaps, and not avoid but postpone. More important probably are cases where actually selling the shares means giving up control over a business, or having to settle things with the rest of the family whose "destiny" it is to hold these shares in common.
- deepsun 2y ago
  Not postpone -- avoid. The base price of the asset is adjusted at the time of your death, so if bank sells the asset immediately, they pay no taxes. https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/buy_borrow_die_explained/ https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...
  - creer 2y ago
    There is confusion between capital gains tax and estate tax (and estate planning devices like trust law). And that matters. Is the problem capital gains tax as some people claim or is it elsewhere? In the process described, capital gains tax is not even postponed (and that write up does not provide for Peter's major expenses during life). That write up works (when it does) because of bypassing estate tax. The need for realizing capital gains is eliminated through trust, estate planning and other estate tax law (seems to me). The whole of the procedure is in that side of the equation. Not in capital gains tax law. So the question: Does this all call for a change in capital gains tax law or changes in estate planning (trusts) and estate tax law? When you use margin loan or pledged assets lines of credit, you are postponing. Which you can potentially kick all the way into estate tax (which your estate may pay if it's large enough). That write up is different still and describes working around even that estate tax. And then the question does matter of which law you are asking to change. (Besides the traditional method of making a law, any random law, thereby solving all problems for eternity - or at least gaining some voter satisfaction.)
    - deepsun 2y ago
      Yep. The link above says: > The conventional wisdom is that you can avoid income tax (via the basis adjustment at death) or you can avoid estate tax (via lifetime gifting and estate freezing strategies) but you can’t do both. This conventional wisdom is wrong, and I’ll explain why below.
- scoofy 2y ago
  No.
Zenzero 2y ago
At the time the estate tax is being considered isn't that usually down to a single surviving individual? I imagine it's uncommon for a couple to die at once to qualify for the 27m exemption.
- NotYourLawyer 2y ago
  You don’t have to die at the same time. If you leave everything to your surviving spouse, it’s also possible to transfer the benefit of your remaining estate tax exclusion.
- hn_throwaway_99 2y ago
  Search for "estate tax exemption portability".
zeroonetwothree 2y ago
You still need income to pay the interest. Moreover, unless you are nearly dead, it doesn’t make sense to optimize for far off estate tax avoidance since (a) you will be dead anyway, (b) tax laws change all the time, and (c) it would have to be discounted appropriately so it may not even be a win. Personally I think we shouldn’t have capital gains taxes at all so this avoidance method doesn’t bother me.
- gambiting 2y ago
  >>Moreover, unless you are nearly dead, it doesn’t make sense to optimize for far off estate tax avoidance since It's the other way around. This strategy allows you to not pay any taxes during your lifetime, so you have more money to play with and enjoy. Your inheritors might not have to pay tax on this money, but that's not your concern because like you said - you're dead at this point.
eadmund 2y ago
The issue is the step-up in basis, not borrowing against assets. The step-up in basis really is a giveaway. I think that it would make a ton of sense to transfer the basis rather than step it up.
- hackernewds 2y ago
  transfer the basis to whom? better not inherit anything
  - Shaanie 2y ago
    If I buy something for $10 and it's worth $10,000 when you inherit it, you should (obviously?) be taxed on the increase in value from $10 -> $10,000 if/when you sell. The purchase price shouldn't be "reset" to $10k. It'sutterly insane to me that the step-up basis exists in the US, it's such an obvious loophole that can fairly easily be closed without many adverse effects. In my country (Sweden) if you don't know the purchase price, you can use an approximate purchasing price (e.g. for equities you are allowed to assume that it was acquired for 20% of the current value, so you'd be taxed on 80%).
    - nobodywillobsrv 2y ago
      Why should you be taxed on it at all?tax is policy. You tax things you want people to consume less of. Inflation makes nominal values to up. More inflation more capital gains. Gov is now incengltivized to inflate to pull tax out of realized assets that have not even gained real value
      - scotty79 2y ago
        What you tax is not really relevant as long as it doesn't disrupt some activity you want to continue happening. If it was up to me I'd tax spending not income. Regardless of what you are spending on. Bread? Sure! Employee? Yes! 10% of Tesla? Same!
        2y ago
refurb 2y ago
This sounds like a great idea but really fails the sniff test: - you’d need to borrow for decades, where, even at low interest rates were burn through significant capital (more than taxes would) - you’d need low interest rates to exists for decades which we know doesn’t happen - finally, all these Uber rich (Bezos, Musk) have all sold significant portions of their equity and paid taxes on it This seems like nothing more than a hypothetical idea.
- moralestapia 2y ago
  [flagged]
- SuchAnonMuchWow 2y ago
  The article goes into great detail and gives several example of several CEOs borrowing for actual decades, so it passes the sniff test because it does actually happen.
  - silotis 2y ago
    The article gives examples of CEOs borrowing against their shares. The article provides no examples of CEOs rolling those loans over until their death.
nobodywillobsrv 2y ago
Yes but that is because taxes are incoherent and abhorrent Why do we tax realized capital gains at all and why based on the ruler of fiat which is controlled by those who tax (they keep making the ruler shorter) If the goal is to creat drag on multiplicative dynamics then do so coherently Tax should make sense at least in core targets. Yet there are no core targets.
- CPLX 2y ago
  Because realized capital gains are income and we tax income.
technothrasher 2y ago
> Only very, very rich people pay any estate taxes in the first place because a couple's estate tax exemption is currently over $27 million. That's federal estate tax. State tax can be different. Massachusetts, for example, has estate taxes on over $2M ($4M for a couple who manages their estate plan wisely).
- potato3732842 2y ago
  State estate tax is just a tax on people who are ignorant of it, unwilling to plan for it or who's relationship with their heir(s) is too dysfunctional to dodge it. The rich almost always avoid it. The poor are never subject to it. It's like greasing a couple rungs in the middle of the economic ladder IMO. I'm not a fan.
- vel0city 2y ago
  Massachusetts requires estates worth $1M+ to report for estate taxes. There's something like a $60k exemption and then it's a progressive rate system. Based on what I'm seeing, a $2M Massachusetts estate would have $50k of estate taxes to pay, a 2.5% effective tax rate. In the end though only 12 states have an estate tax, and Massachusetts has the lowest threshold and highest rates.
atmavatar 2y ago
Borrowing against the current value of your stocks should automatically cause any gains to become realized for tax purposes.
- valval 2y ago
  Funny that you’d take this route. I’d just lower capital gains tax rates.

creer 2y ago

> avoid paying taxes altogether At some stage in wealth, perhaps, and not avoid but postpone. More important probably are cases where actually selling the shares means giving up control over a business, or having to settle things with the rest of the family whose "destiny" it is to hold these shares in common.

deepsun 2y ago
Not postpone -- avoid. The base price of the asset is adjusted at the time of your death, so if bank sells the asset immediately, they pay no taxes. https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26rsf/buy_borrow_die_explained/ https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...
- creer 2y ago
  There is confusion between capital gains tax and estate tax (and estate planning devices like trust law). And that matters. Is the problem capital gains tax as some people claim or is it elsewhere? In the process described, capital gains tax is not even postponed (and that write up does not provide for Peter's major expenses during life). That write up works (when it does) because of bypassing estate tax. The need for realizing capital gains is eliminated through trust, estate planning and other estate tax law (seems to me). The whole of the procedure is in that side of the equation. Not in capital gains tax law. So the question: Does this all call for a change in capital gains tax law or changes in estate planning (trusts) and estate tax law? When you use margin loan or pledged assets lines of credit, you are postponing. Which you can potentially kick all the way into estate tax (which your estate may pay if it's large enough). That write up is different still and describes working around even that estate tax. And then the question does matter of which law you are asking to change. (Besides the traditional method of making a law, any random law, thereby solving all problems for eternity - or at least gaining some voter satisfaction.)
  - deepsun 2y ago
    Yep. The link above says: > The conventional wisdom is that you can avoid income tax (via the basis adjustment at death) or you can avoid estate tax (via lifetime gifting and estate freezing strategies) but you can’t do both. This conventional wisdom is wrong, and I’ll explain why below.
scoofy 2y ago
No.

Zenzero 2y ago

At the time the estate tax is being considered isn't that usually down to a single surviving individual? I imagine it's uncommon for a couple to die at once to qualify for the 27m exemption.

NotYourLawyer 2y ago
You don’t have to die at the same time. If you leave everything to your surviving spouse, it’s also possible to transfer the benefit of your remaining estate tax exclusion.
hn_throwaway_99 2y ago
Search for "estate tax exemption portability".

zeroonetwothree 2y ago

You still need income to pay the interest. Moreover, unless you are nearly dead, it doesn’t make sense to optimize for far off estate tax avoidance since (a) you will be dead anyway, (b) tax laws change all the time, and (c) it would have to be discounted appropriately so it may not even be a win. Personally I think we shouldn’t have capital gains taxes at all so this avoidance method doesn’t bother me.

gambiting 2y ago
>>Moreover, unless you are nearly dead, it doesn’t make sense to optimize for far off estate tax avoidance since It's the other way around. This strategy allows you to not pay any taxes during your lifetime, so you have more money to play with and enjoy. Your inheritors might not have to pay tax on this money, but that's not your concern because like you said - you're dead at this point.

eadmund 2y ago

The issue is the step-up in basis, not borrowing against assets. The step-up in basis really is a giveaway. I think that it would make a ton of sense to transfer the basis rather than step it up.

hackernewds 2y ago
transfer the basis to whom? better not inherit anything
- Shaanie 2y ago
  If I buy something for $10 and it's worth $10,000 when you inherit it, you should (obviously?) be taxed on the increase in value from $10 -> $10,000 if/when you sell. The purchase price shouldn't be "reset" to $10k. It'sutterly insane to me that the step-up basis exists in the US, it's such an obvious loophole that can fairly easily be closed without many adverse effects. In my country (Sweden) if you don't know the purchase price, you can use an approximate purchasing price (e.g. for equities you are allowed to assume that it was acquired for 20% of the current value, so you'd be taxed on 80%).
  - nobodywillobsrv 2y ago
    Why should you be taxed on it at all?tax is policy. You tax things you want people to consume less of. Inflation makes nominal values to up. More inflation more capital gains. Gov is now incengltivized to inflate to pull tax out of realized assets that have not even gained real value
    - scotty79 2y ago
      What you tax is not really relevant as long as it doesn't disrupt some activity you want to continue happening. If it was up to me I'd tax spending not income. Regardless of what you are spending on. Bread? Sure! Employee? Yes! 10% of Tesla? Same!
      - 2y ago

refurb 2y ago

This sounds like a great idea but really fails the sniff test: - you’d need to borrow for decades, where, even at low interest rates were burn through significant capital (more than taxes would) - you’d need low interest rates to exists for decades which we know doesn’t happen - finally, all these Uber rich (Bezos, Musk) have all sold significant portions of their equity and paid taxes on it This seems like nothing more than a hypothetical idea.

moralestapia 2y ago
[flagged]
SuchAnonMuchWow 2y ago
The article goes into great detail and gives several example of several CEOs borrowing for actual decades, so it passes the sniff test because it does actually happen.
- silotis 2y ago
  The article gives examples of CEOs borrowing against their shares. The article provides no examples of CEOs rolling those loans over until their death.

nobodywillobsrv 2y ago

Yes but that is because taxes are incoherent and abhorrent Why do we tax realized capital gains at all and why based on the ruler of fiat which is controlled by those who tax (they keep making the ruler shorter) If the goal is to creat drag on multiplicative dynamics then do so coherently Tax should make sense at least in core targets. Yet there are no core targets.

CPLX 2y ago
Because realized capital gains are income and we tax income.

technothrasher 2y ago

> Only very, very rich people pay any estate taxes in the first place because a couple's estate tax exemption is currently over $27 million. That's federal estate tax. State tax can be different. Massachusetts, for example, has estate taxes on over $2M ($4M for a couple who manages their estate plan wisely).

potato3732842 2y ago
State estate tax is just a tax on people who are ignorant of it, unwilling to plan for it or who's relationship with their heir(s) is too dysfunctional to dodge it. The rich almost always avoid it. The poor are never subject to it. It's like greasing a couple rungs in the middle of the economic ladder IMO. I'm not a fan.
vel0city 2y ago
Massachusetts requires estates worth $1M+ to report for estate taxes. There's something like a $60k exemption and then it's a progressive rate system. Based on what I'm seeing, a $2M Massachusetts estate would have $50k of estate taxes to pay, a 2.5% effective tax rate. In the end though only 12 states have an estate tax, and Massachusetts has the lowest threshold and highest rates.

atmavatar 2y ago

Borrowing against the current value of your stocks should automatically cause any gains to become realized for tax purposes.

valval 2y ago
Funny that you’d take this route. I’d just lower capital gains tax rates.