Oct 09, 2024 21:00:00

What is the 'buy, rent, die' technique that the super-rich use to increase their assets without paying taxes?

If you make money from stocks or investments, or if you pass on the assets you've made to your children, you're taxed, but the wealthy use various loopholes to avoid paying taxes. A post on Reddit, a message board-style social news site, explains the 'Buy, Borrow, Die' strategy that American billionaires use to increase their assets while paying almost no taxes.

The 'buy, borrow, die' strategy can be summed up as buying an asset, borrowing against it, and then passing it on to your children. As the name suggests, this strategy is divided into three stages:

◆Step 1: Buy
First, let's say someone buys an asset for $500,000. If we assume that the asset appreciates in value at 8% per year, after 10 years it will be worth about $108,000. So when you sell the asset to get cash, you will be taxed on the $580,000 gain.

◆Step 2: Borrow
However, you are only taxed if you sell your assets. In this step 2, instead of selling your assets, you borrow money from the bank using your assets as collateral. How much you can borrow will depend on the results of your screening, but if you are given a 90% credit limit, you will have 97 million yen in cash to spend freely without paying taxes.

Step 3: Die
If the assets continue to rise in value, the asset value after 35 years will be 740 million yen. After that, when the owner of the assets dies, the 740 million yen minus the investment amount of 50 million yen becomes the inheritance, but there is no inheritance tax.

This is because in the United States there is

a system that raises the standard amount - in this case the investment amount of 50 million yen - to the level at the time of the death of the deceased, so the adjusted standard amount of 740 million yen is deducted from the sales profit of 740 million yen, leaving it at zero.

The descendants of the wealthy person inherit the entire estate and can use it to repeat the cycle of 'buy, rent, die.' This is 'buy, rent, die.'

However, the user who posted this explanation on Reddit deliberately omitted the explanation, saying that the actual process is highly specialized and complicated, and is usually left to the hands of professional lawyers. Also, when borrowing money from a bank, you must have a net worth of at least $300 million (about 44.5 billion yen) in order to receive preferential treatment. In other words, this method is a way for billionaires who already have huge assets to further increase their assets over several generations.

It is sometimes pointed out that it is not possible to avoid income tax and inheritance tax at the same time, but it is possible to do so by using a method known as the 'asset freezing technique,' which involves using an 'irrevocable trust' to separate assets from one's own assets rather than using assets as collateral directly when obtaining a loan from a bank, and then having the trustee obtain a loan secured by the trust assets.