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re: Wall Street Journal lamenting taxes aren't higher on billionaires
Posted on 2/19/26 at 1:30 pm to BBONDS25
Posted on 2/19/26 at 1:30 pm to BBONDS25
quote:
What type of trust would allow someone to move 50 million out of their estate (when the lifetime exemption was 11), yet still have access to the assets when they are worth 10 billion?
I was unfamiliar with what you called “incidence of control” That would prevent use of the assets without triggering estate taxes. I was wrong about that.
You mention $11 million. I did estate planning last year and I’m fairly sure I remember it was $14 million each.
The main issue I brought up still hasn’t been addresses which is borrowing in lieu of income or capital gains. This was the actual issue that I brought up.
2
Posted on 2/19/26 at 1:36 pm to Penrod
quote:
The main issue I brought up still hasn’t been addresses which is borrowing in lieu of income or capital gains. This was the actual issue that I brought up.
Has been addressed multiple times.
Posted on 2/19/26 at 1:43 pm to GoCrazyAuburn
quote:
Has been addressed multiple times.
Not satisfactorily. Nothing will be done while Trump is in power, but the next time the democrats are in control they will probably do something about this as part of a much too punitive tax hike. This is one of the things that frustrates me about the republicans. They will leave an obvious problem unaddressed when a moderate solution would prevent the immoderate one we will eventually get. The same type of problem is germinating in health care. We will probably end up with a government run atrocity because we won’t do anything to address it.
Posted on 2/19/26 at 1:47 pm to Penrod
quote:
Not satisfactorily.
It has, you just fail to grasp how these mechanisms actually work. The hypothetical scenarios you keep making up don't actually work they way you are claiming they do in your examples, they just fit your idea of how things operate.
quote:
obvious problem
Making up a problem doesn't actually mean there is a problem. You really don't want to go down the rabbit hole of taxing loans. It won't end well. Not to mention taxing unrealized gains.
This post was edited on 2/19/26 at 1:49 pm
Posted on 2/19/26 at 1:57 pm to GoCrazyAuburn
quote:
Making up a problem doesn't actually mean there is a problem.
Okay, so you have GoCrazyAuburn saying it almost never happens; we have Penrod saying it does;
The Yale Budget Lab saying it does
The DC Fiscal Policy Institute saying it does
Posted on 2/19/26 at 2:02 pm to Penrod
1. What % of the wealthy actually use this strategy? That is the point of the claim that it isn't that common of a practice. As I said in my very first post in this thread, i've yet to see any concrete numbers that show SLOC's are a widespread strategy utilized by a majority of people capable of it for income supplementation. Because, frankly it is a very risky move that has plenty of downside, that we haven't even gotten into yet.
2.
2.
quote:This quote is in reference to you claiming the strategy is actually a problem, neither of which the two articles you posted actually do anything to prove.
Making up a problem doesn't actually mean there is a problem.
This post was edited on 2/19/26 at 2:04 pm
Posted on 2/19/26 at 2:14 pm to GoCrazyAuburn
quote:
This quote is in reference to you claiming the strategy is actually a problem, neither of which the two articles you posted actually do anything to prove.
Well, it’s not provable. It’s strictly a matter of opinion, like what should the top marginal income tax rate be? Or what level of regulation is prudent?
I don’t know at what level it’s being done. I know that there is a lot of people agitating to put a stop to it. It seems very plausible that it would be widely used. Taxing the loan values would surely just about kill the practice, so if you are right, and it’s rarely used, it would do no harm nor good.
I searched the internet and the consensus seemed to be that other than “ultra-high wealth individuals” it is uncommon. Among UHWIs it is common, though less than a majority, and its use has increased rapidly recently. So not really sure what to make of all of that. Even if is only used by a few hundred it still should be stopped.
Posted on 2/19/26 at 2:18 pm to Penrod
quote:
I don’t know at what level it’s being done. I know that there is a lot of people agitating to put a stop to it. It seems very plausible that it would be widely used.
Which again, goes back to my point that it is a widely misunderstood practice, as clearly indicated here. Just because a lot of people online are bitching about something they don't understand, doesn't mean the thing is actually problematic or some loophole. It just isn't.
quote:
Taxing the loan values would surely just about kill the practice, so if you are right, and it’s rarely used, it would do no harm nor good.
Well, besides opening up the massive can or worms that would come with being able to tax any loan, or debt for that matter, but I guess we can overlook that
quote:
it still should be stopped.
Why? Legitimately why? Your claim that the taxes don't get paid is just flat wrong. So, why does it need to be stopped? Why is the practice acceptable for every other person to do often, but not for the wealthy to do?
This post was edited on 2/19/26 at 2:24 pm
Posted on 2/19/26 at 3:29 pm to Penrod
quote:
You mention $11 million. I did estate planning last year and I’m fairly sure I remember it was $14 million each.
Lifetime exemption in 2025 was 13.99 per person. It is 15 in 2026. In 2016….10 years ago (which is the timeframe you used in your example) the exemption was 5.45 per person.
quote:
The main issue I brought up still hasn’t been addresses which is borrowing in lieu of income or capital gains. This was the actual issue that I brought up.
Well, those assets would have to be included in the estate subjecting them to 40 percent taxes. Nobody pays capital gains on inherited assets that weee includible in the estate.
Posted on 2/19/26 at 3:31 pm to GoCrazyAuburn
quote:
Making up a problem doesn't actually mean there is a problem. You really don't want to go down the rabbit hole of taxing loans. It won't end well. Not to mention taxing unrealized gains.
Taxing loans is an awful idea. Can’t even imagine how that would be codified in a way that wouldn’t basically eviscerate the middle class.
Let’s not forget. On top of all the other taxes you mentioned, the banks pay taxes on the interest income. Penrod at least admitted to being wrong about the estate tax portion of his argument. He is trying to save face here. I get it.
Posted on 2/19/26 at 3:40 pm to BBONDS25
Here's how the scenario actually works in the real world and we will just assume the debt doesn't get repaid until the person dies:
Wealthy person (WP) pays tax on their issued company stock, type varies depending on method used to issue the stock. WP takes out SBLOC using their shares as collateral (other types of funding can be used but this is probably the most common so we will use it). WP pays interest on the SBLOC every year typically, which the lendor pays income tax on. At death, the estate pays estate tax on the FMV of those assets. The estate will also use its assets to repay the loan balance. If the estate is able to use assets that were not subject to the estate tax calculation for whatever reason, they will have to pay capital gains tax on those assets they liquidate.
That's all assuming that they don't decide to repay the loan early, have a maintenance or margin call, etc. Nor have we even really addressed that I'd wager the majority of the time, this practice is used to invest in other income producing assets (not always but probably most common), which then income taxes will need to be paid on. I know you already know all this BBONDS, but figured at this point it's worth actually typing out instead of continuing to deal with hypthetical examples that don't legally work.
Wealthy person (WP) pays tax on their issued company stock, type varies depending on method used to issue the stock. WP takes out SBLOC using their shares as collateral (other types of funding can be used but this is probably the most common so we will use it). WP pays interest on the SBLOC every year typically, which the lendor pays income tax on. At death, the estate pays estate tax on the FMV of those assets. The estate will also use its assets to repay the loan balance. If the estate is able to use assets that were not subject to the estate tax calculation for whatever reason, they will have to pay capital gains tax on those assets they liquidate.
That's all assuming that they don't decide to repay the loan early, have a maintenance or margin call, etc. Nor have we even really addressed that I'd wager the majority of the time, this practice is used to invest in other income producing assets (not always but probably most common), which then income taxes will need to be paid on. I know you already know all this BBONDS, but figured at this point it's worth actually typing out instead of continuing to deal with hypthetical examples that don't legally work.
This post was edited on 2/19/26 at 3:57 pm
Posted on 2/19/26 at 4:12 pm to CamdenTiger
quote:
Taxes aren’t low, it’s just strategy. When you have assets, you take out loans, you are now paying off debt, which isn’t taxed. It’s not like they are getting W2’s
And, when you die, your family gets a step up in basis on the collateral, the kids sell the assets, pay off the debt, and there is no tax consequence.
I don't mind the living off the borrowing; I do mind the step-up in basis on assets (e.g., land, stocks, etc.). Here is the funny thing. If you inherit your mom's IRA, you must immediately start taking the RMDs, and it is all taxable - granted, no early withdrawal penalty...yeh.
Posted on 2/19/26 at 4:18 pm to AUauditor
quote:So you'd eliminate the step up AND still tax the overall inheritance?
I don't mind the living off the borrowing; I do mind the step-up in basis on assets
Posted on 2/19/26 at 4:19 pm to AUauditor
quote:
And, when you die, your family gets a step up in basis on the collateral, the kids sell the assets, pay off the debt, and there is no tax consequence
If youre a billionaire there is a large taxable event at death. The step up helps the middle class just as much if not more.
quote:
Here is the funny thing. If you inherit your mom's IRA, you must immediately start taking the RMDs, and it is all taxable - granted, no early withdrawal penalty...yeh.
That’s because the money put into qualified accounts is a pre-tax dollar. Not so for assets that get a step-up.
Posted on 2/19/26 at 4:24 pm to BBONDS25
quote:Which makes sense. But the ultra-wealthy person skated through without paying taxes.
Nobody pays capital gains on inherited assets that weee includible in the estate.
Posted on 2/19/26 at 4:27 pm to Penrod
quote:
Which makes sense. But the ultra-wealthy person skated through without paying taxes.
:bangshead: The ultra wealthy person that gets a step-up gets it because those assets are includible in their estate meaning they pay a 40 percent estate tax on the FMV of those assets.
You were just wrong in this thread. It’s no big deal. We tried to tell you to stop digging.
This post was edited on 2/19/26 at 4:28 pm
Posted on 2/19/26 at 4:32 pm to BBONDS25
quote:
:bangshead: The ultra wealthy person that gets a step-up gets it because those assets are includible in their estate meaning they pay a 40 percent estate tax on the FMV of those assets.
You were just wrong in this thread. It’s no big deal. We tried to tell you to stop digging.
And here's the thing too, the scenario in his head falls apart even more because that scenario is probably the worst possible route for them. In reality, they would liquify assets incurring capital gains tax and repay the loan before they die long before they'd let these things be in their estate at death. Obviously stock in family owned business or something that is getting passed down to heirs probably won't be sold but some other asset will. We can't sit here and pretend that they are taking advantage of some loophole and then all of a sudden just decide to pay 40% tax instead of ~23%
This post was edited on 2/19/26 at 4:33 pm
Posted on 2/19/26 at 4:42 pm to GoCrazyAuburn
quote:
Obviously stock in family owned business or something that is getting passed down to heirs probably won't be sold but some other asset will. We can't sit here and pretend that they are taking advantage of some loophole and then all of a sudden just decide to pay 40% tax instead of ~23%
Yep. I could see an FLP if you have a closely held entity that you think will appreciate in the future, but there are still limits on how much you can exclude…even if you take an aggressive marketability discount.
You know this. I tried to tell Penrod earlier. It is an extremely deep body of law…with a lot of intricacy and complicated strategies. My guess is he saw some internet story about this loan regime and thought it did something it doesn’t. The rest has been him trying to save face. It’s no biggie.
Posted on 2/19/26 at 4:46 pm to BBONDS25
I'd also be really curious to see true figures on any of the ultra wealthy that are doing this, if their loans ever actually get above their cost basis of their collateralized assets. I'm sure they have to in some scenarios, but a lot of them I highly doubt it. So, in this scenario we would essentially be charging a capital gains tax for cash received where capital gains very well might not have been due and income tax had already been paid
This post was edited on 2/19/26 at 4:48 pm
Posted on 2/19/26 at 5:12 pm to GoCrazyAuburn
In my experience there are two times billionaires take out gigantic loans. One is if there is an arbitrage play. If their business is growing at 20 percent and they can borrow at 5 percent. They borrow to cover some expenses. Not to avoid capital gains, but because of the arbitrage opportunity.
The second is if they need a loan to help cover the estate tax liability.
I’m sure what Penrod complains of happens, but to your point in my experience it is not widespread or all that useful of a strategy.
The second is if they need a loan to help cover the estate tax liability.
I’m sure what Penrod complains of happens, but to your point in my experience it is not widespread or all that useful of a strategy.
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