Buy, Borrow, Die: This is How the Rich Avoid Taxes

Don't Buy (Or Offer) an IUL Until You Read This

As professional financial advisors, you may have noticed the influx of great articles regarding the Buy, Borrow, Die strategy that advocates for its ability to reduce taxes and maximize wealth. Unfortunately, these articles also position this strategy as something exclusively available to the rich. Further, some even go as far as explicitly associating this strategy with the ultra-wealthy, such as Elon Musk, that use Buy, Borrow, Die as a loophole to strategically avoid paying taxes on their appreciating assets.

The good news is we know Buy, Borrow, Die isn’t only available for the ultra-rich.

This strategy is widely available through the ability to buy max-funded Indexed Universal Life policies, borrow via tax-free participating loans, and die with an income tax-free death benefit. Clients who follow this strategy can significantly reduce taxes on growth, access, and transfer while also increasing personal and transferred wealth.

One wrinkle to the Buy, Borrow, Die concept with IUL is to use the borrowed funds to purchase appreciating assets at a discount. We call this ‘buying the dip.’  Generally, the stock market experiences a bear environment every 4-5 years. While a bear market can be scary for those in the stock market without any dry powder or safe funds to rely on, it can also be a tremendous opportunity to buy high-quality assets while they are available at a lower cost.  The IUL fits into this strategy as loans can be wired to a bank account in as little as 3 business days and serve as a liquidity source or ‘dry powder’ to utilize when the market turns red.

To illustrate this, I included a sample of a 45-year-old funding $50k a year for 5 years into an IUL. Then in year 6, the sample borrows every 5 years to buy the dip, without ever paying any interest on the policy loans and instead letting them accrue. Ultimately, the death benefit collateralizes and pays off the outstanding loans upon death, while still providing an income tax-free death benefit behind. Additionally, the assets purchased receive a step up in basis at the current law, allowing the heirs to not pay any capital gains taxes on the stock appreciation at death. While I’m utilizing stocks in this scenario, the assets purchased could include real estate or any other appreciating asset per individual situation.

The bottom line is that this client was able to accumulate and transfer a significant amount of wealth without having to pay any taxes on growth, distribution, or transfer. I’ve included this example illustration below along with samples of the Wealth Report and InsMark Report as resources that demonstrate the accessibility of this strategy that could greatly benefit your clients. After viewing these reports, I highly encourage you to reach out to your Field Support Representative with any questions you might have about utilizing this strategy as a tool that could positively impact your client’s overall financial plan.

Resources Provided for This Post

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Our focus is getting advisors in front of the right prospects through our proprietary digital marketing systems while offering industry best-case design and reporting, professional back-office support, and competitive compensation with incentives.

This material is intended for educational purposes only and is not intended to serve as the basis for any purchasing decision. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. The hypothetical example is shown for illustrative purposes only and is not guaranteed. The characters in this example are fictional only. Your actual experience will vary. Policy loans and withdrawals will reduce available cash values and death benefits and may cause the policy to lapse or affect any guarantees against lapse. Remember to consider your client's individual circumstances and objectives when discussing their specific situation. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of the unrecovered cost basis will be subject to ordinary income tax. Withdrawals are generally income tax-free unless the withdrawal amount exceeds the amount of premium paid. Tax laws are subject to change. Clients should consult their tax professionals. Investment advisory and financial planning services are offered through LifePro Asset Management, an SEC Registered Investment Advisor. Registration does not imply a certain level of skill or training. Investments involve risk.

About Brian Manderscheid

Brian Manderscheid is the Vice President of Case Design at LifePro. He works with financial professionals designing advanced case illustrations that are built for longevity and are always in the best interest of the client.

Disclaimer

This information is meant for educational purposes only.



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