Buy, Borrow, Die (BBD)

Buy, Borrow, Die (BBD) is a wealth management and tax-minimization strategy primarily used by the ultra-wealthy to access the value of their assets without selling them and triggering a taxable event. It sounds grim, but it's one of the most powerful (and controversial) tools for preserving and passing on generational wealth. The strategy unfolds in three simple-sounding steps. First, an individual Buys appreciating assets, such as stocks in great companies or real estate, and holds them for the long term. Second, instead of selling these assets to fund their lifestyle, they Borrow against them, typically using a low-interest line of credit. Since loan proceeds aren't considered income, this step is tax-free. Finally, when the individual Dies, their heirs inherit the assets. Thanks to a tax rule known as the Step-Up in Basis, the asset's cost for tax purposes is adjusted to its market value at the time of death. This effectively erases the Capital Gains Tax liability on all the appreciation that occurred during the original owner's lifetime. The heirs can then sell a portion of the assets, tax-free, to pay back the loans.

Think of BBD as a financial superpower that turns paper gains into cash without alerting the taxman. It relies on the interplay of long-term investing, strategic debt, and specific provisions in the tax code.

The strategy's name perfectly outlines its mechanics. Each step is crucial for the plan to succeed.

• Buy & Hold: This is the foundation, and it's pure Value Investing at heart. The strategy begins with acquiring a substantial portfolio of assets that are expected to grow in value over many years. We're not talking about speculative day trading. The goal is to own high-quality businesses, real estate, or other assets that compound wealth steadily over a lifetime. The longer you hold, the more untaxed appreciation you build up.
• Borrow for Liquidity: Here’s the clever part. Let's say your portfolio is worth $10 million, and you need $200,000 for living expenses. Instead of selling stocks and paying capital gains tax, you go to a bank. The bank sees your $10 million portfolio as excellent Collateral and gives you a loan, often a Securities-Based Line of Credit (SBLOC). You get your cash, and because it's a loan, it's not income. It's not taxed. You live off this borrowed money, all while your original assets (hopefully) continue to appreciate in value.
• Die and Step-Up: This is the final, crucial step that makes the whole strategy work for generational wealth. Let's say the original cost of your $10 million portfolio was only $1 million. If you had sold it, you would owe Capital Gains tax on a $9 million profit. But upon your death, your heirs inherit the portfolio. Under current U.S. tax law, the portfolio's cost basis is “stepped up” to its current market value of $10 million. For your heirs, it's as if they bought the assets for $10 million that very day. They can then sell $2 million worth of stock to pay off all the loans you accumulated, and they won't owe a dime in capital gains tax on that sale. The remaining $8 million portfolio is theirs to keep.

“Okay,” you might be thinking, “that’s great for billionaires, but I don’t have an eight-figure portfolio to borrow against.” And you're right. BBD is a big-league strategy. However, the principles behind it offer powerful lessons for every investor.

Understanding the mechanics of BBD illuminates core financial concepts that can help anyone build wealth more effectively.

1. The Power of Patience: The “Buy” phase is all about long-term ownership of quality assets. It’s a powerful reminder that frequent trading is often a tax-inefficient distraction. The real magic happens when you let your investments compound over decades.
2. Mastering Tax Efficiency: BBD is an extreme example of tax avoidance. For the average person, the lesson is to always think about the tax implications of your investment decisions. This means maximizing contributions to tax-advantaged accounts like a 401(k) or IRA, understanding the difference between short-term and long-term capital gains, and considering strategies like Tax-Loss Harvesting.
3. Using Leverage Wisely (and Cautiously): The “Borrow” phase is a form of Leverage. While borrowing against your retirement portfolio is often a terrible idea, understanding how debt can be used as a tool (like a mortgage to buy a home) versus a trap (like high-interest credit card debt) is a critical part of financial literacy.

This strategy isn't without significant risks, which is why it's typically reserved for those with a massive financial cushion.

• Market Downturns: The biggest risk is a severe market crash. If the value of the asset portfolio falls dramatically, the lender could issue a Margin Call, demanding immediate repayment of the loan. This could force the sale of assets at the worst possible time, locking in huge losses.
• Interest Rate Risk: The strategy relies on borrowing money at an interest rate lower than the growth rate of the assets. If interest rates spike, the cost of borrowing could become unmanageable.
• Legislative Risk: The entire strategy hinges on the “step-up in basis” provision in the tax code. This rule is a subject of ongoing political debate, and if it were ever to be eliminated or modified, the “Die” part of the strategy would lose its tax-erasing magic.