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I discovered this interesting article by ProPublica on tax strategies of the ultrarich.

It boils down the strategy to Buy Borrow Die.

The idea is you have tons of stock you don't sell. You borrow against it and use that money to fund your lifestyle. Then you set up a complex trust to avoid the estate tax.

I don't understand how borrowing does anything. We assume the ultrarich need money to fund their lifestyle. They borrow it, but they need to pay borrowed money back. So where does the money to settle the debt come from? We are back to square 1.

Wapiti
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    What makes you think you have to pay borrowed money back? As long as there is enough security, the bank will gladly add interest and carry your loan forward forever. – Aganju Feb 17 '22 at 02:08
  • "So where does the money to settle the debt come from?" From their salary, or dividends, or from other loans, or from selling just enough to pay the loan payments. Plus if you die with outstanding loans, the estate has to pay them back. So you're really just deferring the tax, maybe to your heirs. – D Stanley Feb 17 '22 at 02:51
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    @DStanley we discussed this in the question I duped this for, but the bottom line is no, you're not deferring the tax. At death the estate gets a stepped-up basis, so the capital gains taxes on proceeds to settle the loan are essentially non-existent. There's an estate tax, true, but estate tax is not an income tax, it's a wealth tax, a different type of tax. The income tax is not deferred, it's avoided in this scheme. – littleadv Feb 17 '22 at 04:35

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