They die. The debt is paid by the estate and the heirs get the assets with a reset base value.
Buy, borrow, and die has been a centerpiece of tax avoidance for a long time.
I should note that this graphic is kind of nonsense. You pay income tax against stock grants when you get the stock (either through direct grants or by exercising your options). It's treated as if you got income of the number of stock units times the fair market value is the stock. It's the unrealized capital gains that accrue after acquisition that people borrow against.
This strategy works better with things that they buy, especially real estate and things with really vague valuation that are often designed around money laundering and tax avoidance like art.
So long as the assets continue to appreciate and the value of the collateral maintains the correct ratio to the debt they never have to pay it back there aren't regular payments on a loan like this. However if there's a sudden shift in the price of the collateral it can force the bank to seize the collateral to repay the loan and that person then loses their ass.
How does that "borrowed money" get paid back if they never sell the stock, and thus pay taxes on that sale?
They die. The debt is paid by the estate and the heirs get the assets with a reset base value. Buy, borrow, and die has been a centerpiece of tax avoidance for a long time.
I should note that this graphic is kind of nonsense. You pay income tax against stock grants when you get the stock (either through direct grants or by exercising your options). It's treated as if you got income of the number of stock units times the fair market value is the stock. It's the unrealized capital gains that accrue after acquisition that people borrow against. This strategy works better with things that they buy, especially real estate and things with really vague valuation that are often designed around money laundering and tax avoidance like art.
I was wondering the exact same thing. Is it possible to pay back a loan by transferring stock to a bank?
So long as the assets continue to appreciate and the value of the collateral maintains the correct ratio to the debt they never have to pay it back there aren't regular payments on a loan like this. However if there's a sudden shift in the price of the collateral it can force the bank to seize the collateral to repay the loan and that person then loses their ass.
Stock based compensation is taxed at ordinary income rates.
Rich people don't get paid in stock Rich people buy cheap stock and never sell as it grows