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Dr. David Edward Marcinko MBA MEd

SMART FINANCIAL PLANNING

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A Deep Dive into Wealth Preservation

Wealth management has always been a central concern for individuals seeking not only to accumulate assets but also to preserve them across generations. Among the strategies that have gained attention in recent years, the “buy, borrow, die” approach stands out as both controversial and effective. It is a method that leverages the structure of the tax system, the appreciation of assets, and the mechanics of borrowing to minimize taxable events while maximizing long-term wealth. To understand its appeal, one must break down each stage of the process—buy, borrow, and die—and examine how they work together to create a cycle of wealth preservation.

Buying: The Foundation of Wealth

The first step in the strategy is deceptively simple: buy appreciating assets. These assets are typically stocks, real estate, or other investments that are expected to grow in value over time. The key here is that once an asset is purchased, its appreciation is not taxed until it is sold. For example, if someone buys shares in a company and those shares double in value, the increase in wealth exists only on paper until the shares are sold. This creates a powerful incentive to hold onto assets rather than liquidate them, as selling would trigger capital gains taxes. By carefully selecting assets with strong growth potential, individuals lay the groundwork for wealth accumulation without immediately incurring tax liabilities.

Borrowing: Unlocking Wealth Without Selling

The second step—borrowing—is where the strategy becomes more sophisticated. Instead of selling assets to access cash, individuals use their appreciated holdings as collateral to borrow money. Banks and financial institutions are often willing to extend loans against valuable portfolios or real estate, especially when the borrower is wealthy. The borrowed funds can then be used to finance lifestyles, make new investments, or cover expenses. Crucially, loans are not considered taxable income. This means that someone can live lavishly, fund ventures, or pass money to heirs without ever triggering a taxable event. The assets continue to appreciate in the background, while the borrowed money provides liquidity.

This borrowing mechanism highlights a stark difference between ordinary wage earners and the wealthy. While most people rely on salaries, which are taxed immediately, the wealthy can rely on loans backed by their assets, effectively sidestepping income taxes. The interest on these loans may even be deductible in certain circumstances, further reducing the tax burden. In essence, borrowing allows individuals to enjoy the benefits of their wealth without diminishing it through taxation.

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Dying: The Final Step in the Cycle

The third stage—dying—completes the strategy. Upon death, many tax systems allow for a “step-up in basis.” This means that the value of the assets is reset to their market value at the time of death. For heirs, this is a significant advantage. If someone bought stock decades ago for a fraction of its current value, the unrealized gains would have been enormous. However, with the step-up in basis, heirs inherit the asset as though they had purchased it at its current value. This eliminates the capital gains tax liability that would have existed if the original owner had sold the asset during their lifetime. In effect, death erases the tax burden on decades of appreciation.

This final step ensures that wealth can be passed down without being eroded by taxes. The heirs can then continue the cycle: holding onto appreciating assets, borrowing against them when needed, and eventually passing them on to the next generation. The continuity of this strategy makes it a powerful tool for preserving dynastic wealth.

Ethical and Economic Considerations

While the “buy, borrow, die” strategy is undeniably effective, it raises important ethical and economic questions. Critics argue that it exploits loopholes in the tax system, allowing the wealthy to avoid paying their fair share. This can contribute to inequality, as ordinary taxpayers do not have the same opportunities to defer or eliminate taxes. Proponents, however, contend that the strategy is simply smart financial planning within the rules of the system. They argue that anyone with sufficient assets could employ the same approach, and that the responsibility lies with policymakers to adjust tax laws if they wish to close these gaps.

From an economic perspective, the strategy can distort incentives. It encourages holding assets indefinitely, which may reduce liquidity in markets. It also creates a reliance on debt, though for the wealthy this debt is often manageable and strategically used. The broader impact on society is a matter of ongoing debate, as governments grapple with balancing tax fairness and economic growth.

Conclusion

In practice, “Buy, Borrow, Die” illustrates how the wealthy can legally minimize taxes while maintaining access to their fortunes. It highlights the intersection of financial strategy and tax policy, sparking debates about fairness, efficiency, and the role of taxation in society.

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EDUCATION: Books

SPEAKING: Dr. Marcinko will be speaking and lecturing, signing and opining, teaching and preaching, storming and performing at many locations throughout the USA this year! His tour of witty and serious pontifications may be scheduled on a planned or ad-hoc basis; for public or private meetings and gatherings; formally, informally, or over lunch or dinner. All medical societies, financial advisory firms or Broker-Dealers are encouraged to submit an RFP for speaking engagements: CONTACT: Ann Miller RN MHA at MarcinkoAdvisors@outlook.com -OR- http://www.MarcinkoAssociates.com

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