For most people, debt is a four-letter word—a financial burden associated with mortgages, car payments, and credit card bills. The conventional wisdom is to avoid it when possible and pay it off as quickly as you can. But in the rarefied air of the billionaire class, debt is not a burden; it is one of the most powerful and sophisticated tools for wealth creation and preservation. The ultra-wealthy have mastered the art of using leverage, or borrowed money, to fund their lifestyles, finance new ventures, and, most importantly, avoid paying billions of dollars in taxes, all without selling a single share of the assets that made them rich.
Understanding this strategy, often referred to as “Buy, Borrow, Die,” is key to understanding how modern fortunes are built and maintained. It is a financial playbook that is largely inaccessible to the average person but is fundamental to the operations of billionaires from the worlds of tech, finance, and industry.
The Core Mechanism: Borrowing Against Assets
The central pillar of this strategy is the ability to secure massive loans from private banks using their vast stock portfolios as collateral. When a billionaire needs cash—whether it’s to buy a new superyacht, invest in a startup, or simply cover living expenses—they do not typically sell their stock. Selling stock is a taxable event. When an asset is sold for a profit, it triggers a capital gains tax, which can be as high as 20% or more at the federal level, plus state taxes. For someone selling a billion dollars’ worth of stock, that could mean a tax bill of over $200 million.
Instead, they go to a bank and take out a loan, pledging a portion of their stock portfolio as security. Because the loan is backed by highly liquid assets (like shares in a publicly traded company), the bank views it as very low-risk. As a result, they can offer incredibly low interest rates, often just a few percentage points. The billionaire gets the cash they need, tax-free, because loans are not considered income.
This strategy offers three immense advantages:
- Tax Avoidance: This is the most significant benefit. By borrowing instead of selling, they defer capital gains taxes indefinitely. They can live off the borrowed money, and the tax bill on their appreciated stock is never realized.
- Maintaining Control and Upside: By not selling their shares, they retain their ownership stake and voting power in the companies they founded or run. They also get to keep benefiting from any future appreciation in the stock’s value. If the stock continues to go up, their net worth increases, allowing them to borrow even more.
- Access to Liquidity: It provides instant access to cash without disrupting their core investment. Their wealth remains invested and growing, while they use borrowed funds for their financial needs.
The “Die” Component: The Ultimate Tax Loophole
The strategy’s name, “Buy, Borrow, Die,” points to its final, most powerful element. When a wealthy individual passes away, their assets are passed on to their heirs. Under current U.S. tax law, these assets benefit from a “step-up in basis.” This means the cost basis of the stock is “stepped up” to its fair market value at the time of death.
For example, if a founder acquired stock at a cost of $1 per share and it is worth $1,000 per share when they die, their heirs inherit it with a new cost basis of $1,000. They can then sell those shares immediately and pay little to no capital gains tax. The decades of appreciation are essentially wiped away for tax purposes. The loans that were taken out against the stock can then be paid off with a portion of the proceeds from the estate. This allows vast fortunes to be passed down through generations with minimal tax erosion.
The Risks: Margin Calls and Market Volatility
While this strategy is incredibly powerful, it is not without risk, even for a billionaire. The primary danger is a “margin call.” If the value of the stock being used as collateral drops significantly, the bank may demand that the borrower either pay back a portion of the loan immediately or pledge more collateral. If the borrower cannot meet the margin call, the bank has the right to forcibly sell the stock at its depressed price to recoup its money.
This can create a dangerous downward spiral. A forced sale of a massive block of shares by a major insider can further depress the stock price, potentially triggering even more margin calls. While rare for the ultra-wealthy who can often pledge other assets, it remains a real risk in a severe market downturn.
A Tale of Two Debts
This sophisticated use of leverage highlights the critical difference between “good debt” and “bad debt.” The average consumer often takes on bad debt—high-interest credit card debt used to purchase depreciating assets or consumables. This type of debt makes you poorer.
Billionaires, on the other hand, use good debt. They borrow at low interest rates to allow their appreciating assets (their stock portfolios) to continue growing untouched. The rate of appreciation on their assets is almost always higher than the interest rate on their loans, meaning they are getting wealthier even while they are borrowing.
Ultimately, the ability to “Buy, Borrow, Die” is one of the key reasons the wealth gap continues to widen. It is a set of financial tools that allows the ultra-rich to access their wealth without incurring the tax liabilities that an average person faces when they sell an asset. It is a powerful illustration of how, in the world of high finance, debt is not a sign of weakness, but a symbol of immense power and strategic advantage.
