Buy, Borrow, Die

The Smart (and Legal) Way the Rich Avoid Paying More Taxes

Investing in the market is a great way to build wealth, but taxes can take a big chunk of your earnings if you’re not careful. The “Buy, Borrow, Die” strategy is a popular method among the wealthy to reduce taxes and preserve more of what they’ve earned (and it’s perfectly legal). 

The Buy, Borrow, Die concept was originally shared by law professor Edward J. McCaffery in the 1990s to explain how people grow rich and keep it as such. And here we are, decades later—it’s back in the spotlight as people discuss fair taxation and smart financial planning. 

If you’re a hard-working individual thinking of a long-term end game, then understanding this concept could help you make more informed financial decisions. But, as always, it’s wise to discuss this idea with an Asset Strategy financial advisor before trying it out yourself. 

So, What Is Buy, Borrow, Die?

To simplify it, Buy, Borrow, Die describes how high-net-worth individuals or families manage to keep and use their money with minimal tax impact. This has nothing to do with any secret loopholes or doing anything illegal… But instead, it’s about smart planning and taking advantage of how the tax system works.

One of our favorite quotes on the tax system, from Judge Learned Hand, states:

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.” 

What this means is that it’s completely legal and acceptable to organize your finances in a way that minimizes taxes, as long as you follow the law.

It seems pretty straightforward, but “Buy, Borrow Die” involves three main steps:

1. First, you BUY assets that appreciate in value over time. 
2. Next, you BORROW money against those assets instead of selling them. 
3. Finally you DIE, allowing heirs to inherit the assets with a tax reset called a “step-up in basis.” 

Let’s dig deeper into how this strategy works by using a simple $1 million example. 

Step 1) Buy

Imagine Maria, a very successful entrepreneur, has worked extremely hard and accumulated $1 million to invest. She decides to buy assets that tend to grow in value, such as real estate, stocks, and shares in private companies. 

And over the years, let’s hypothetically say her investments grew about ~7% annually. After ten years, her portfolio is worth nearly $2 million… remember the Rule of 72! 

That’s a $1 million gain… NOT BAD AT ALL. But, if she sold her assets right now, she’d owe capital gains tax on that massive profit. Assuming a 20% Federal Capital Gains tax rate and 5% state capital gains, that’s a $250,000 tax bill! So, instead of selling and paying taxes, Maria simply holds her investments and lets them continue to grow. 

Maria’s overall goal is to build wealth by staying invested and without triggering any taxable events. 

Step 2) Borrow

Time goes on, and Maria wants to enjoy her financial success. She’s thinking of buying a vacation home or investing in another venture, but Maria’s end goal is to build generational wealth. But selling her $2 million portfolio would trigger hundreds of thousands of dollars in capital gains taxes, immediately shrinking her net worth. 

So instead of selling, she chooses to borrow against her investments. 

In Maria’s case, she could use part of her $2 million portfolio as collateral to obtain the liquidity she needs (without triggering taxes or interrupting her long-term compounding). 

Traditionally, this might involve a bank loan secured by real estate, a margin loan, or a securities-based line of credit (SBLOC) secured by a brokerage portfolio. These tools can offer relatively attractive financing, and the portfolio stays invested the entire time, continuing to compound instead of being interrupted by a taxable sale. 

There are other more advanced institutional-style borrowing methods that some families use to access significantly lower effective borrowing costs. These advanced methods are often below traditional bank and SBLOC rates, while also potentially preserving full deductibility of interest for those who itemize. These approaches can help maximize the spread between the net cost of borrowing and the expected long-term appreciation of a well-constructed investment portfolio. 
 
Borrowing at a low effective rate (while the portfolio continues to grow tax-deferred) can dramatically increase long-term wealth if carefully managed. However, these advanced techniques are not for the faint of heart, come with risks, and should only be evaluated with a qualified professional. 

Step 3) Die

This final step is straightforward and happens at the end of the road. When Maria eventually passes away, her heirs inherit her portfolio.

Under current law, heirs receive a step-up in basis to fair market value at death for covered assets under IRC §1014; if sold at that value, there is no federal capital gains tax on the appreciation. 

One important clarification: the outstanding loan does not disappear. Just like any other liability, her heirs or her estate must pay it off (typically using a portion of the estate’s assets). The key is that the value of Maria’s portfolio (after decades of uninterrupted compounding) often far exceeds the remaining debt, allowing the family to keep the difference and continue building wealth across generations.

Once the loan is settled, the heirs may retain the stepped-up assets and can even continue the same “Buy, Borrow, Die” cycle themselves if appropriate for their own financial situation. 

Does Buy, Borrow, Die Really Work?

The short answer is YES, but it depends on factors such as the taxpayer’s basis, the assets involved, and current tax law. This approach can be very effective… but it usually works best for those with significant wealth.

When you buy assets that grow in value, it allows for long-term compounding. Borrowing against them provides access to funds that are not treated as taxable income; however, interest costs apply, and if a loan is forgiven, the canceled amount may be taxable. When combined with estate planning tools, it may safeguard wealth across generations. 

Keep in mind that this strategy, like any other financial strategy, has limitations. The classic phrase is, “It takes money to make money.” Those with modest income or a small investment portfolio may not have enough collateral to borrow at low interest rates. Furthermore, please be aware that there are risks if markets drop or if loans become too large to manage. 

In addition, tax laws can change, and future governments may reduce or remove the benefits of the step-up in basis. Because of this, anyone considering the Buy, Borrow, Die approach should work closely with financial professionals who understand both investment strategy and estate planning. 

Final Remarks on the Buy, Borrow, Die Strategy

The Buy, Borrow, Die strategy is an excellent example of how the wealthy can use tax rules to their advantage. When you BUY appreciating assets, BORROW against them for spending power, and DIE passing them on with a step-up in basis, you can “Create, Manage, Protect, & Distribute Wealth®” while paying far less in taxes than if you sold your investments along the way.  

Note that large estates may owe federal estate tax depending on the exemption in effect for the year of death, and several states impose separate estate or inheritance taxes. 

Understanding this concept can provide valuable insight into how money and taxes function at the highest levels and why thoughtful planning is important for anyone aiming to build lasting wealth.