Strategic Leverage: How High-Net-Worth Individuals Turn Debt into Wealth

In an era where wealth concentration and tax efficiency dominate financial discourse, the “buy, borrow, die” strategy has emerged as a cornerstone of affluent wealth management. This approach marries disciplined debt utilization with the tax advantages of asset inheritance, enabling high-net-worth individuals to amplify returns while minimizing tax liabilities. Let's dissect how this strategy leverages the current tax landscape and compounding power to create generational wealth.

The Tax Advantage: Stepped-Up Basis as a Golden Key

At the heart of this strategy lies the stepped-up basis rule, a provision that adjusts the tax basis of inherited assets to their fair market value at the owner's death. This means heirs inherit assets with a new, higher tax basis, effectively erasing the decedent's unrealized gains. For example, if you purchased stock for $10,000 that grew to $1 million, your heir would inherit it with a $1 million basis—eliminating a $990,000 capital gains liability.

The Joint Committee on Taxation estimates this rule costs the federal government $58 billion annually, yet no reforms to eliminate it have passed in 2025. Proposed changes like “carryover basis” (retaining the original basis) or taxing gains at death remain under debate but are not yet law. This stability creates a window of opportunity for strategic borrowing and asset retention.

Leveraging Debt to Fuel Growth

The “borrow” component hinges on using low-cost debt to acquire appreciating assets. High-net-worth individuals often secure personal loans or lines of credit at rates below historical averages (currently around 6-8% for prime borrowers) to purchase assets like real estate, stocks, or private equity. The interest paid on these loans may be tax-deductible if tied to income-generating property, further boosting returns.

Consider this scenario:
- Borrow $1 million at 6% interest to buy a rental property.
- The property appreciates 8% annually while generating rental income.
- After 10 years, the property's value grows to ~$2.1 million, while interest paid totals ~$750,000.
- Upon death, the heir inherits the property at its $2.1 million basis, avoiding capital gains on the $1.1 million appreciation.

The Compounding Edge: Reinvest, Don't Sell

The “buy, borrow, die” strategy thrives on avoiding forced sales. Instead of selling assets to pay taxes or expenses, investors reinvest returns and let gains compound. For instance, a tech executive might borrow against their home equity to buy shares of a high-growth stock. By holding the stock until death, the stepped-up basis ensures heirs inherit the full appreciated value—no capital gains tax triggered.

This approach also aligns with Opportunity Zones, where investors can secure a 30% basis step-up for rural investments, as noted in the 2025 tax bill. Pairing these zones with leveraged buys creates a dual advantage: tax deferrals on debt interest and enhanced basis adjustments.

Navigating Future Risks

While the current tax code favors this strategy, affluent investors must stay vigilant. Proposed reforms like the Biden Administration's “death as realization” rule—which would tax gains at death—could upend the model. Diversifying into tax-advantaged vehicles (e.g., Roth IRAs, trusts) and working with estate planners to structure assets for flexibility remain critical safeguards.

Actionable Steps for Investors

1. Secure Low-Cost Debt: Focus on fixed-rate loans with terms matching your investment horizon.
2. Target Appreciating Assets: Prioritize assets with steady growth (e.g., blue-chip stocks, real estate) that align with long-term holding strategies.
3. Leverage Tax Deductions: Ensure interest payments qualify for deductions (e.g., business or investment-related debt).
4. Plan for Inheritance: Use trusts to control asset distribution while maintaining stepped-up basis benefits.

Conclusion: Debt as a Wealth Multiplier

The “buy, borrow, die” strategy is less about risk-taking and more about tax engineering. By marrying debt-driven growth with the certainty of stepped-up basis, high-net-worth individuals can transform liabilities into engines of compounding wealth. As lawmakers debate reforms, now is the time to act—before the rules of the game change.

Invest wisely, borrow strategically, and let time—and tax law—work in your favor.