Buy Borrow Die: The Free Money Loophole Available Only For The Rich

Summary

The video explores the concept of 'Buy, Borrow, Die,' a financial strategy employed by the ultra-wealthy to accumulate and preserve wealth. Unlike regular workers who rely on income and face high taxes, the rich focus on acquiring appreciating assets like stocks and real estate. They avoid taxes by borrowing against these assets instead of selling them. When they die, their wealth is passed on without incurring capital gains taxes due to a tax law loophole called 'step-up in basis.' This system allows the wealthy to avoid paying taxes while maintaining their lifestyle, using credit, and passing wealth to heirs.

Takeaways

• 😀 Wealthy individuals don't earn money through traditional salaries but through equity (shares in companies or assets).
• 😀 Income for the rich is largely in the form of equity and is not taxed unless they sell the assets.
• 😀 High earners pay substantial taxes on wages, up to 37% in the US, making income a less desirable option for the wealthy.
• 😀 Many wealthy individuals, like Elon Musk and Jeff Bezos, earn little to no salary and instead receive compensation in equity.
• 😀 Wealthy people avoid taxes by not selling appreciating assets, keeping their wealth locked in stock, real estate, and other investments.
• 😀 The 'realization principle' allows the rich to avoid paying taxes on gains until assets are sold.
• 😀 Mortgages, car loans, and credit card debt trap most people into high-interest payments, often with little principal reduction.
• 😀 Regular people pay loans with after-tax income, while the rich use loans to further invest and grow wealth.
• 😀 Banks favor the wealthy when lending because they are seen as low risk due to the substantial assets they already hold.
• 😀 The 'buy, borrow, die' strategy involves buying appreciating assets, borrowing against them, and passing them on to heirs without selling, thus avoiding taxes.
• 😀 Upon death, the step-up in basis allows heirs to inherit assets without paying capital gains tax on their appreciated value, and loans can be paid off with life insurance.

Q & A

What is the common misconception about how billionaires earn money?

The common misconception is that billionaires earn money through a traditional salary, like most people. However, they earn primarily through equity, which is stock or shares in companies, rather than through cash payments.

What is the 'buy, borrow, die' strategy?

The 'buy, borrow, die' strategy involves buying appreciating assets, borrowing against those assets for liquidity, and then passing on the wealth to heirs when the individual dies, often without selling the assets and avoiding taxes in the process.

Why do billionaires avoid earning a salary?

Billionaires avoid salaries because income from salaries is heavily taxed. Instead, they earn through equity, which is not taxed until the asset is sold.

How do billionaires avoid paying taxes on their growing wealth?

Billionaires avoid paying taxes on their growing wealth by holding onto appreciating assets, such as stocks or real estate. As long as they don't sell the assets, they don't trigger capital gains taxes, even if the value increases significantly.

What is an unrealized gain and how does it affect taxes?

An unrealized gain is the increase in value of an asset that hasn't been sold yet. Since it's not considered income until the asset is sold, it isn't subject to taxes until it is realized (sold).

How does the tax system favor capital over labor?

The tax system favors capital over labor because income earned through labor (salary or wages) is heavily taxed, while income earned through the appreciation of assets is not taxed unless the assets are sold.

What makes wealthy individuals able to borrow money so easily?

Wealthy individuals can borrow money easily because they have significant assets to use as collateral, making them low-risk borrowers in the eyes of banks. As a result, they can secure loans at favorable rates with minimal interest.

Why do regular people face high-interest rates on loans?

Regular people face high-interest rates because they are often considered high-risk borrowers by banks, due to factors like limited savings, volatile jobs, and high debt levels. Banks charge higher interest rates to compensate for the perceived risk.

How does the bank assess whether a person is a good borrower?

The bank assesses a person's creditworthiness based on factors like credit score, debt-to-income ratio, employment history, and overall financial stability. A person with fewer assets and higher debt is considered high-risk, resulting in higher interest rates.

What happens when a wealthy individual dies with appreciated assets?

When a wealthy individual dies, their assets' cost basis resets to their market value at the time of death. This means that their heirs can sell the assets without owing capital gains tax, effectively avoiding the tax burden on the appreciation that occurred during the original owner's life.