For most Americans, wealth comes from a paycheck. You earn income, pay taxes, and try to save what is left. For the ultrawealthy, the system works very differently. Their wealth is not built on wages but on assets such as stocks, real estate, and ownership stakes in companies. And because of how the tax code treats those assets, billionaires have developed a powerful strategy to live lavishly while paying relatively little in taxes. It is often described in three simple words: buy, borrow, die.
What Is Buy, Borrow, Die
The strategy begins with buying assets. Billionaires accumulate large stakes in companies or other investments that increase in value over time. These gains are known as unrealized gains because they exist only on paper. Under U.S. tax law, unrealized gains are not taxed. Taxes are only triggered when an asset is sold.
The second step is borrowing. Instead of selling assets and paying capital gains taxes, the wealthy use those assets as collateral for loans. These loans provide cash that can be used to fund everything from daily expenses to massive investments. Because loans must be repaid, the IRS does not consider them income. That means no income tax is owed.
The final step is death. When assets are passed on to heirs, a provision known as the stepped up basis resets the value of those assets to their market value at the time of death. This effectively erases the capital gains that accumulated during the original owner’s lifetime. As one analysis put it, this allows families to “hold, live off of, and transfer that wealth without ever paying taxes on it.”
Taken together, the strategy allows the ultrawealthy to build massive fortunes, access cash without selling assets, and pass wealth to the next generation with minimal tax impact.
How Larry Ellison Uses the Strategy
Larry Ellison provides a clear example of how this strategy works in practice. As the co-founder of Oracle, Ellison’s wealth is heavily concentrated in the company’s stock. According to the reporting, about 24 percent of his net worth comes from Oracle shares that he has pledged as collateral for personal loans.
Ellison has “borrowed heavily against his stake in Oracle…to fund a lifestyle that includes superyachts, 98% of a Hawaiian island and his son’s foray into Hollywood.” His borrowing has been substantial for years. As far back as 2014, Oracle disclosed that he had a credit line secured by about $10 billion of his shares.
More recently, Ellison added to his financial exposure by guaranteeing more than $40 billion tied to a major media deal. Even before that commitment, he was already considered “one of the world’s most indebted men.”
Importantly, these loans do not necessarily reflect income. They represent access to liquidity without triggering taxes. As Oracle itself stated in securities filings, the board believes Ellison “has the financial capacity to repay his personal term loans without resorting to the pledged shares.”
Elon Musk and Stock-Backed Borrowing
Elon Musk has used a similar approach with his holdings in Tesla. At one point, Tesla reported that Musk had pledged approximately 92 million shares as collateral for personal loans. Those shares were valued at about $57.7 billion.
This structure effectively creates what one analysis described as an “evergreen credit facility,” allowing Musk to access large amounts of cash without selling stock.
The tax results can be striking. Despite massive increases in wealth, Musk’s reported tax payments have been relatively small in some years. He paid $68,000 in federal income tax in 2015, $65,000 in 2017, and nothing in 2018. Over a multi year period, his effective tax rate on wealth growth was just over 3 percent.
Why This Strategy Avoids Taxes
The foundation of this strategy lies in how the tax system defines income. Income is generally taxed when it is realized, meaning when an asset is sold or cash is received. If wealth increases only on paper, there is no taxable event.
Loans provide another key advantage. Because borrowed money must be repaid, it is not considered income. As a result, billionaires can access billions of dollars in cash while avoiding income tax entirely.
This creates a powerful incentive structure. Selling stock can trigger a capital gains tax of around 20 percent and reduce ownership in a company. Taking a loan, by contrast, involves paying interest at relatively low rates and no tax on the proceeds.
As one billionaire, investor Carl Icahn, put it, “There’s a reason it’s called income tax…if you have no income, you don’t pay taxes.”
Passing Wealth to Heirs
The final piece of the strategy is estate planning. When assets are passed to heirs, the stepped up basis rule resets their value to current market levels. This eliminates the tax liability on all prior gains.
In theory, the estate tax should capture some of that wealth. But in practice, wealthy families often use trusts and charitable structures to minimize or avoid those taxes as well. The result is that “large fortunes can pass largely intact from one generation to the next.”
What Critics and Experts Say
The strategy has drawn increasing scrutiny. One scholar described it as having “basically killed the entire concept of an income tax for the wealthiest individuals.” Another expert called it “the most important tax avoidance strategy today.”
Data reinforces these concerns. The 25 richest Americans saw their wealth grow by $401 billion over a five year period while paying just $13.6 billion in federal income taxes. That amounts to a true tax rate of 3.4 percent.
By contrast, typical households paid far higher rates on much smaller income gains.
Even Warren Buffett, who has advocated for higher taxes on the rich, acknowledged the imbalance. “My friends and I have been coddled long enough by a billionaire friendly Congress,” he wrote.
Other Tax Avoidance Strategies
Borrowing is just one tool in a larger toolkit. Billionaires also reduce taxes through deductions, charitable contributions, and investment losses. Some industries, such as real estate and oil, offer tax advantages that allow income to be offset entirely.
Others use retirement accounts in unconventional ways, structure income to benefit from lower tax rates, or take advantage of business write offs. Trusts play a major role in estate planning, allowing wealth to be transferred while minimizing taxes.
Is This Available to Millionaires
While the strategy is most visible at the billionaire level, elements of it are accessible to wealthy individuals more broadly. Securities backed loans and real estate refinancing are available to high net worth investors.
However, scale matters. The ultrawealthy benefit from lower borrowing costs, greater access to credit, and more sophisticated legal structures. They also have portfolios large enough to sustain borrowing without risking forced liquidation.
Still, the underlying principle applies at many levels. If you have significant assets, you can often borrow against them instead of selling.
The Bottom Line
The buy, borrow, die strategy is not a loophole in the traditional sense. It is the result of how the tax system is designed. By taxing income rather than wealth, the system allows those with large appreciating assets to operate under a completely different set of rules.
For billionaires like Larry Ellison and Elon Musk, this means turning stock into spending power without triggering taxes, while preserving their wealth for future generations.
As one observer put it bluntly, “If you can avoid income, you can avoid taxes.”
