What Is the Buy, Borrow, and Die Strategy?

“Buy, Borrow, Die” is a wealth management strategy that allows individuals to minimize taxes on their growing fortunes. It involves purchasing assets that increase in value, using those assets as collateral to borrow funds for living expenses, and then passing the assets to heirs upon death. This approach, named by tax law professor Edward McCaffery, is structured to defer and sometimes eliminate taxes on asset appreciation, allowing affluent individuals to access their wealth without a taxable event.

The Mechanics of Buying and Borrowing

The initial phase involves acquiring assets expected to grow in value over the long term, such as stocks, bonds, real estate, or fine art. The goal is to build a portfolio whose value will appreciate significantly over many years. This long-term holding period is fundamental, as it allows compounding to substantially increase the portfolio’s worth.

Once the portfolio has appreciated, the owner enters the borrowing phase. They use their investments as collateral to secure loans, often through securities-based lines of credit (SBLOCs), rather than selling the assets. This provides cash while allowing the investments to remain in the portfolio and continue growing.

The terms of these loans are often favorable, with interest rates lower than other forms of unsecured debt because they are secured by a liquid portfolio. The amount that can be borrowed is a percentage of the portfolio’s value, often ranging from 50% to 95% depending on the type and diversification of the assets. This provides substantial liquidity to the borrower.

This process of borrowing against an appreciated portfolio can be repeated as the assets continue to climb in value. As the portfolio grows, the individual’s borrowing capacity also increases, providing an ongoing source of funds. The assets are never sold during the individual’s lifetime, which is a component for the tax advantages that form the next stage of the strategy.

Tax Treatment of Loan Proceeds

A central element of the strategy is the tax treatment of loan proceeds. The Internal Revenue Service (IRS) does not consider borrowed money to be income, so the funds are not subject to income tax. The transaction is viewed as an exchange of debt for cash, not a realization of taxable gain.

This treatment contrasts with selling appreciated assets, where the profit is subject to capital gains tax. This tax is levied on the difference between an asset’s selling price and its original purchase price, or cost basis. Federal long-term capital gains tax rates can be 0%, 15%, or 20%, with a potential 3.8% Net Investment Income Tax for higher earners.

By choosing to borrow against assets rather than sell them, an individual defers the capital gains tax that would otherwise be due. The assets remain in the portfolio to continue appreciating, while the owner accesses liquidity tax-free. This deferral can last for the individual’s entire life, allowing wealth to compound without being diminished by taxes on the growth.

The interest paid on the loan may also have tax implications. In some circumstances, if the borrowed funds are used for investment purposes, the interest expense may be deductible. This can enhance the tax efficiency of the strategy.

The Role of Death in the Strategy

The final component of the strategy occurs upon the asset owner’s death, when a U.S. tax code provision called the “step-up in basis” applies. The cost basis of inherited assets is adjusted to their fair market value on the date of the owner’s death.

This basis adjustment erases the unrealized capital gains accumulated during the original owner’s lifetime. For example, if an investor purchased stock for $1 million and it was worth $11 million upon their death, the heirs inherit it with a new cost basis of $11 million. The $10 million in appreciation is never subjected to capital gains tax, a significant benefit passed to the next generation.

With the stepped-up basis, the heirs can address the outstanding loans taken out against the portfolio. They have the option to sell a portion of the inherited assets to repay the debt. Because their new cost basis is the market value at the time of death, selling assets to cover the loan balance results in little to no capital gains tax liability.

While the unrealized gains escape income taxation, the total value of the estate may be subject to federal estate tax. For 2025, the federal estate tax exemption is $13.99 million per individual, meaning only estates exceeding this high threshold would owe any federal tax. This exemption amount is scheduled to be cut roughly in half in 2026 unless new legislation is passed, and some states also impose their own estate or inheritance taxes at lower thresholds.