The Buy-Borrow-Die (BBD) strategy is a tax-efficient wealth-building approach used by the wealthy to minimize tax liabilities and maximize the long-term growth of their assets. The strategy follows a simple cycle: Buy, Borrow, and Die.
Buy: The first step involves purchasing appreciating assets such as stocks, real estate, or art. The wealthy invest in assets that tend to increase in value over time. They hold onto these assets for the long term, allowing them to grow in value without triggering taxable events like selling.
Borrow: Instead of selling the assets to fund their lifestyle or other investments, the wealthy borrow against their appreciating assets. Banks and financial institutions are often willing to lend to individuals with significant assets, offering them low-interest loans. Borrowing against assets has two key advantages: it provides liquidity without having to sell the asset (and therefore avoiding capital gains taxes), and loan proceeds are not considered taxable income. This allows the wealthy to access cash while letting their assets continue to appreciate.
Die: Upon death, the assets are passed on to heirs, typically through a trust or other estate planning mechanisms. In the U.S., when assets are inherited, they receive a "step-up in basis," meaning that the capital gains tax liability is reset to the current market value. This effectively eliminates the capital gains that would have been owed if the assets had been sold during the original owner's lifetime. The heirs inherit the assets with little or no tax burden, and the cycle can continue.
The Buy-Borrow-Die strategy allows the wealthy to avoid significant capital gains taxes during their lifetime, access cash without selling assets, and pass on their wealth to the next generation with minimal tax liabilities. This strategic approach helps them preserve and grow their wealth across generations.
Reference: https://www.youtube.com/watch?v=1kYZxowtkbo
Please Join!!!
Established a Facebook Group as a collective platform where we share and exchange our Canadian experiences and expertise across diverse subjects.