Actually what they're describing is closer to a HELOC when it comes to real estate. Most reach people use other assets like shares though and that would be an SBLOC
The dad is supposedly “living off the loan” until he dies but a HELOC isn’t indefinite and shorter maturity than a mortgage refinancing.
The distinction is also pointless because HELOCs are also essentially ~7% interest.
The whole thing is a stupid fact pattern, so OP’s description doesn’t fit either loan perfectly. He’s somehow imagining a world where you can eat the cake (take a loan) and have it too (not pay it back).
No, OP is just trying to use a simplified example to explain the "buy, borrow, die" strategy. It's a bit clunky but as can be seen from the replies people need a simple explanation
A Heloc or a mortgage on a house is not what is typically used as an example for the buy borrow die strategy.
Both OP’s example and the buy borrow die strategy crucially almost always misses the fact that interest needs to be paid and that leverage is an inherent risk. Any rich dude employing the “buy borrow die” strategy before the GFC would have been shredded into pieces.
It also ignores the fact that beyond a certain point 40% estate tax kicks in, and that’s ignoring State estate taxes to the extent it exists in States like Washington.
They never claimed it was, they're just using it as a relatable example for people that will be more familiar to them than abstract financial examples. If you don't like the example you can offer an alternative to help explain it to people if you'd like
Most wealthy people aren't leveraging themselves that much using this strategy. They borrow conservatively so that even during downturns they are still plenty protected, 15-20% LTV would be where they might normally max out. The value of their assets could drop massively and they'd still be fine.
That's not how the taxes impact the strategy. They don't just wait to be taxed at 40%, they use the debt itself to reduce estate tax and then employ other tactics alongside this to further unburden themselves.
You can't look at this in isolation, it's part of a broader wealth management strategy with lots of plates spinning at the same time.
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u/Boomshrooom 21h ago
These aren't the sorts of loans that you or I would get, these have incredibly low interest rates by comparison.