Borrowing Against Wealth: Why the Rich Often Use Debt

The Million Dollar Question: Per ProPublica’s Secret IRS Files, what was the average “true tax rate” paid by the 25 wealthiest Americans from 2014 through 2018?

A) ~25% B) ~14% C) ~3.4% D) ~0%

Read on for the answer.

A working explainer of why wealthy households spend by borrowing rather than selling — what a securities-backed line of credit actually is, the math that makes it cheaper than a stock sale, the modern named examples, and the failure mode that turns the strategy from defensible to destructive.

What it is

A wealthy household with a $50M stock portfolio that wants to fund a $5M house has two ways to do it. Path one: sell $5M of stock, pay roughly $1M in long-term capital gains tax, end up with the house and a $44M portfolio. Path two: borrow $5M against the portfolio at SOFR plus a small spread (call it ~6% all-in in 2026), pay zero tax now, end up with the house, a $50M portfolio still working, and a $5M loan that the household will service — and likely refinance — until they die, at which point §1014 of the Internal Revenue Code resets the cost basis of the portfolio to current market value and the embedded gain disappears.

That is buy, borrow, die. It is not a loophole, a scheme, or anything secret. It is the rational way to spend at the top of the wealth distribution, given how the US tax code is structured.

The structure that does most of this work is the securities-backed line of credit (SBLOC) — also marketed by Schwab as a Pledged Asset Line, by Fidelity as a Securities-Backed Line of Credit, by Bank of America / Merrill as a Liquidity Access Line, and by Goldman Sachs through GS Select. Same product, four marketing names. The market is bigger than most readers realize: per the Federal Reserve’s 2025 securities-based-lending data summarized in Stockstead’s industry comparison, roughly $138 billion in securities-based loans was outstanding as of Q1 2025, with the broader margin-and-securities-lending market exceeding $300 billion.

A historical note worth carrying: the tax structure that makes this work is not new. Step-up basis under §1014 has been in the federal code since 1921, and securities-backed lending is older still. What has changed in the past two decades is the scale — both because tech-era equity wealth has produced concentrated stockholders large enough for ~$20B+ pledges, and because the major brokerages have systematized the product down to portfolios of around $500K, putting the strategy in reach of a much broader band of wealthy households than at any prior point.

Who uses it

Five user profiles map cleanly onto the wealth bands defined in Wealth Levels:

$1M–$5M households. Use SBLOCs as bridge financing — a down payment, a tax bill, a tuition stretch, a renovation — that they want to keep their portfolio invested through. The interest cost is real but capped, and the tax savings versus a forced stock sale can pay for several years of borrowing.

$5M–$30M households. Use SBLOCs more systematically. Common use case: a $5M house bought with a $5M draw against a $25M brokerage account, with the line repaid as bonuses, business distributions, or planned partial liquidations come in. Most major US private banks and brokerages will set up an SBLOC at this tier with relatively standard documentation.

$30M–$100M households. SBLOCs as the default spending account for non-recurring large purchases — second homes, art, private placements, business buy-ins. Often arranged through a private bank where the same relationship covers wealth management, tax, and trust services.

$100M+ households. SBLOCs as part of a multi-credit stack alongside private bank credit lines, real estate loans, and short-term commercial paper. The household’s effective borrowing cost looks more like an investment-grade corporate’s than a retail consumer’s.

Tech founders and concentrated-stock wealth. A separate profile — often $1B+ on paper but constrained by the corporate trading rules around their own stock. Pledge agreements let them spend without selling, without filing Form 4 disclosures, and without signaling weakness in their own equity. The headline modern examples: Larry Ellison’s roughly $21 billion in personal loans collateralized by ~30% of his Oracle stake, per IFR’s reporting on Oracle’s late-2025 proxy disclosure, and Elon Musk’s pledge of 238.4 million Tesla shares per the 2024 SEC filing — which at peak around the 2022 Twitter deal covered roughly 94% of his Tesla holdings.

Million Dollar Question — sidebar: Roughly what percentage of his Oracle stake has Larry Ellison pledged as loan collateral, per the late-2025 proxy disclosure? About 30% — roughly 346 million shares, securing an estimated $21B+ in personal loans. Per IFR, Oracle’s board carved out a specific exception for Ellison from the 2018 policy that bans every other Oracle director and executive from pledging shares as loan collateral. That carve-out is itself a quiet acknowledgment of the unusual scale.

Why they use it

Five recurring reasons, in roughly the order they bind on different households.

Tax deferral. The first and largest motive. Selling appreciated stock triggers a long-term capital gains tax — combined federal plus state, often 24% to 37% for a high-bracket Californian or New Yorker. Borrowing triggers no tax. For a household funding $1M of spending out of an appreciated portfolio, the difference between selling and borrowing is roughly $240K to $370K per million spent. Across a decade of household spending at this scale, the cumulative tax saving is the difference between several houses.

Continuing exposure. Selling means the asset stops compounding. Borrowing keeps the asset compounding while financing the purchase. If long-term equity returns sit around 8% nominal and SBLOC interest costs sit around 5–7%, the spread mechanically favors borrowing — as long as the portfolio holds up. The strategy is not arbitrage; it is a leveraged bet that the underlying investments outperform the cost of the line.

Concentrated-stock control. For founders, early employees, and large public-company executives, selling means filing a Form 4, hitting a corporate trading window, signaling something to the market, paying tax, and giving up voting power. Borrowing avoids each of these costs. This is most of why concentrated-stock wealth — the kind that produces the Ellison and Musk numbers — is structurally biased toward pledge financing rather than secondary sale.

Liquidity speed. SBLOCs are revolving and pre-approved. Once set up, draws settle in one to three business days. Compare that to selling a private placement, an art piece, or a real estate position to fund a sudden need.

Step-up at death. The strategy that closes the loop. Per §1014 of the Internal Revenue Code, heirs inherit appreciated assets at their current market value — the embedded capital gain accumulated during the owner’s lifetime is erased. The estate pays off the SBLOC out of the now-stepped-up portfolio, and a lifetime of borrowing has cost the family income tax of zero. Whether this rule should exist is a real policy debate (covered in §6); whether it does exist is not in dispute.

How it works

The mechanical detail of an SBLOC, from setup to draw to (eventually) payoff or step-up.

Setup. A household pledges a brokerage account to the lender — typically the same firm that custodies the account, but sometimes a separate bank. The pledge is a security agreement, not a transfer of ownership. The household keeps voting rights, receives dividends, and can buy or sell eligible securities inside the pledged account, subject to maintaining the loan-to-value ratio. The line is then established at an approved maximum, typically a percentage of pledged value.

Draw. Treats the line like a checking account — write a check, wire funds, set up auto-debit. The major US providers and their public 2026 rate structures, per Stockstead’s January 2026 rate comparison:

• Charles Schwab Pledged Asset Line: SOFR plus a spread of roughly 1.90% (largest portfolios) to 4.40% (entry tier). All-in rate at a $1M draw runs roughly 6.75% in early 2026.
• Fidelity Securities-Backed Line of Credit: SOFR plus spread; comparable structure, slightly tighter spread at higher balances.
• Morgan Stanley: Margin base lending rate of 9.95% as of December 15, 2025; structured differently from a pure SOFR-plus-spread offering and aimed at higher-balance and concentrated-position clients.
• Goldman Sachs (GS Select / Marcus): SOFR-linked, tighter spreads for $5M+ portfolios.
• Interactive Brokers Pro margin: ~5.00% all-in at a $1M draw — the cheapest mainstream venue, with the tradeoff that it is a margin product (different call rules) rather than a pure SBLOC.

Loan-to-value (LTV) and maintenance. The lender sets an LTV based on the portfolio’s composition. Typical ranges: diversified equities at 50–70% LTV; investment-grade bonds and Treasurys at 80–90%; concentrated single-stock positions at 30–50% (or zero if the stock is restricted, illiquid, or below a market-cap threshold); mutual funds and ETFs at 50–65%. If the portfolio drops in value enough that the existing draw exceeds the maintenance LTV, the lender issues a margin call — a notice giving the household a few days, sometimes hours, to either post additional collateral, pay down the line, or watch the lender begin forced liquidation of the pledged securities to restore the ratio.

Repayment options. Four common paths:

1. Pay it off from cash flow — bonuses, distributions, scheduled liquidations.
2. Roll it indefinitely — keep the line outstanding through the household’s lifetime, refinancing as rates and lenders change. The most common path at the highest wealth tiers.
3. Refinance into other debt — convert the line into a mortgage, a fixed-rate term loan, or a private bank facility when the math justifies it.
4. Step it up at death — heirs inherit the portfolio at the §1014 stepped-up basis, sell enough to extinguish the SBLOC, and the embedded gain that funded a lifetime of spending is permanently erased.

What it costs

The honest picture, with two paired examples that show the math.

Example 1 — A $5M home purchase against a $25M portfolio.

Path A (sell): liquidate $5M of long-held stock with an embedded $4M gain. Federal long-term capital gains at 23.8% plus state at 5–13% works out to roughly $1.0M–$1.2M in tax. Net to the home: $5M. Net effect on the portfolio: down $5M, and the $1M of tax is gone forever. Path B (borrow): draw $5M on an SBLOC at ~6% all-in. Annual interest: $300K. The portfolio is still $25M and still compounding. Tax in year one: $0. Over ten years, cumulative interest expense on the line is roughly $3M (assuming flat rates and no paydown); the portfolio compounded at 7% nominal grows to roughly $49M.

The crossover point — the year in which selling beats borrowing — is the year in which cumulative interest expense exceeds the avoided capital-gains tax plus the foregone returns on the unsold position. For most households at this scale, that crossover is well past their lifetime.

Example 2 — A $50M portfolio funding a $1M annual spending need.

Path A: sell $1M per year. Each year, $200K to $400K in tax plus the foregone returns on what is now $49M instead of $50M. Over twenty-five years, recurring drag of $5M+ in tax and $6M+ in foregone compounding. Path B: borrow $1M per year at ~6%. The line balance grows to ~$25M at year twenty-five, ignoring partial pay-downs. Interest in the final year: ~$1.5M. The household pays no income tax on the spending during those twenty-five years. At death, the portfolio steps up under §1014; heirs sell enough to repay the line; the embedded gain is erased.

A typical SBLOC at a $1M+ portfolio in 2026 runs 5–7% all-in, depending on portfolio size, composition, and lender. That is below long-term equity returns and well below the combined long-term capital-gains rate for a high-bracket household — which is the entire reason the strategy works.

The two non-obvious costs are worth flagging. First, interest deductibility. Interest on a personal SBLOC used for personal spending is generally not tax-deductible — different from investment-interest expense, which can be deductible against investment income. Second, embedded basis risk. If a household borrows aggressively against a low-basis position and is later forced to sell during a downturn, the sale crystallizes both the capital gain and the loss, often at the worst possible time. The 2008 and 2020 episodes are when this risk turns from theoretical to immediate.

Hidden costs and tradeoffs

What the brochure does not lead with.

Margin calls and forced liquidation. The single biggest risk in the strategy. The lender’s safety net is the right to liquidate the portfolio when LTV breaks — fast, and on the lender’s timetable, not the household’s. Forced liquidations during the 2020 COVID drawdown wiped out long-held positions of households that had spent decades accumulating them, because those positions were pledged at the moment markets cratered. FINRA flagged SBLOCs as “exactly the risk we are focused on” in its 2015 priorities letter — a warning that has aged better than most.

Concentrated-position risk. Pledging 30% (Ellison) or 94% at peak (Musk in 2022) of a single company’s stock is a fundamentally different risk than pledging a diversified portfolio. A 30% decline in Oracle stock — not unprecedented for a megacap stock in any given year — would put roughly $25 billion of pledged collateral at risk. Oracle’s 2018 governance change banning all other directors and officers from pledging shares is a quiet acknowledgment that the risk is real even at the founder level.

Refinancing risk. SBLOCs are floating-rate. A household that opened a line at SOFR plus 2% in 2021 — when SOFR was near zero — saw their all-in rate rise from ~2% to ~7% by 2023–2024 as the Fed tightened. The strategy works at 5% rates in a way it does not work at 12% rates, and rates are not under the borrower’s control.

Lender flexibility. SBLOCs are demand credit lines in most cases — the lender can call the line at any time, not only on a margin breach. In a credit crunch, lenders pull the marginal lines first. The household that thought it was building a permanent capital structure can find itself unwound in a quarter.

Step-up at death is a policy variable, not a law of nature. The Yale Budget Lab’s 2024 analysis and the 2024 NYU Law Review note on taxing the borrow leg of buy-borrow-die lay out five distinct legislative options for trimming or repealing §1014. None has passed; that does not mean none ever will. A household whose thirty-year strategy depends on the rule surviving has a single-point-of-failure dependency on Congress.

A theme that ran through Wealth Levels and Taxes carries here: the strategy is fully defensible, fully legal, and fully discretionary. Households that can use it sometimes choose not to — for reasons that are sometimes prudential (concentrated-stock risk), sometimes tax-philosophical, and sometimes just risk-aversion to the day the call comes.

What people get wrong

Five corrections, in roughly the order they cause confusion.

1. It is not a loophole. Step-up basis under §1014 is one of the oldest fixtures of US tax law; SBLOCs are an ordinary collateralized lending product. The strategy is a rational response to how the code is written, not an exploit of it. Treating it as a “loophole” misses the point — the rule is the rule, and the only fix is to change the rule.

2. The math depends on the rate-versus-gain spread, not on absolute rate level. A 6% SBLOC against a 24% capital-gains rate works. A 9% SBLOC against a 24% rate also works, just less efficiently. A 6% SBLOC against a portfolio that falls 30% does not work at all — the borrower is forced to sell into the drop. The strategy is not free money; it is a leveraged bet on portfolio survival.

3. Buy, borrow, die is not unique to billionaires. It is the same arithmetic at $5M as at $50B. The reason it dominates the headlines at the top is that the absolute dollar amounts are large enough to leak into ProPublica investigations and SEC filings. The reason it works better at higher wealth is that lenders extend tighter spreads and higher LTVs to the wealthiest borrowers.

4. Forced liquidation is the failure mode, not the loan itself. People worry about the interest payments. The interest payments are the cheap part. The failure mode is the leverage breaking in a market drawdown — which is rare, but is the entire risk in a single sentence: the lender gets to sell your stock when you least want them to.

5. The strategy does not eliminate estate tax. Step-up basis erases income tax on the embedded gain at death. The federal estate tax remains a separate problem, with its own structures — irrevocable trusts, GRATs, charitable remainder trusts, lifetime gifting. A household focused exclusively on income-tax avoidance can still face a 40% federal estate tax on the same assets if no other planning is done. The two strategies are siblings; running one without the other is leaving money on the table.

Bottom line

Securities-backed line of credit plus step-up at death equals a structurally cheaper way to spend at the top of the wealth distribution — used by every honest financial advisor’s wealthiest clients in some form.

Returning to the opening question: per ProPublica’s Secret IRS Files, the 25 wealthiest Americans paid an average true tax rate of 3.4% from 2014 through 2018. The reporting documented Warren Buffett at 0.10%, Jeff Bezos at 0.98%, and Michael Bloomberg at 1.30%. The gap from the median household’s roughly 14% rate is not, mostly, the result of secret planning — it is the result of not selling. Income that is not realized is not taxed; appreciation that survives to death is wiped clean of capital-gains tax. The strategy is a tool that makes a feature of the existing code work as designed.

A reader who finds this distribution unfair should focus their concern on §1014 — the step-up rule — and on the absence of a tax on unrealized gains. Neither is a flaw in the borrowers’ behavior. The strategy is a tool, not a moral position; a household that uses it is responding rationally to the code as written.

How the code’s structure enables this in detail is the subject of the Taxes piece; how the borrowing risk plays out in concentrated-stock cases is the subject of a future Falls from Grace post.

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Related reading on How Millionaires Live:

• Wealth Levels: Life at $1M, $10M, $100M, and $1B — the tier framework that determines who actually uses each form of borrowing.
• Taxes: How Wealth Is Structured and Preserved — the parent piece. This article is the deep-dive on the borrow leg of buy-borrow-die that the Taxes piece references.
• Money Management: From Wealth Manager to Family Office — for the relationship banking and private bank context.
• Houses: First Homes, Second Homes, and Estates — for the worked example in §5 (a $5M home purchased via SBLOC instead of stock sale).
• Falls from Grace — for the failure-mode link in §6 (forced liquidation, concentrated-position blowups). Forthcoming.