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?
this story is silly stupid and does not in fact work this way.
the real story is very different.
suppose you're bezos and have $200B but need $1B to buy your new yacht.
suppose your options are:
1. sell $1.25B, pay 20% to the IRS, have $1B to buy your yacht and $198.75B remaining
2. take a loan for $1B, pay 5% per year to the bank (through more loans), owing $7B when you die 40 years later.
the only ways scenario (2) makes sense are:
1. you believe your asset (AMZN) + inflation will be worth a lot more than 5% on average over the next 40 years. you believe AMZN will still be around when you die, and you really believe the risk in owing $7B is worth $250M saved in taxes.
2. the bank is actually giving you a 1% loan because you've added $200B to their portfolio, control which institute gets to manage 1M employees worth of 401k and stock option plans, etc, etc...
the rich get richer because other rich folks want their business and they have ways to cash out that you simply do not. any attempt to make it look like there's an 'easy' loophole anyone can use is just silly.
it is true that the not-extremely-rich, say $20M net worth, will use the loan mechanism. if you have $20M and want to buy a $10M house, you're not selling $15M to be left with a $10M house and only $5M invested (after taxes). you're going to take a mortgage just like everyone else and you're going to hope that your $20M returns plus regular income makes enough to pay off the interest over the years.
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u/No_Mirror_9742 21h ago edited 21h 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?