The private investing company’s recently released report explains why the “Buy, Borrow, Die” method is one of the most common ways to build generational wealth. According to data released by Morgan Stanley, their wealth management clients currently hold $68.1 billion in non-mortgage, security-based loans, a figure that has doubled since 2016. The primary reason for this increase appears to be a specific tax planning strategy that allows them to increase their wealth without liquidating assets.
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Equifund’s newly launched information campaign reveals that this strategy, conceived by Edward McCaffery, a tax law professor at the University of Southern California Law School, can be utilized by any individual, regardless of their financial background. First, they must buy appreciating assets, and rather than selling these assets when cash is needed, they cash out on their investments. When the asset owner passes away, the beneficiaries will inherit the assets tax-free, because current tax provisions exempt heirs from paying capital gains tax.
The process is straightforward, and individuals either buy or create assets in the asset acquisition phase. While billionaires might do this by founding companies, smart individuals can achieve it by purchasing stocks, real estate, or other types of investments. Once assets are accumulated, they can capitalize on the value of their portfolio, with the Securities Backed Line of Credit (SBLOC) being a popular choice for those with stock portfolios. The limit for obtaining funding in exchange is typically set at about 50% of the portfolio’s value.
This strategy’s growing popularity is evident, with Bank of America’s wealth division recording a 50% increase in such instruments from 2019 to 2022. However, anyone considering this method should consult with tax advisors and estate planning attorneys to ensure they fully understand its intricacies and potential implications.
“Wealthy individuals often store most of their wealth in assets like stocks, real estate, and operating businesses. This approach involves buying appreciating assets; borrowing against them at low interest-rates; and eventually passing the assets down to heirs–with little or no tax liability. Heirs can then sell their inherited assets tax-free due to the step-up in basis rules,” a representative said.
Interested parties who want to know more about Equifund and how to potentially start building generational wealth with strategies like this may visit https://equifund.com/blog/buy-borrow-die/
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