How do Billionaires actually avoid paying taxes? Buy. Borrow. Die.

Brief Summary

The video explains how billionaires avoid paying taxes through loans, equity, and strategic financial maneuvers. It covers the use of assets as collateral, the concept of fractional reserve banking, and methods to avoid capital gains tax, including strategies employed upon death, such as the step-up in basis.

• Billionaires use assets as collateral for loans, avoiding the need for down payments.
• Fractional reserve banking allows banks to lend money multiple times, facilitating large loans.
• Tax avoidance strategies include creating shell companies, utilizing favorable tax codes, and leveraging the step-up in basis upon death to reset asset values.

Introduction to Billionaire Tax Avoidance

The speaker introduces the topic of how billionaires avoid paying taxes, primarily through the strategic use of loans. Instead of earning a traditional salary, billionaires often own parts of companies, which banks readily accept as collateral for substantial loans. This approach allows them to access significant funds without the immediate need for repayment.

Leveraging Equity and Avoiding Down Payments

Billionaires avoid making down payments by using their existing assets as collateral. Their money is tied up in equity, and as long as the loan continues to accrue interest, the bank is not concerned about immediate repayment. This strategy allows them to maintain liquidity while leveraging their assets for further financial opportunities.

Fractional Reserve Banking and Perpetual Borrowing

The concept of fractional reserve banking is discussed to illustrate how banks generate profit by lending money. Billionaires can borrow vast sums as long as their net worth continues to increase, providing ongoing collateral. This system enables them to perpetually borrow without the pressure of repayment, as the loans are continuously rolled over and supported by their growing asset base.

Contingency Plans and Tax Avoidance Strategies

In the event that a billionaire's net worth decreases and they lack sufficient collateral, they might create a shell company to provide a bailout. If that's not possible, they rely on favorable tax codes to minimize their tax obligations. As a last resort, they may allow the bank to seize assets used as collateral, avoiding capital gains tax by not realizing the gain. The ultimate goal is to avoid taxes throughout their lifetime, passing the responsibility to their estate.

The Step-Up in Basis Upon Death

The most advantageous aspect of this financial strategy is the step-up in cost basis upon death. The value of the assets is reevaluated to their worth at the time of death, effectively resetting the cost basis. This eliminates capital gains tax, as the difference between the original purchase price and the value at death is not taxed.