For most Americans, building wealth means working, saving, investing—and eventually paying taxes when gains are realized. But for the ultra-wealthy, the calculus is entirely different. Their capital isn’t just working—it’s structured. Their income isn’t just earned—it’s engineered. And when it comes to taxes, they don’t just defer—they design around them.
One of the most powerful, underappreciated tools in this arsenal is the strategic use of loans against assets—a practice that enables high-net-worth individuals to unlock liquidity without triggering taxable events.
The Core Principle: Borrow, Don’t Sell
When you sell an appreciated asset—whether it’s stock, real estate, or a privately held business—you incur capital gains taxes. For wealthy individuals with large embedded gains, this tax liability can approach 30% to 40%, depending on federal, state, and NIIT exposure.
Instead of selling, many choose to borrow against their assets, creating tax-free liquidity while keeping their investments intact and growing.
Why This Works
Loans, unlike income, are not taxable. When structured properly, they provide:
- Access to capital without triggering gains
- Preservation of stepped-up basis (for heirs)
- Continued participation in asset growth
- Strategic timing for realization of income or gain
This strategy is often referred to as Buy, Borrow, Die:
- Buy appreciating assets
- Borrow against them as they grow
- Die with those assets in your estate, and your heirs receive a step-up in basis, eliminating capital gains
Common Use Cases
1. Securities-Based Lending (SBL)
Wealthy individuals often pledge brokerage accounts to secure low-interest credit lines. Rather than selling $10M in stock and paying $2M in taxes, they might borrow $5M at 4% interest, using the portfolio as collateral.
2. Life Insurance Loans (LIRPs)
Permanent life insurance policies build tax-deferred cash value. Policyholders can borrow against that value tax-free, often to supplement retirement income or fund investments—without ever recognizing income.
3. Real Estate Leverage
High-net-worth investors frequently refinance appreciated real estate, pulling equity out as non-taxable loan proceeds rather than selling the property. Meanwhile, depreciation continues to offset income.
4. Private Banking and Structured Credit
Ultra-affluent families may leverage family office assets, business equity, or alternative investments to access custom credit solutions—including revolving lines, low-interest term loans, and even credit-funded charitable giving.
The Tax Advantage in Action
Let’s say a family office holds $50 million in long-held tech stock with a $5 million basis. Selling the shares would trigger over $13 million in capital gains tax. Instead, the family can borrow $20 million against the portfolio, using the funds to purchase real estate, invest in private equity, or even fund lifestyle—all without recognizing a single dollar of income.
If structured properly, the portfolio continues to grow, the interest may be deductible (in limited cases), and the entire portfolio receives a step-up in basis at death, erasing the deferred gain.
Risks and Realities
This strategy is not without complexity. Borrowing against volatile or illiquid assets introduces margin risk, interest expense, and collateral requirements. Interest is not always deductible. And if the borrower doesn’t manage liquidity or longevity, loans can compound and affect estate value.
But for those with significant, well-performing assets, the benefits can be extraordinary.
Final Thought: Liquidity Without Tax Liability
The wealthy don’t avoid taxes by breaking the rules—they avoid them by understanding the rules better than anyone else. By borrowing against wealth instead of liquidating it, they preserve capital, defer taxes, and engineer liquidity that’s efficient, strategic, and quiet.
In the world of high finance, it’s not just what you earn—it’s how you access what you own.
