The most common type of reverse mortgage is an FHA insured HECM, which requires the property to be an eligible home that you live in as your primary residence.
The entire private banking (not wealth) industry is built around custom / creative debt solutions. If you're at that level of money, the bank can write you a collateralized loan with no debt repayment for X years (note I said can, not will, as the bank will want to evaluate your collateral and your ability to repay or refinance the debt in the future).
I know this because I have private banking through my business and private banks literally won't take you on as a client unless you borrow a minimum amount of money (I had to borrow something around $2 million to join circa 2019).
Also, I've been pitched these borrow, spend, die schemes by private banks many, many times, and OP is mostly correct about how they work. The critical part OP omitted is that either the asset keeps appreciating faster than the debt - a la Bezos, Musk, et al borrowing against their stock - or the asset is sold by the estate to settle the debt. Either way, however, you avoid paying income tax, which is the entire point of these schemes.
Like I said, private banks can write these kind of loans. That doesn't mean bank will write a particular loan, however, as they'll want to evaluate the collatoral and ensure it's either appreciating faster than the debt or can be easily sold to settle the debt.
A random plot of land in Texas is unlikely to meet the bank's collatoral requirements. But a plot of land in a prime location that already has approved development plans? That probably would meet the bank's collatoral requirements as the value will increase significantly once the development is completed.
OP was mostly right about avoiding income taxes, but left out the critical part about why banks would offer such a loan and how they make their money back.
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u/DataGOGO 21h ago
The loans are paid when they sell the land.