What Is The Borrow Until You Die Strategy?

What is the "borrow until you die" strategy? You've probably heard it as a flexi one-liner, which people don't sell. They borrow against their assets and then they die. And the internet treats it like it's some sort of cheat code.

Today, I want to give you the truth about the "borrow until you die" strategy. What it actually is, and what it isn't. The five assets rich people borrow against the most. What critics say about the interest and the costs involved in such arrangements, as well as what other pros say about the "borrow till you die" strategy when nobody's pointing a camera at them.

Now, this is my opinion and that of a bunch of professionals. So take it for what it's worth, and I'm giving you what I know and what professionals are willing to share. Nothing more. Nothing less.

All right, let's break this down. What "borrow to your die" really means. The concept is actually simple. You buy assets that grow in value over time. So think real estate and stocks, or the big ones, for example. As those assets go up in value, you have a couple of choices if you need money. You either sell the asset or you get the money out some other way.

If you sell the assets, you're triggering capital gains and taxes. But if you do something else, say pledge the asset as security for a loan, then you get the loan proceeds tax-free, as loans are not taxable income under Section 61 of the Internal Revenue Code. So you get the loan proceeds tax-free. This is why people think it's a rich people's strategy, when really anyone can use it.

This is because rich, rich people tend to hold lots of assets like founder shares in publicly traded companies, real estate developments. They have what are called unrealized capital gains on these assets that they can access by borrowing against them tax-free. Really, you're borrowing against the equity, but you get the point. This causes some people to lose their minds and want to tax unrealized gains. We've been seeing that recently, right? Because there's such a massive amount of wealth. Estimates are over $50 trillion in these assets that are not taxable and unrealized gain.

Why aren't they taxable? Because we tax on a realization event, when you sell something, not just because you own it. If Grandma bought her home for $50 grand and now it's worth $1 million, are we really going to try to tax her on the gain without her selling it? No. But we will let Grandma borrow against her home, and we won't tax that. It's not considered income under the code. So people with appreciated assets use this to their advantage.

Let's use another example. Let's say we don't want to pick on Grandma. So let's use a typical home in the US right now. Most people are familiar with home loans. So let's say you buy your home and you get a loan to help you pay. It's not taxable to you. Now you own the home that grows in value, and you have a loan that you pay on. You don't pay tax on that growth on the home, right? Unless you sell it. So, does that make sense?

But it gets better. When you eventually die, your assets, your home in this example, gets what's called a stepped-up basis. This just means the capital gains you would have paid had you sold when you were alive effectively disappear. Boom. They're gone for tax purposes. When you pass, and your heirs can sell with no capital gains tax.

So let's do a real-life example. Let's say you buy a home. What do you use? Kind of an average home nowadays. So you buy the home for $400,000. You borrow the entire $400,000. You don't pay any tax on that loan. But the loan does accrue interest. Let's just say it's a conventional mortgage. We'll call it a 30-year. So we borrow $400,000, 30 years, 6.5%. Let's just call it a basic, typical loan.

Ten years go by. So ten years. On average, this $400,000 house is now worth $615,000. Yep, it goes up. Your loan balance, in the meantime, you've been paying it off. Now your loan balance, you borrowed the $400, that goes down to now it's about $340,000. How much equity do we have? Doing kind of rough math, I think that's $275,000. Equity, by the way, for you guys saying that's crazy, that never happens. That's about the average equity in a house right now in the US is over $300 grand.

Of this $275,000 equity, over $200,000 of it would be considered unrealized gains. Right? We went from $400,000 to $615,000. So it's about $215,000. But you paid down the loan $60,000. And that's what gives us more equity. So the house has gone up in value $215,000. Plus you paid down $60,000. So you have $275,000 of equity. But the gain, the difference between what you paid and what you bought it for, I mean, what you bought it for and what it's worth now. So the difference between these two, that's unrealized gain, is about $615,000 or $215,000, excuse me. It's the difference between $615,000 and $400,000. It's about $215,000. Got it.

All right, now you need cash. Maybe you've got to pay for college for one of the kids, or you want a new car, or you'd like to buy a rental house. So you borrow $150,000. So you take out a loan. Just another line of credit. I'm just going to put HELOCs. You take out a Home Equity Line of Credit. That's what that stands for. Of $150,000. Or you could just refi the whole, the old loan and just make it into something bigger. In either case, you would pay zero tax on that $150,000 of additional money. Not a cent. You never sold the house. You just borrowed against it.

So we've borrowed $150,000. We borrowed $400,000. We paid no tax on that. What about paying it back? Well, let's assume you take out the loan and pay for a few more years. And unexpectedly, you pass away, leaving your home to your kids. So your kids would get what's called a stepped-up basis. So let me go through this. We owned it for ten years, or for ten years already. And then we go another three years. So we own the house for a total of 13 years. The kids, when we sell it, get this step-up in basis. And that's a new basis equal to the fair market value of the home when you pass.

So let's say the home was worth on your passing. On average, it would go from $615,000 over three more years. Let's say it's worth $700K. Which is, that's in line with historical growth. I'm using 4.4% per year. That's about what real estate grows at. The $400,000 grows to $615,000 in ten years and $700,000 after 13. So your kids sell the house for $700 grand. There would be zero gain, zero tax, a big old nada.

But remember, you've been borrowing. So you borrowed the original $400,000, plus an additional $150,000. So you borrowed a total of $550,000. I'm going to write that up there. So you see that I borrowed $550,000 and paid zero tax. When your kids pass, zero tax. That sounds to me like $715,000 of tax-free money. That's what you got. You got a house, you got all this appreciation, you got all the cash out of it, and now they sold it. They have to pay back the loans, but it was all tax-free.

And by the way, that's the basic story on these. You borrow against them. And then when you pass away, sometimes you sell them. Sometimes you just continue on. And by the way, this works on stocks too. Let's say a founder starts a company. It's started on a shoestring. And then over the years, they build it up and they eventually go public. Let's say his shares are now worth $500, or maybe we'll go $50 million. We'll play with it. We'll play with a little bit smaller numbers. Right. So it starts up a company, and it could be a he or she, whatever. They start it up and it's $50 million. $50 million and they borrow tens of millions of dollars against that asset. Let's say they borrowed $20 million over the years. That's tax-free. Then they pass away and they leave it to their heirs. There's no income tax on that $50 million. It all steps up in basis. No taxes on the tens of millions that were borrowed. The loans don't even have to be paid back for the most part during their lifetime. But the stocks can be sold when the kids or whoever the heirs are, they could sell it, pay off that loan, and they get to keep whatever's left without paying any income taxes. In our case, it's $50 million. They sell it off, pay the $20 million that, you know, maybe they were just servicing it by paying some interest payments. They pay the $20 million that they borrowed. So they'd have $30 million tax-free. Not too bad.

And that's why people think "rich" when they think of this strategy. Rich people have lots of assets that go up in value: real estate, stocks, art, businesses, even their lives. They insure and borrow against their own lives. More on that in a minute.

But here's the part people skip: borrowing is not free. It's leverage. It's risk. And when rates go up or assets drop in value, this strategy can go from genius to disaster really fast. It all depends on the asset. It depends on the terms of the loan. It depends on a bunch of things. But the principle is simple: it's cheaper and faster to borrow. In many cases, cheaper because you don't have to sell something and pay tax and then spend the leftovers. You borrow with little expense and keep the appreciating asset. Note I said appreciating asset, not depreciating asset. You see, rich people borrow assets, things that pay you, things that get more valuable over time. Another way to put it: rich people borrow against things that can carry the debt itself. The assets can pay the loan versus the person having to reach into their own bank account to pay that loan. Poor people borrow against depreciating assets, which they're more of a liability than an asset, really. They're things that cost you money to own and go down in value over time, like a typical car. It goes down in value the minute you drive it off the lot.

So we need to talk about what rich people actually borrow against to drive this home. Okay, so here are the top five assets rich people borrow against.

Number one: Public stocks and index portfolios, also called a security-based line of credit. Some people call it a security-backed line of credit. This is the cleanest and most common version. If you have a large taxable brokerage account, so think stocks, bonds, and ETFs, the brokerage will offer a securities-based line of credit, sometimes called an SBLOC. Schwab, for example, describes it as borrowing against a non-retirement portfolio without selling the underlying assets. And why rich people like it: they have liquidity without selling, potentially lower friction than selling a huge position. In other words, you're not going to mess up the market, or you're not having to do it when the market is not good. There are no capital gains triggered just by borrowing. The interest is usually less than other types of lending as well. For example, I personally use this strategy to buy a warehouse in Las Vegas. A commercial loan on that warehouse would have been 7.5% at the time, and I would have been buried in paperwork for weeks. The SBLOC was below 5% and took literally five minutes.

Now, there is some risk, though it shouldn't be ignored. If markets drop, the lender can demand more collateral or forced liquidation. So think margin call or collateral call risk. Wells Fargo, for example, explicitly warns that market conditions can magnify losses, and you can be required to deposit cash or additional securities or have assets sold. So how do you mitigate it? Borrowing stocks, little movement, low loan-to-value. So yes, rich people borrow against stock all the time. But they do it with buffers. They do it with liquidity. And they do it assuming the market could punch them right in the face. So they're not going to take too much crazy risk.

Number two: The second type of asset that rich people love to borrow against is real estate. We're talking cash-out refinances, HELOCs, blanket loans. Real estate is the original "borrow against it" asset. And this is the one that most investors understand instinctively. You buy a property, it appreciates. You refinance or take a line of credit against it. You pull the cash out without selling it. Why do we like it? Well, real estate is familiar collateral to lenders. It's easy to loan against. You can often structure long-term, like we have 30-year, talk about 40-year fixed-rate loans. And it can also fund more acquisitions for you. Real estate investors out there, you know, borrow against it to buy more. The better strategies are based off of that. The rents also pay the loan, not you. The rents come in and they pay it, and you get tax-free growth. You get a stepped-up basis if you pass, but you could also do 1031 exchanges. You get to use bonus depreciation, accelerated depreciation, cost segregation, all sorts of tax incentives as well as you get some free money. Now, the truth: this works best when you have strong cash flow and conservative leverage. Because when your rents soften, expenses spike, or rates rise like they just did a few years back, debt doesn't care. Debt wants to get paid.

Number three: What do rich people borrow against? Private businesses and concentrated stock. So think founder shares, pre-IPO, privately held company stock. This is the rich-rich version, right? These are the ultra-rich. This is where private banks lend against privately held stock. And they describe it as a way to create liquidity without selling the underlying shares. Think Elon Musk. This is similar to an SBLOC but generally on a non-marketable asset. Private equity also uses this way as a to leverage into more acquisitions or to reduce their exposure. Heck, the business can borrow against its assets and pay it out to the owners. You could actually turn this around if you're really smart and use the asset of a company to finance the buying of that exact company. It gets pretty wild when you realize all the different ways this works.

Now, why do rich people like it? Well, founders don't want to sell and give up control. Selling can trigger tax, but it can also signal weakness. Borrowing buys time until there's an IPO, recapitalization, or big liquidity event. Borrowing against company assets can create liquidity without tax drag to make new acquisitions even more affordable. So you're trying to target something instead of having to come up with a bunch of cash and go raise a bunch of money, you could actually borrow against your own assets and use that. The risk of valuation is always a real risk because illiquidity is not guaranteed in these situations. It's oftentimes hard to sell, and lenders usually haircut this collateral hard because it's harder to sell in a default scenario. So loan-to-value might be low. And this is one reason critics say the system favors people who already have large appreciating assets. Once you're in this world, by the way, liquidity is easier to access without realizing gain.

Number four: You've probably heard about this. Fine art and collectibles. Yes, people borrow against art. Major private banks advertise art-backed lending, and it's a very real category. But it better be something the market desires. It has to independently appraise. Now, why rich people like it: they get to keep the art. They could still look at it, but they get liquidity. They got cash. They didn't have to sell it. I also don't have to sell my assets when the market's bad or to get liquidity out of it. But here's the uncomfortable truth: art lending can get ugly when there's a big downturn. The Financial Times reported increased defaults and margin calls as art values soften, with some lenders charging very high rates in that space. When the market drops, you can experience some pain. So if someone is pitching art lending as easy money, they're leaving a big part of it out. Which is, what if art prices slide? What if lenders decide to tighten up and you get a call asking for cash? We saw this all throughout 2008, '09, and '10.

Number five: Rich people love to borrow against life insurance. They borrow against the cash value. These are called policy loans. And this is where the whole term "Be Your Own Bank" or "Infinite Banking" come from. This one is very real and widely misunderstood. Certain permanent life insurance policies build cash value in the policy. Loans can allow you access to that cash value, tax-free. Why do rich people like it? Well, it's liquidity. It's easy to get. Doesn't require selling anything. The death benefit and the cash value of the policy are the security. So they're really easy to get. You get them a couple of days. I've actually gotten a policy loan. I wanted to see how fast I could get it. It was within 48 hours, I had the check. They can also be coordinated with estate planning and certain designs.

Now, what are the risks? Well, loans do accrue interest, so you have to be careful about what your policy says. Some of the loans that you take out are wash loans, meaning that you make no money on your cash value that you're borrowing against. It is the interest. Whatever that makes is whatever they keep. Other policies treat the loan and the cash value completely separately, so you could lose money on your investments while the loans are still accruing interest. The opposite could occur too, like you could be paying a much lower interest rate on the loan than your cash value is growing. But if it's the opposite, oh man, I have more interest on the loan and it's not making a lot of cash. You might have to put more money in the policy to pay back these types of loans. Technically, all you have to do is pass away. Like most people, they're not paying these off while they're alive. On many of these, in fact, you pay nothing during your lifetime, and this is extremely helpful if you need long-term care. For example, if mishandled and you do this wrong, they can cause the collapse of a policy or reduce your death benefits because it's going to pay off the loan. And this is not a press-a-button-and-receive-money-back. This is a financial instrument. It's very real.

Now, what do critics say about the "borrow until you die" strategy? I want to be fair. Critics usually argue one of three things. And the big one is: interest isn't a tax loophole, it's a cost. And it's true. Borrowing costs money. You're going to pay some sort of interest. The only reason it makes sense is if the cost of the interest is less than the tax and the opportunity cost of selling, plus you don't want to lose appreciation. You also want the asset to be able to carry the debt so you don't have to. In other words, the asset is paying it back. This is sometimes tough with mortgages and HELOCs on private residences, as well as on art, which they're not making any cash flow. Which is why you must always determine what you are doing with the funds and measure that against the cost of borrowing. In those cases, you would add in the utility, like in the case of your private residence or art, right? You're adding in the utility of the asset. I have a place to live, or the enjoyment from its use. You know, again, for example, I buy a house, I don't have to pay rent. I have a place to live. If I buy art, hey, I really love looking at the art. Maybe you're this, like an art buff, and the rich calculate this into the equation and often make a nice spread on the cash flow and appreciation, which allows them to build up even more equity. Because if you sell these items, you lose their upside. And this is why you hear folks like Robert Kiyosaki of Rich Dad, Poor Dad fame bragging about having over $1 billion in debt. He wants the upside on the assets, and he uses debt against them to continue to buy more. You keep borrowing so he can buy more, borrow, buy more. Not only does he not pay tax on the loans, but he uses depreciation on the real estate that he acquires, for example, to avoid other taxes as well. That's all part of the calculation. If you borrow a dollar at zero tax and invest it in, let's say, a real estate project, and that real estate project gives you a tax loss that saves you $0.30 on taxes that you otherwise would have paid, and then it gives you cash flow to service the debt, you have conjured up money out of thin air. You get to keep all that. You didn't pay any tax and you got a big right. You saved $0.30 on tax and it's paying itself back. That's why these folks use it.

Criticism number two: This system just creates more inequity. The argument is if you have assets, you can fund your lifestyle by borrowing. If you don't, you have to earn wages and pay taxes on each paycheck. So for the working person, let's just say on average, if you needed to spend $10,000, you would have to make $15,000 in wages because they're going to tax it, and then you'll have $10,000 to spend. That's on average. So a third of it's gone to the tax man. For the rich, they don't have to make anything. They can borrow and pay no tax. They need $10,000. They pay $10,000. They avoid that $5,000 tax. It to those getting hit with the tax hit, they get a little upset because it does not seem fair. But the playbook is available to anybody to use. This critique is one reason why policy groups discuss reforms aimed at reducing the incentive to borrow rather than realize gains. Numerous groups, we've been seeing them all over the place, have discussed policy options around stepping up and security-backed borrowing. They want to tax these unrealized gains. Maybe they will. Maybe the feds will at some point. But as of today, none of those critiques have materialized into any substantive change. The "borrow till you die" strategy still works like a charm.

How about criticism number three? This strategy blows up when rates rise. Also true. In many cases, borrowing looks brilliant at 3%. It looks very different at 8%, especially if you have adjustable rates on your loans. If your collateral drops while rates rise, well, that's when foreclosures happen. Look at 2008, when plenty of people lost everything because of loans. Foreclosures abounded. In Vegas, where I live, we saw home prices drop 75%, which put many people in the bank's problem. Go in and renegotiate it. I want a 40-year low-interest term on that loan, otherwise I'm going to default. And of course, we also saw the market come roaring back. I get way higher now.

What do other experts say? Many say it's not a trick, it's just liquidity management. The pros, the wealth managers, the private bankers, tax people tend to frame it differently. Let's explore a few expert views.

Number one: Borrowing can be substantially cheaper than selling. If you sell a highly appreciated asset, you might pay capital gains, potentially net investment income tax, and state tax depending on your situation. This can be well over a third of the value of the asset, plus commissions and transfer fees. Selling a $1 million asset might net you $700,000 after taxes, commissions, and other costs, while you could just borrow the $700,000 tax-free and continue to earn appreciation on the full $1 million. Borrowing, you may keep the asset compounding the entire value of the asset rather than a net.

Expert view number two: The loan is usually designed around risk controls. The true pros don't run these loans at the edge. They maintain low loan-to-value ratios, hold liquidity reserves, diversify their collateral, and plan for volatility. Because margin calls are not theoretical, they actually happen. Any lender has risk for any lending, really. Any time you're borrowing money, there's risk. And so mitigating this risk becomes key on these types of loans. That's all you were doing. Things like asset protection around the asset, interest rate management, making sure the loan-to-values, they all have meaning. And they all need to be factored in.

Expert view number three: Interest deductibility is not automatic. A lot of people assume, "Oh, interest is always deductible." Not necessarily. Investment interest expense is generally limited to net investment income per the IRS rules, right? So the tax treatment depends on the type of loan, the use of the proceeds, and the overall situation. For example, if you're using a loan to buy more investment real estate, then the interest would absolutely be deductible. If you use it to pay for a vacation, not so fast.

So, who does the "borrow till you die" strategy work for? This strategy tends to work best for people who have appreciating assets, stable cash flow to service the debt, conservative leverage, the right type of life insurance. Like anybody could use this if you have the right type of life insurance that allows for policy loans. So think whole life policies, indexed life policies. That's why they're so popular. If you have a long time horizon, you let compounding do its thing. If you're trying to do estate planning that's actually coordinated because of the step-up rules, those matter, you've got to factor them in.

The strategy does not work well for people who borrow too aggressively or have concentrated positions, ignore the rate of the risk of the rate going up. If they, if you don't have liquidity, if you do have a collateral call, like you're running right against the edge, if you borrow against things that go down in value or you don't have that don't have cash flow, that's risky. So you've got to treat it, or here's a big one, I'm just going to add in here: if they treat the "borrow till you die" strategy like a lifestyle instead of a tool, they're asking for trouble.

So yes, that "borrow till you die" is very real and very powerful. But the truth is, it's not a TikTok trick. It's a sophisticated liquidity strategy that can work beautifully, or it could wreck you if you don't respect leverage. If you think of another type of asset that deserves to be in the top five, by the way, put it in the comments below. Hit like and subscribe and share this with anyone you think would benefit. And as always, best of luck. And by the way, I'll leave you a couple of video links that you might like as well.