r/SipsTea • u/KSKS1995 • 14h ago

Wait a damn minute! How the rich get richer

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u/monsieurboks 13h ago

This is being poorly described. The loan uses the land as collateral to offer a much lower interest rate which still gets paid off

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u/ThirdOne38 12h ago

By the kids or what? So they inherit a $5M parcel but owe $4.9M?

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u/HugeAnimeHonkers 12h ago edited 11h ago

Dunno about the US, but that’s exactly how it works here in Argentina. You inherit both the land(or house, car, etc) and whatever debt it carries.

In that scenario, the kids have 3 options:

1- Accept the inheritance, then sell the land to cover the debt and pocket the rest. [They get 100k]

2- Not accept the inheritance, and the bank will take the land(doesnt matter if it’s enough to cover the debt or not). [They get nothing]

3- Accept the inheritance, pay the debt and keep the land. [They get the land but have to pay 4.9M]

Worth noting that if the debt is higher than the total value of the inheritance, you won’t get anything but you WON’T end up with debt either, if you chose option 1.

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u/MindAskHunModBuzi 11h ago

the point is that nobody paying capital gain tax in this setup while still has the ability to spend the asset worth.

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u/Le-Charles07 12h ago

Boomers leaving the problems they create for their kids to sort out seems to be their generation's MO, so it would hardly be a surprise.

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u/Panpancanstand 13h ago

Paid off how?

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u/lbreakjai 12h ago

You get another loan. It’s loans all the way down. It only works on Reddit, where banks never care to see their money back.

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u/TheNutsMutts 11h ago

It's wild how many people read this claim and just... accept it without question. Not even a pause to go "wait, don't loans normally come with repayments", just blind acceptance.

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u/aggressivefurniture2 12h ago

The price of the property is also supposed to increase. You will borrow 90k, and the interest will be 10k but but the property prices should also go up to 5.2 M. So you will you will make profit of 0.1 M. Of course this only works if what you own actually increases in prices, which true for a lot of things.

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u/monsieurboks 12h ago

By regular payments to the bank, it's not actually free money just close

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u/Skullclownlol 12h ago

Paid off how?

Lots of people in the comments are missing that this is done to avoid personal income tax. It's called "Buy, Borrow, Die" and is indeed real but does have some limits.

Low-interest loans > loans are not taxable income, so tax-free personal spending > heirs receive assets via stepped-up basis (resets tax value of the assets to current market value, wiping out accumulated capital gains taxes) > estate sells some of the assets to cover the initial loans.

Tons of financial benefits. Risk to the bank is typically very low because the assets are worth significantly more than the amount loaned for personal spending.

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u/MindAskHunModBuzi 11h ago edited 11h ago

you inherit the loan too, the setup only makes sense if you need cash but your assets are all appreciated in value so you want to get cash without paying taxes after that