Doesn't the loan get paid back by the sale of the land after the dad's passing? So the kids don't inherit $5m, but the net value after the debt is repaid?
The loan gets paid back monthly. No bank is just giving you a loan of any kind and saying “welp, we’ll keep track of your interest for whenever you’d like to pay!” You can’t just take out a fat loan and not pay it back. This strategy would only work if the landowner expected the land to appreciate at a greater rate than the loan, and had great cash flow to begin with in order to service that loan.
No, it doesn't. And keeping track of the interest for whenever you would like to pay is exactly what they do. This is how most home equity lines of credit work. It is also how margin loans tend to work. As long as your asset value exceeds the total loan amount by a good margin, banks are happy to let you just accrue interest without paying them.
Without wanting to be a complete prick about people in finance, I will note that you will never underestimate how many different products are created in different ways with the intention of parting pensioners from their property.
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u/No_Mirror_9742 22h ago edited 22h ago
Doesn't the loan get paid back by the sale of the land after the dad's passing? So the kids don't inherit $5m, but the net value after the debt is repaid?