Buy, Borrow, Die Tax Strategy: How To Never Pay Taxes Again

How Billionaires Avoid Taxes: The Buy Borrow Die Strategy

Understanding the Tax Disparity

• Most billionaires pay significantly less in taxes compared to average Americans, who can pay up to 37% of their income.

• The key to this disparity lies in how wealth is taxed; avoiding income tax is possible by not realizing income through asset appreciation and borrowing.

The Buy Borrow Die Tax Strategy

• This strategy involves three main steps: buying appreciating assets, borrowing against those assets, and passing on wealth tax-free upon death.

• As a licensed CPA, the speaker emphasizes that understanding this process can help individuals save on taxes effectively.

Step 1: Buy Appreciating Assets

• Invest in assets like stocks, real estate, or businesses that appreciate over time; these are crucial for building wealth without incurring immediate taxes.

• Holding onto appreciated assets means no taxes are paid until they are sold; ultra-wealthy individuals often have significant unrealized capital gains because they do not sell their investments.

Step 2: Borrow Against Your Assets

• Instead of selling assets (which incurs taxes), individuals can borrow against them. Loan proceeds are not considered taxable income.

• Keeping investments intact while borrowing allows continued growth potential; an example illustrates how borrowing can lead to higher total returns compared to selling.

Benefits of Borrowing Against Assets

• Borrowing enables "double dipping," where borrowed funds can be reinvested into additional assets, increasing overall capital at work.

Understanding the Buy, Borrow, Die Strategy

The Benefits of Interest Expense

• Interest expense allows for prolonged investment periods, enabling additional investments without needing to sell assets and incur capital gains taxes.

• It can also offset other income on tax returns, making it potentially worthwhile despite the associated risks of borrowing.

Evaluating Risks in Borrowing

• Individuals must carefully assess the risks and costs involved when considering borrowing against their assets.

• The type of asset owned will determine the borrowing method available.

Tools for Borrowing Against Assets

• For stocks and bonds, a Securities Backed Line of Credit (SBLOC) or portfolio loan can be utilized.

• A margin loan is an option specifically for purchasing more securities.

• Homeowners can leverage a Home Equity Line of Credit (HELOC), while business owners may use a business line of credit or secured loan.

• Permanent life insurance policies with cash value components allow policyholders to borrow against their policies.

Tax Benefits Upon Death

• Heirs inherit assets at fair market value upon death, which eliminates capital gains tax liabilities due to the "Step Up Basis" rule.

• This means if an asset appreciates significantly before death, heirs benefit from its current value without incurring taxes if sold immediately after inheritance.

Estate Tax Considerations

• Most individuals are not subject to estate tax as it only applies to amounts exceeding $13 million for single taxpayers and $27 million for married couples (as per current regulations).

• For those facing potential state estate taxes, irrevocable trusts may provide strategies to mitigate these taxes effectively.

Personal Reflection on Debt Strategies

• The speaker expresses personal reservations about taking on debt but acknowledges its potential benefits from both tax and wealth perspectives.