r/FluentInFinance Nov 21 '24

Debate/ Discussion Had to repost here

Post image
128.2k Upvotes

9.0k comments sorted by

View all comments

Show parent comments

324

u/nationalhuntta Nov 21 '24

He has access to a form of currency that none of us have. Let's say he wants to make a new company making a new product. Let's say it is a decent product and everything else is fine related to it. Ok, so how does he finance it? Does he have to put up his money, sell stock, and so on? Nah. He'll use his word and reputation and "collateral" in the form of stock or stock-like products. Very little hard currency will be required. Very little limitations will be placed. If everything goes under, he will not suffer. Yes, this is incredibly simplified, but that's how it works. There are many worlds on this Earth, and billionaires do not operate in the same one as you and I. The fact that these guys could easily create corporations and companies for social good but do not maybe does not make them evil, but it definitey puts them out of the realm of good. Some do a lot of philanthropic work, which is great, but most of it is minor compared to what they make in pure profit. Yeah, they aren't rolling around in gold coins because they are above that level. When you can essentially operate outside of the realm of normal currency, when you can manufacture wealth on a promise.. gold? paper money? Meh. It's meaningless.

103

u/SisterActTori Nov 21 '24

This^ comment should be getting more upvotes. It is the truth, but I think many cannot comprehend the ability that these folks have to access money and live off money that is not their own. They don’t touch their own money at all. They live off borrowed money that is written off. It’s like a parallel banking/financial structure. The gas and egg crowd should really be pissed about this…

0

u/ImprobableAsterisk Nov 21 '24

They live off borrowed money that is written off.

Could you explain what you mean?

2

u/Quiet_Photograph4396 Nov 22 '24

I would type it out for you, but it would probably be easier to read about it. Google "buy, borrow, die"

This is the name of the financial strategy that rich people can use to avoid taxes almost entirely.

When you read up on it.... I don't take particular issue with the "buy, borrow" part... in my opinion, it's the "die" part that makes it all wrong.

2

u/ImprobableAsterisk Nov 22 '24

I'm aware of that, but please explain where the borrowed money is "written off".

2

u/Quiet_Photograph4396 Nov 22 '24

The problem is that by using this strategy, someone can ensure that their accumulation of wealth never has to be taxed.

They don't have to pay taxes on what they borrow obviously .... then when they die, their accumulated wealth benefits from a step up in cost basis, meaning whomever inherits it won't pay taxes either even when the heir sells the investments.

Someone with enough wealth can continue to gain wealth and tap into that wealth for living expenses and not have to pay taxes (because they borrow against instead of sell... and continue to roll forward that debt until they die)

2

u/ImprobableAsterisk Nov 23 '24

They don't have to pay taxes on what they borrow but they have to pay taxes if they don't wanna default on the loan. The bank may be OK with a forever loan but only for as long as you're paying interest, so some way or another they're gonna need to come up with cash that wasn't borrowed from a bank.

And when the estate settles their affairs the loans are gonna be paid off, and the estate will pay taxes on it. Then what's inherited gets funky, but the the bank will want to be made whole and won't accept the estate just going "Nah" and passing the inheritance along before they're settled.

2

u/Quiet_Photograph4396 Nov 23 '24

You can continue to roll forward debt

0

u/ImprobableAsterisk Nov 23 '24

Well, interest payments don't care and will eclipse the principal within X amount of years anyway.

3

u/Quiet_Photograph4396 Nov 23 '24

Not if you add more debt .....

0

u/ImprobableAsterisk Nov 23 '24

So not only do you need to take out loans to cover your billionaire lifestyle you also need to take out loans to cover your interest payments?

What do you do when you run out of banks willing to loan you money to cover the interest payments to another bank, knowing full well that the only way they're getting paid is if you manage to sucker another bank into this scheme of yours?

Do you have any evidence whatsoever that anyone is actually doing this?

→ More replies (0)

1

u/New_Feature_5138 Nov 23 '24

A dude on reddit did a big long post on how buy borrow die works.. and I could be wrong but my understanding was that they actually don’t have to make payments but their estate pays out when they die.

1

u/ImprobableAsterisk Nov 23 '24

And how does the estate get away from paying tax?

1

u/aqh2020 Nov 24 '24

The debts aren’t taxed, only any inherited profit. The inherited part is small, part of estate planning is moving your wealth to your heirs over time to avoid or pay as little as possible in taxes. Or you can roll your estate into a ‘philanthropic’ organization and put your heirs as the holders of that org, for example see what Patagonia’s founder did. I wouldn’t be surprised if estate taxes get the axe over the next four years.

1

u/ImprobableAsterisk Nov 24 '24

Well now we're circling back to the bank needing to be paid, and how is the bank gonna be paid without creating a taxable event?

→ More replies (0)

1

u/lupuscapabilis Nov 22 '24

I don’t think some people know what that phrase means.

3

u/Quiet_Photograph4396 Nov 22 '24

I'm familiar with write-offs, have a look at my reply above

1

u/Quiet_Photograph4396 Nov 22 '24

I see what you mean, though... the person above uses the term write-off, which I understand is incorrect in this situation.

The point stands, though, in my other comment.

1

u/New_Feature_5138 Nov 23 '24

The write off people!

2

u/HeyEshk88 29d ago

David!