So you've heard whispers about this "buy borrow die strategy" that billionaires use to stay rich? Maybe at a cocktail party or in some finance subreddit. Well, let me tell you straight up – it's not magic, but it's about as close as you can legally get to a cheat code for wealth building. I first stumbled onto this concept when helping a client untangle their messy stock portfolio back in 2017. Honestly? My initial reaction was skepticism. "This sounds too good to be true," I thought. But after seeing the math play out in real life over five years? It's the real deal.
What Exactly is the Buy Borrow Die Strategy? (And Why Should You Care?)
At its core, the buy borrow die strategy is shockingly simple:
- Buy appreciating assets (stocks, real estate, fine art – we'll get into specifics later)
- Borrow against those assets when you need cash
- Die without selling, passing assets to heirs with a stepped-up basis
The magic happens because borrowing isn't taxable income. Meanwhile, your assets keep growing untouched. I've seen folks mess this up by overcomplicating it. Like my neighbor who tried using his cryptocurrency wallet as collateral in 2021 – bad move when the crypto winter hit. Stick to stable assets.
The Nuts and Bolts: How Buy Borrow Die Actually Functions
| Stage | Action | Tax Implication | Real-Life Example |
|---|---|---|---|
| Buy Phase | Acquire long-term appreciating assets | No immediate tax benefit | Purchasing $500k in blue-chip stocks |
| Borrow Phase | Take securities-backed loans against assets | Loan proceeds ≈ tax-free cash | Borrowing $100k at 3% for living expenses |
| Die Phase | Assets transfer to heirs upon death | Stepped-up basis eliminates capital gains tax | Heirs sell stock with $0 capital gains tax |
The kicker? You never trigger capital gains taxes by selling. That's why Warren Buffett famously pays less tax than his secretary. His Berkshire shares? Never sold – just borrowed against.
The Step-by-Step Breakdown of the Buy Borrow Die Strategy
Let's walk through exactly how you'd implement this, with actual numbers:
Stage 1: The Buying Process (Getting This Right is 80% of Success)
Not all assets work for buy borrow die:
- Winners: S&P 500 index funds (0.03% expense ratio), rental properties in growing markets (check Zillow's rent estimates), farmland (weirdly stable)
- Losers: Cryptocurrency (volatile), collectibles (hard to value), your startup's stock (illiquid)
Target allocation:
| Asset Type | Recommended % | Collateral Value % | Liquidity Rating |
|---|---|---|---|
| Public Stocks | 50-70% | 70-80% | High |
| Investment Real Estate | 20-40% | 50-65% | Medium |
| Private Equity | 0-10% | 20-40% | Low |
I learned this the hard way when a client put 40% into private equity. When he needed cash during COVID? Couldn't borrow against it. Stick to liquid markets.
Stage 2: Borrowing Like a Pro (Without Getting Margin Called)
Loan-to-value ratios are your lifeline:
- Most banks will lend 50-80% against stocks (higher for diversified portfolios)
- Interest rates vary wildly: Schwab currently offers 5.5% while Interactive Brokers drops to 4.5% for big balances
- Critical: Never borrow more than 30% of your portfolio value. The 2008 crash vaporized people at 50%+
Example calculation:
$1M stock portfolio → Borrow $300k (30%)
Annual interest at 5% = $15,000
Portfolio grows at 7% avg = $70,000
Net gain = $55,000 tax-free cash flow
Compare this to selling $300k of stock in a 20% capital gains bracket: $60k down the drain!
Stage 3: The Estate Planning Endgame
This only works if your estate plan is airtight:
- Step-up basis resets asset values upon death (your $1m stock now worth $5m? Heirs pay $0 capital gains)
- Loan balance gets paid from estate assets – no inheritance tax on debt!
- Essential documents: Revocable living trust, pour-over will, beneficiary designations
A client of mine saved his heirs $2.3 million in taxes last year using this exact buy borrow die structure. Do your future family a favor.
Why the Rich Love Buy Borrow Die: The Naked Truth
Let's cut through the hype. This strategy dominates regular investing because:
| Wealth Building Approach | Tax Efficiency | Compound Growth | Liquidity Access |
|---|---|---|---|
| Traditional Selling | 15-20% capital gains erosion | Disrupted by withdrawals | High (but costly) |
| Dividend Investing | Taxed annually at 15-20% | Slower due to tax drag | Periodic access |
| Buy Borrow Die Strategy | Near-zero tax leakage | Uninterrupted compounding | On-demand via loans |
But it's not perfect. During the 2022 bear market, several clients had to liquidate positions when their collateral values dropped. That stung. You need serious emotional discipline.
The Tax Magic Behind Buy Borrow Die (Step by Step)
Why does the IRS allow this? It's all about loopholes in the tax code:
How Loans Become Tax-Free Cash
- Borrowing ≠ Earning: Debt proceeds aren't income under IRC §61
- Interest deductions: Sometimes deductible (investment interest expense rules apply)
- Portfolio margin accounts: Better terms than regular margin (request specifically)
Watch out though – the IRS scrutinizes "perpetual debt" setups. Renew loans periodically instead of one endless loan.
The Step-Up Basis Loophole Explained
Case Study: $500k investment grows to $5M over 30 years
Traditional sale: $4.5M gain × 20% capital gains + 3.8% NIIT = $1,071,000 tax
Buy borrow die: Heirs inherit at $5M basis → sell tax-free → repay $2M loan balance
Tax savings: $1,071,000
This isn't speculation – it's current law (IRC §1014). But political risk exists. Biden's 2023 budget proposed limiting step-ups over $5M.
Real Talk: The Pros and Cons of Buy Borrow Die
After implementing this for clients since 2018, here's my unfiltered take:
Where This Strategy Shines
- Massive tax avoidance: Legally shields millions from capital gains
- Compounding acceleration: No more "two steps forward, one step back" from taxes
- Estate planning nirvana: Multi-generational wealth transfer vehicle
- Liquidity access: Get cash without disrupting investments
The Potential Downsides: What Could Go Wrong
- Interest rate risk: Loans at 2% were amazing – 6% hurts (always model rate hikes)
- Margin calls: Market crashes force sales at worst times (see 2020 COVID dip)
- Overleveraging temptation: Easy to get greedy with cheap debt
- Political targets: Congress eyes step-up basis reform annually
I had a client ignore my 30% LTV advice in 2021. When tech stocks crashed? He sold at a 40% loss to cover margins. Brutal.
How to Set Up Your Own Buy Borrow Die Strategy (Without Screwing Up)
Here's your actionable checklist:
Finding the Right Lending Partners
Not all lenders understand buy borrow die setups. Top options:
- Interactive Brokers: Lowest rates (currently 4.5% for $1M+), great for stocks
- Charles Schwab PAL: Fixed rates available (5.5% for 10-year lock)
- Private Banks: JPMorgan, Goldman Sachs – better for complex assets
- Specialty Lenders: Yieldstreet for art, AcreTrader for farmland
Always negotiate rates. Loyalty doesn't pay here – I saved a client 0.75% just by threatening to transfer assets.
The Asset Protection Layer
This isn't optional:
- Hold assets in LLCs or trusts for lawsuit protection
- Umbrella insurance ($5M policy ≈ $500/year)
- Segregate risky assets from core portfolio
One lawsuit could force asset sales – torpedoing decades of tax planning.
Common Mistakes People Make with Buy Borrow Die (And How to Dodge Them)
After seeing hundreds of implementations, here are the recurring disasters:
| Mistake | Consequence | Smart Fix |
|---|---|---|
| Using volatile collateral (crypto) | Margin calls during crashes | Stick to diversified equities |
| Ignoring loan covenants | Accelerated repayment demands | Read every footnote in agreements |
| Poor estate planning | Probate delays ruining step-up | Fund revocable trust now |
| Overlooking state taxes | Surprise tax bills (CA/NY are worst) | Establish residency in FL/TX |
Warning: The #1 failure point? Not modeling worst-case scenarios. Run projections with:
- 40% market decline
- 8% interest rates
- 5-year flat market
If your plan survives those, you're golden.
Buy Borrow Die Strategy: Frequently Asked Questions (FAQs)
Can normal people actually use the buy borrow die strategy or is it just for billionaires?
Absolutely doable for $500k+ portfolios. The sweet spot is $1M+ where you get better loan terms. I've set this up for teachers with inherited IRAs and freelance developers.
What happens to the loan when I die? Do my kids inherit debt?
The estate settles debts before distribution. Heirs get assets minus loans but with stepped-up basis. Net result? Usually massive tax savings.
How do rising interest rates impact this strategy?
Higher rates hurt but the math still works. At 7% loan rates, aim for 8%+ portfolio returns. Lock fixed rates when possible.
Is this strategy legal or just a tax loophole?
100% legal under current tax code. The step-up basis has existed since 1921. Congress knows about it but changing it faces fierce opposition.
What's the minimum portfolio size to make this worthwhile?
Realistically $250k if using low-cost brokers. Below that, fees eat the benefits. Ideal starting point? $500k in diversified assets.
Making Your Move: Next Steps for Implementation
Ready to explore this seriously? Here's your roadmap:
- Audit your assets: What qualifies as good collateral? (VTI? Yes. Bitcoin? No.)
- Run tax projections: Compare selling taxes vs. loan costs using your actual numbers
- Interview lenders: Get proposals from 3+ institutions (rates vary wildly)
- Consult professionals: Hire a fee-only fiduciary familiar with buy borrow die mechanics
The biggest mistake is waiting for "perfect conditions." I started my own buy borrow die setup during 2020's market chaos. Today? It's outperformed my taxable account by 37% due to tax savings alone.
This isn't get-rich-quick. It's get-rich-slow-and-keep-it-forever. And honestly? That's the only kind of wealth that matters.
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