Buy, Borrow, Die: The Strategy CEOs Use to Build Wealth Without Paying Tax
The wealthiest executives don't sell assets to fund their lifestyle. They borrow against them. Here's how the strategy works, why LLCs are central to it, and what founders can actually learn from it.
The Buy, Borrow, Die strategy is not a secret. It's been written about in the Wall Street Journal and ProPublica alike. But what's rarely explained clearly is the mechanics — why each step works from a tax perspective, how LLCs slot into the structure, and what the realistic version looks like for a founder or executive who isn't a billionaire.
Buy
Buy
Accumulate appreciating assets. Equity, real estate, business ownership, ETFs — assets that grow in value over time. Held, not sold.
Borrow
Borrow
Use assets as collateral. Take low-interest loans against the portfolio. Loan proceeds are not income — they're not taxed. Fund life from debt, not sales.
Die
Die
Step-up basis eliminates the gain. At death, heirs inherit assets at current market value. Decades of unrealised gains are wiped — legally — via the stepped-up cost basis rule.
The core insight is elegant: selling an asset triggers a taxable event; borrowing against it does not. If you need $500,000 to buy a house, renovate it, fund a business venture, or simply pay for your lifestyle — you have two options. Sell $600,000 of stock and pay capital gains tax on the gain. Or take a $500,000 loan against your stock portfolio and pay it back (or not) with future appreciation. The tax code treats these identically in terms of the cash you receive. The tax consequence is radically different.
The fundamental mechanic. In most jurisdictions, loan proceeds are not considered income. You receive the cash, you can spend the cash, but you owe no income or capital gains tax on it. The "cost" is the interest — which is often deductible, especially inside a business structure.
Why Selling Is Expensive
Consider a founder who has built a $5M stock portfolio from a $200,000 initial investment over ten years. They need $400,000 in liquidity.
❌ Selling the asset
- Sell $500K of stock to net $400K after tax
- Capital gains tax on ~$400K gain (say 20% federal)
- Plus applicable state tax
- Plus surcharge taxes above threshold
- Realised gain permanently loses compounding
- Total tax bill: $80,000–$120,000+ on one transaction
✓ Borrowing against it
- Pledge $800K of stock as collateral (50% LTV)
- Receive $400K loan proceeds — zero tax event
- Interest rate: prime + margin (2–4% typical)
- Interest may be deductible inside an LLC or business
- Stock continues to appreciate while pledged
- Total "cost": ~$16K/year in interest (at 4%)
The LLC Layer: Why It Matters
High-net-worth executives rarely hold assets personally. They hold them through one or more Limited Liability Companies. This isn't just asset protection — it changes the tax treatment, the structuring flexibility, and the estate planning options significantly.
Holding LLC (the asset layer)
A family LLC or trust-owned LLC holds the appreciated assets — equity, real estate, business interests. The individual is the manager, not the direct owner. This creates a layer between the executive's personal liability and the assets.
Operating LLC (the business layer)
Business income flows through a separate operating LLC. Expenses — including loan interest if the borrowed funds are used for business purposes — are deducted at the entity level, reducing taxable income before any distribution.
Collateral lending against the LLC's assets
The holding LLC pledges its assets to a private bank or securities-backed lender. The loan is made to the LLC — not the individual. The LLC distributes the proceeds. No personal income tax event is triggered.
Estate plan with stepped-up basis
The LLC interests (not the underlying assets directly) are passed to heirs through a trust structure. At death, heirs receive a stepped-up cost basis on the LLC interests. The decades of unrealised appreciation in the underlying assets effectively disappears from a tax perspective.
What "Step-Up in Basis" Actually Means
When you die and leave an appreciated asset to a beneficiary, the IRS (and most tax authorities with equivalent rules) allows the heir to treat the asset as if they bought it at the current market value on the date of death. This is called the step-up in basis.
Practically: you bought Apple stock at $10/share. It's worth $300/share when you die. Your heir's cost basis is $300 — not $10. If they sell the next day at $300, they pay zero capital gains tax. The $290 gain per share that built up over your lifetime is simply forgiven. The loan you took against it during your lifetime has also been paid down through estate assets or the loan itself is renegotiated.
Important caveat. Tax law in this area is actively contested. The US government has proposed "mark-to-market" taxation on unrealised gains for very high-net-worth individuals in multiple budget proposals. The step-up rules have been debated in the EU and UK. This strategy's perpetuity depends on these rules remaining in place. Always work with a tax attorney who specialises in wealth structuring — not a generalist accountant.
The Practical LLC Structure for Founders
| Entity | Purpose | Tax Treatment | Key Benefit |
|---|---|---|---|
| Holding LLC (Pass-through) | Hold equity, real estate, investments | Pass-through (Schedule E) | Asset protection + basis management |
| Operating LLC | Run business income/expenses | S-Corp election or pass-through | Business expense deductibility |
| Irrevocable Trust (IDGT) | Hold LLC interests for estate planning | Grantor trust (income to grantor) | Removes assets from estate at no gift tax |
| Family LP / FLP | Transfer interests to family at discount | Pass-through | Valuation discounts on transfer |
Securities-Backed Lending: The Borrow Mechanism
The practical "borrow" step is done through a Pledged Asset Line (PAL) or Securities-Based Line of Credit (SBLOC) offered by private banks and brokerage firms. Key characteristics:
- LTV ratios: Typically 50–80% of portfolio value depending on asset class (equities vs. treasuries)
- Interest rates: Usually SOFR + 0.5–2%, making them cheap relative to personal credit
- Margin call risk: If the portfolio drops significantly, the lender can demand repayment — the central risk of the strategy
- Use of proceeds: Unrestricted for personal use; business-purpose loans have additional deductibility
- No required repayment schedule: Interest accrues; principal can roll indefinitely
Who offers this. Morgan Stanley, Goldman Sachs Private Bank, Fidelity, Schwab, and Interactive Brokers all offer forms of securities-backed lending. Private family offices typically have dedicated relationships with multiple lenders and can negotiate better rates. The minimum portfolio size is usually $100,000–$500,000 depending on the institution.
What Founders Should Actually Take From This
Most founders will not have the asset base or estate planning complexity to implement the full three-tier LLC structure. But the core principles apply at much smaller scale:
- Don't sell equity to fund operating costs if you can borrow against receivables or a revolver at a lower effective cost than the capital gains you'd trigger.
- Structure business assets in an LLC from day one — not because you're trying to evade tax, but because it gives you flexibility later.
- Understand your basis in every asset you hold. The step-up matters even at smaller scale when combined with estate planning.
- Hire specialists early. A tax attorney and a CPA who specialise in business owners — not personal tax — should be in your team before you have liquidity events, not after.
Disclaimer. This article is for educational and informational purposes only. It does not constitute legal, tax, or financial advice. Tax laws vary significantly by jurisdiction and change over time. Always consult a qualified tax attorney, CPA, or financial advisor before implementing any wealth or tax strategy. DestinPQ is a technology company, not a financial services or legal services firm.
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