“Buy, Borrow, Die” Estate Planning Strategy

If it feels like the rich play by a different set of rules, it’s because they do.

I recently learned about the concept of “Buy, Borrow, Die” and it’s fascinating. I’m not an expert on estate planning or taxes or am I rich enough to do this (yet!), but it highlights how different parts of tax law can come together to something (likely) unintended.

As far as I can tell, the origin of this framework (or at least the fun name) comes from Professor Edward McCaffery of the University of Southern California Gould School of Law. It’s outlined on his site People’s Tax Page on Tax Planning 101: Buy, Borrow, Die.

This strategy has three parts – buy, borrow, and die.


First, you buy something.

You have a big slug of money and you want to invest it in appreciating assets so you can retire forever. It’s also important that those appreciating assets do so tax-free (or more accurately, tax-deferred).

You’ll want to put this into the stock market, real estate, or another asset class that appreciates. Buying a car would be a bad idea for this because the value of the asset goes down over time. It’s also better if you pick a class that enjoys the tailwind of inflation pushing up its nominal value.

Real estate is almost perfect for this because its value tends to go up but you get to take depreciation (which reduces your income tax) plus it’s well established as collateral. A bank may not want to use your business as collateral but they’ll all take real estate.

And the collateral is important. You also want to pick an asset that can be used as collateral for a loan. Investing in your friend’s business is bad for this. Investing in your own business would be better, but not as good as real estate.


Next, you borrow against your asset.

Typically, if you are asset rich and cash poor, you might sell some of your assets for cash to live. When you do, it triggers capital gains.

To avoid this, you don’t sell your assets to get cash. Instead, get a loan from the bank with your assets as collateral. By keeping the assets as they are, where they keep growing value, you don’t trigger a taxable event. You still get cash, it’s just a loan.

The best part about this is that when you get a loan, it’s not considered income. Since you’re borrowing against an asset, you’ve received cash in hand but you are also holding a loan that you must repay. Use some of the proceeds of the loan to make the payments.


Every good plan requires a good exit strategy and this one relies on the ultimate exit strategy – death. You die.

When you die, your estate goes to your heirs. The assets in your estate get a step-up in (cost) basis. When your beneficiaries get those assets, their current cost basis in that asset is the current market price (at the time of your death). That step-up can save your heirs a ton in taxes.

For example, if I bought shares of Apple for $15 in 2011 and I died today (with it priced at ~$120), my beneficiaries get the step-up in cost basis. If they sell those shares today at $120 each, they will pay no capital gains tax because they had no gains. (They may have to pay estate taxes as a result of getting those shares.)

What about the loan? You pay it off with the proceeds of the sale.

Is There A Catch?

No catch.

Well, the catch is that your assets have to keep appreciating. And you have to die, but that part is in the name of the strategy.

The only real difference here is that when you borrow money from the bank instead of selling an asset for the cash, you pay the bank some interest and the government doesn’t get its capital gains tax. You have to go through a few more hoops because you need to get a loan. Selling an asset and reporting the sale on your tax return is easy and requires no application.

The other factor is that it might not be the most efficient way of acquiring an asset in the first place. You can typically own real estate by paying a fraction of the cost of buying it. You can get a piece of property for a 20% downpayment (usually less).

Finally, this strategy works so well because of the step-up in basis. If that didn’t exist, this plan isn’t as effective (but is still helpful). The step-up in basis removes a potentially huge junk of gains from taxes.

If the step-up in basis were removed, you still benefit a little bit because you still retain the entirety of the asset so it can grow. You just have to keep paying the loan’s interest rate in the meantime so you need the asset to appreciate more than the interest rate on the loan. It’s really no different than borrowing money to invest, which is not unheard of, but you’re doing it in a way that avoids capital gains to get access to the cash.

This Isn’t That Crazy

If the strategy sounds like a really crazy idea, it isn’t – we actually do this already with our homes.

You buy a home, which is generally an appreciating asset, and you can get a loan against the value of the home (home equity loan). When you go to sell, you can ignore $250,000 of gains as long as it was your primary residence (similar to step-up in basis). If the loan is still outstanding when you sell, you can pay back the home equity loan with the proceeds and it doesn’t impact the cost basis on your home.

The only thing missing is that you can’t depreciate the value of your home and use it to offset your income. 🙂

There are over $290 billion revolving home equity loans according to The Federal Reserve:

As you may know, home equity loans are loans taken out against the equity in your home. Buy Borrow Die is just a riff off this very popular idea. It’s just that most people don’t take home equity loans for spending money, they typically do it for major purchases, but money is fungible.

There you have it – now you know the Buy Borrow Die Strategy.

Go impress your rich friends at the country club. 🙂

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