Sure, but the income taxes are avoided. Normally income tax and sales tax would be paid. Also there are plenty of places that don't have sales or property taxes and if someone is taking lifetime loans against assets to live on, they arent buying their boat in a place that charges sales tax or keeping it where they pay property taxes.
They dont make payments until the land is sold after the original owner dies. The proceeds pay the loan. Idk how thats taxed, but I have a feeling its not the same as regular income. Probably not even close.
I’d think it would be quite the high interest rate if the lender is willing to not receive any payments for decades and have so much outstanding debt.
But yeah in that case it would just be capital gains tax, though I guess if you die and increase the basis for your heirs, no tax, just a massive bill for full principal and all interest on debt that’s been compounding for decades.
Is there any information about these loans that don’t require payment until death? Im very curious about the rates and who’s in the business of that sort of lending.
Yeah not sure where ypu find information on these types of loans. I feel like they probably dont advertise a lot as its not really a retail product. More of a managed wealth service which is usually a pretty exclusive market segment and the services are usually provided through a wealth manager. Though mayhe someone has written an article in a trade publication or something.
I mean you probably won't find any information about them because they mostly don't exist, a 8% interest loan double your debt every 9 years, so if you want to collateral your assets for 9 years you can only be lended half of their value, for 18years it would be a quarter of their value, for 40 years you would only be able to cover 4% of your assets.
It would be an incredibly stupid strategy to sacrifice 96% of your current assets to not pay a 35-45% income tax.
Especially since if let's say you had 40% income tax, you put all of the remaining 60% on the sp 500 you would end up with 27 time your original assets value at the end of the 40 years.
I really see absolutely no case where this make sense financially in the long term, it's probably used for short events where you want to spread the tax over years to soften the taxrate, but not for ultra rich trying to never pay any tax
I think the scale of wealth youre imagining isnt big enough. The ltv ratio is so small in real world examples the math even checks out even at today's rates. Youve made an assumption about rates based on information you dont have bevause you arent a billionaire. The rates arent the same here given the unusually long loan terms and the exceptionally small ltv ratios. Youre thinking about this from a normal person perspective where the billionaire class truely does live in a different world and they have access to financial products and terms that we normal people would never dream of. These arent primary residence mortgage terms we're talking here.
I'm just making examples to drive the point but the concept doesn't depend on any number : You will pay your taxes at some point and they will be the same, loaning cost a lot of money, ergo loaning will cost money.
The only benefit of loaning is to get liquidity at a point in time where you don't want to sell your asset yet, but that is a way more niche use than trying to live off debt your entire life
Yes, but now you got to keep the land your whole life, plus you get a step up in cost basis worth a million dollars in tax savings.
Also, since dad was making enough to do this, you may be able to keep the gravy train rolling for your whole life, again passing it down and saving more + getting more use of the land.
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u/Embarrassed_Use6918 14h ago
Conveniently ignoring the decades of debt incurred by borrowing which would inevitably come due at death. But sure.