# Please explain Buy - Borrow - Die to me **URL:** \ **Category:** In My Humble Opinion\ **Created:** [May 12, 2022, 12:08am UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305 "2022-05-12T00:08:23Z")\ **Posts on this page:** 17\ **Page:** 2
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [May 13, 2022, 12:36am UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/21 "2022-05-13T00:36:09Z")
> [@k9bfriender](#): > > Where did you see this 100% that you seem to be arguing against? Sorry, what 100%? ETA: I see I wrote $50 million on $50 million collateral instead of $100 million collateral. Wasn’t intentional, number just stuck in my head. ---
**Author:** ![k9bfriender](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/k9bfriender/32/3283_2.png) [@k9bfriender](https://boards.straightdope.com/u/k9bfriender)\ **Post date:** [May 13, 2022, 12:45pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/22 "2022-05-13T12:45:16Z")
That makes more sense. I have personally borrowed money at 50% of collateral in stock, but this was in the thousands of dollars. I don’t know if it works the same when the stakes are in the tens and hundreds of millions. Though, I wouldn’t mind being in a position to find out. ---
**Author:** ![Isamu](https://avatars.discourse-cdn.com/v4/letter/i/7c8e57/32.png) [@Isamu](https://boards.straightdope.com/u/Isamu)\ **Post date:** [May 13, 2022, 1:19pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/23 "2022-05-13T13:19:58Z")
Any way of opting out of the last step in the plan, because that does not sound healthy to me. ---
**Author:** ![SpacemanSpiff\_II](https://avatars.discourse-cdn.com/v4/letter/s/e19adc/32.png) [@SpacemanSpiff\_II](https://boards.straightdope.com/u/SpacemanSpiff_II)\ **Post date:** [May 13, 2022, 1:39pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/24 "2022-05-13T13:39:04Z")
> [@Machine\_Elf](#): > > $100M in investments paying dividends of just 2.5% per year would generate a revenue stream of $2.5M per year. Less 20% in capital gains tax leaves $2M a year that can be used to make payments on that $50M loan, with any remaining balance at time of death to be paid off by a lump sum from the estate. Dividends are not taxed as capital gains. They are taxed as income (though at different rates for “qualified dividends” or ordinary dividends). Dividends are not part of the Buy-Borrow-Die strategy. It would be in the interests of someone using this strategy to own stocks which don’t pay dividends, since dividends are taxed as income and unrealized capital gains are not taxed at all. The purpose of dividends is to provide an income stream but this person’s income needs are going to be met via untaxed borrowing. What the OP seems to be missing is that the B-B-D strategy is not designed to get free money. Of course anything which is borrowed will eventually have to be paid back, and with interest. The idea of this approach is to access income in a manner which does not have tax consequences. This is accomplished by changing income from coming via taxable realized capital gains to coming via non-taxable unrealized capital gains and borrowing. Of course, the risk in this approach is that assets might not increase in value, or at least might not increase in value faster than the interest rate you’re paying on the loans. In that case, the approach is a loser, because you would be paying interest for the privilege of losing money and not saving much if anything on taxes. But on average, it works out. ---
**Author:** ![nate](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/nate/32/13085_2.png) [@nate](https://boards.straightdope.com/u/nate)\ **Post date:** [May 13, 2022, 3:49pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/25 "2022-05-13T15:49:33Z")
Thanks for this. I’ve always wondered how the repayment of the loan works. The explanation of which people leave out when whining about the Buy Borrow Die scheme. So it really is borrow more money to pay off a previous loan, rinse and repeat. And these are special loans that don’t have monthly payments but a clause to where the bank can call on it to be re-paid at just about any time. I suppose we could all do that, but most people don’t have the collateral to borrow enough to live on. ---
**Author:** ![epbrown](https://avatars.discourse-cdn.com/v4/letter/e/e47774/32.png) [@epbrown](https://boards.straightdope.com/u/epbrown)\ **Post date:** [May 13, 2022, 8:53pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/26 "2022-05-13T20:53:44Z")
> [@nate](#): > > I suppose we could all do that, but most people don’t have the collateral to borrow enough to live on. See “reverse mortgage.” I don’t think they’re big here in the states, but more common in the EU. You take out a loan against your house, live off the money while staying at home, and when you pass on the lender gets the house. ---
**Author:** ![k9bfriender](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/k9bfriender/32/3283_2.png) [@k9bfriender](https://boards.straightdope.com/u/k9bfriender)\ **Post date:** [May 13, 2022, 9:00pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/27 "2022-05-13T21:00:57Z")
> [@epbrown](#): > > I don’t think they’re big here in the states, but more common in the EU I have no idea how common it is for people to take reverse mortgages in the US, but as far as the commercials I see advertising for them, it’s extremely common. ---
**Author:** ![Dr.Strangelove](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dr.strangelove/32/6613_2.png) [@Dr.Strangelove](https://boards.straightdope.com/u/Dr.Strangelove)\ **Post date:** [May 13, 2022, 9:14pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/28 "2022-05-13T21:14:16Z")
> [@nate](#): > > I suppose we could all do that, but most people don’t have the collateral to borrow enough to live on. Right. Regular payments are for schlubs–when the bank doesn’t trust you to pay the thing back as a lump sum, and where the collateral might turn out to be worthless (a car) or hard to seize (a primary residence). But if the collateral is a big lump of investments, you get more opportunities. And better interest rates. ---
**Author:** ![Bootb](https://avatars.discourse-cdn.com/v4/letter/b/e19b73/32.png) [@Bootb](https://boards.straightdope.com/u/Bootb)\ **Post date:** [May 14, 2022, 4:26am UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/29 "2022-05-14T04:26:01Z")
> [@epbrown](#): > > See “reverse mortgage.” I don’t think they’re big here in the states, but more common in the EU. They’re mainly aimed at elderly people, who have their house paid off, but may not have much in the way of liquid assets. Of the big advantages is that they allow people to stay in their homes for longer. ---
**Author:** ![dalej42](https://avatars.discourse-cdn.com/v4/letter/d/67e7ee/32.png) [@dalej42](https://boards.straightdope.com/u/dalej42)\ **Post date:** [May 14, 2022, 8:56am UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/30 "2022-05-14T08:56:01Z")
Interesting thread. There’s varieties of this aimed at the retail investor, sometimes with selling call options against stock bought on margin. I work in the financial markets and I know our risk management group is always looking for accounts like this that become over leveraged. They’re often pitched on YouTube, Reddit or other such places. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [May 14, 2022, 1:29pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/31 "2022-05-14T13:29:55Z")
> [@anny\_m](#): > > I know I’m coming off as extraordinarily dense, but I still don’t get the “borrow” part. > > Let’s up Lee’s net worth here. (Although the point of one article I read was that folks with only $1-2 million could use this strategy.) So Lee started a tech firm which was sold for big bucks when Lee was forty. Lee now has $100 million invested in stocks. > > Lee borrows $50 million, using the stock as collateral. Lee lives to be 80. Surely the bank or brokerage that made the loan is going to want payments made on it, right? Where is the money for those payments coming from? > > Is Lee borrowing more money to make the payments? Is the assumption that Lee’s portfolio will increase in value enough to support those additional loans? If so, how is this different from the Subprime Mortgage Crisis of ca. 2008? The trend is moving towards making the minimum collateral much lower. After all, there’s no reason you can’t borrow against $100,000 in stock as easily as $10 million, is there? So Lee has a securities account with his bank. He requests an SBL loan from his bank, using his stock as collateral. The bank opens a line of credit and gives Lee the money. Like any loan, there are terms that describe payment schedules, interest rates and whatnot. If Lee misses a payment, he could be in default and the bank could sell off stock to cover the outstanding balance. As to where the cash comes from, the bank doesn’t care. The payments tend to be interest-only at a low rate (used to be typically 30-day LIBOR) because it’s relatively low risk for the bank. Unlike a mortgage or other loan where it’s a pain to actually collect and cash in on whatever asset you used as collateral, the collateral for an SBL loan already sits in the bank. Really the main risk is that the stock tanks before the bank can sell it off to recoup the loan. But their credit policy will reflect that risk as a function of the % you are allowed to borrow. Also, FWIW, the borrowing % is typically much higher than 10% unless it is a particularly volatile stock. It can be as high as 70%-90% IIRC. It’s generally based on asset class or even individual stocks. It’s different from the subprime crisis in that an SBL loan isn’t layers of dog shit securities or other assets bundled together, wrapped in cat shit, and then sold to banks with AAA ratings (a Collateralized Debt Obligation or CDO). SBL loans can’t be used to purchase other securities. I suppose like any other form of credit, SBL loans are subject to bubbles. I imagine the main risk is if the market tanks badly enough and banks are heavily leveraged with SBL loans they underwrote incorrectly, they may not recoup the value of the loans. But unlike a CDO, the value of the asset isn’t obscured through a labyrinthian series of “tranches” of bundled crap. Unless, of course, customers uses CDOs as collateral for their SBL loans…which they can. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [May 14, 2022, 3:06pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/32 "2022-05-14T15:06:40Z")
> [@Chronos](#): > > If the stock isn’t sold until Lee dies, then it’s not income, and nobody has to pay income tax on it. The estate would have to sell it to pay the debt, and so wouldn’t the estate have to pay capital gains tax? The cost-basis step-up doesn’t occur until the stock passes to the heirs. ---
**Author:** ![k9bfriender](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/k9bfriender/32/3283_2.png) [@k9bfriender](https://boards.straightdope.com/u/k9bfriender)\ **Post date:** [May 14, 2022, 3:21pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/33 "2022-05-14T15:21:06Z")
> [@CookingWithGas](#): > > The cost-basis step-up doesn’t occur until the stock passes to the heirs. I don’t think that this is the case. It seems to happen upon death. > **[What is Step-Up in Basis & Why is it Important? - Axley Brynelson, LLP](https://www.axley.com/publication_article/step-up-in-basis/)** > > This article is not tax advice and the discussion herein is oversimplified to relay the concept of step-up in basis. Your individual situation should be > [@](#): > > A trust or estate and its beneficiaries, or payable on death beneficiaries, get a step-up in basis to fair market value of the asset so received. That value is stepped up to the fair market value of the asset as of the date of death of the Decedent. ---
**Author:** ![FlikTheBlue](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fliktheblue/32/10972_2.png) [@FlikTheBlue](https://boards.straightdope.com/u/FlikTheBlue)\ **Post date:** [May 14, 2022, 4:25pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/34 "2022-05-14T16:25:37Z")
> [@Isamu](#): > > Any way of opting out of the last step in the plan, because that does not sound healthy to me. Sorry. Not even Crassus had that much money 😜. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [May 14, 2022, 6:27pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/35 "2022-05-14T18:27:30Z")
I did not realize that. That _really_ stacks the deck. ---
**Author:** ![audiobottle](https://avatars.discourse-cdn.com/v4/letter/a/bc8723/32.png) [@audiobottle](https://boards.straightdope.com/u/audiobottle)\ **Post date:** [May 14, 2022, 9:20pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/36 "2022-05-14T21:20:57Z")
Is there a minimum amount for which this would make sense? Say I have a $2 million house and $500k in a stock portfolio. If I wanted to get a loan for say $50k/year to cover annual fun travel plans, would this be worthwhile? ---
**Author:** ![zimaane](https://avatars.discourse-cdn.com/v4/letter/z/a3d4f5/32.png) [@zimaane](https://boards.straightdope.com/u/zimaane)\ **Post date:** [May 18, 2022, 6:11pm UTC](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305/37 "2022-05-18T18:11:19Z")
If you put the house as a collateral, then what you are describing is a Home Equity Line of Credit (HELOC) a fairly common sort of loan. [Previous page](https://boards.straightdope.com/t/please-explain-buy-borrow-die-to-me/964305.md?page=1)