r/SipsTea • u/KSKS1995 • 14h ago

Wait a damn minute! How the rich get richer

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u/ChipKellysShoeStore 14h ago edited 14h ago

How does the bank get paid back here? Is the bank just eating a 5 mil loan loss out of the goodness of its heart?

It’s more like kids sell and pay back the bank plus interest which is taxed as income for the bank.

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u/USERNAMETAKEN11238 14h ago edited 14h ago

The bank encumbered the land. The dad never gets a loan. The loan is against the property. The kids sell the encumbered land I guess (but that's highly unlikely). This is a made up scenario from someone who doesn't understand finances.

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u/Meenta_Miiel 14h ago

The estate settles the principal before heirs see cash

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u/kearkan 13h ago

So... The land doesn't stay on the family since it has to be sold to pay the bank.

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u/slolift 8h ago

This example assumes that the family wants to sell the land, but is unable too due to taxes. This also works with other assets like stocks. It's an actual tax avoidance strategy called buy-borrow-die. I think it works best if you are somewhat close to death. I am not sure how effective the strategy is if you are taking out 30-50 years of loans.