[triceratops]

If they sell and incur capital gains. But they have so many better alternatives than you or me. And if they do incur capital gains they pay the same tax rate (or maybe 5 basis points higher, depending on your income) as you or me.

[WalterBright]

What alternatives are those, that enable realizing income without incurring income tax?

[triceratops]

Borrowing against assets. Wealthy people get low, low rates, much lower than the hoi polloi would get on a HELOC or brokerage account margin loan. Banks like having them as clients.

[sph]

Not only they get low rates, but if they have friends in the palace, they tend to be beneficiaries of large governmental contracts; during times of economic upset, they are the beneficiaries of large “monetary injections” that later cause inflation and prices to rise for all of us. During 2008, COVID, and the Mango recession the wealthy got much much wealthier, and all we got was expensive eggs and higher costs of living.

[jstanley]

And how do you pay back the loan without realising a gain?

[triceratops]

You don't pay back the loan. You die, your assets pass to your heirs, and their cost basis is stepped up. The heirs sell some of the assets to pay the loan back. They don't have capital gains because of the stepped-up cost basis.

That's the gist I got from reading https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...

There are finer points I don't understand such as:

1. Is the stepped-up cost basis available to the estate or only to the heirs? If it's to the estate, it's easier for the bank to trust they'll be paid back.

2. If the heir gets the stepped up cost basis, what legal guarantees does the bank have that the heir will pay the loan back?

And probably a lot else. I assume there's expensive lawyering and accounting involved in setting it up, so it isn't cost-effective unless you have a certain amount to shield from taxes in the first place.

[WalterBright]

Really? They're not going to get below prime. Nobody loans out money with a guaranteed prospect of below market returns. It's going to be above prime.

Usually about the lowest rate you can get is a mortgage on your house.

Of course, if your credit is bad, you're not going to get a good rate.

[actionfromafar]

First of all, prime can be pretty good vs being taxed. Secondly, who knows what kind of sweetheart deal can be pulled for a small (in the big scheme of things) "loan" when banking of billions is at stake.

[triceratops]

> Nobody loans out money with a guaranteed prospect of below market returns

Not to you or me. Giving powerful people who can send more business the bank's way a freebie on their personal accounts might make sense as a loss leader.

[pclmulqdq]

An ELOC for a HNWI can be significantly lower interest than a mortgage. They can often get "fed funds rate/LIBOR + 0.5%" or so. This is because they can accept a floating rate, while mortgage rates get locked in for 10-30 years.

[FireBeyond]

Adam Neumann and several others in that era famously got very large zero interest personal loans because the bank wanted their corporate business.