This is the farthest I’ve ever gotten. So when they “start liquidating the stock”, that’s taxable for me? Is that right?
So, if I just walk into my local Wells Fargo and say I’d like to take out a loan against some stock I’ve got, they will hook me up? I might give this a try. Will post TR with results.
Yes but there are a lot of steps in between. The bank will probably restructure if you’re actually rich, before actually selling your stock. You’ll just put up extra collateral or pay down the loan with cash (maybe you can even borrow the cash for the pay down from the same bank, happens all the time!)
I know Interactive brokers does something like this but I don’t know how much you need for that.
Melkerson here is a real world example for you
The petition by Dea Spanos Berberian, who serves as co-trustee of the family trust along with her brother, alleges the trust’s debts and expenses exceed $353 million. In addition, according to the filing, the trust doesn’t have a plan to pay more than $22 million it has pledged to charities.
Dean refuses to consider a sale of the Trust’s Interest of the Chargers, insisting that the Co-Trustees continue to borrow more and more, and to force the charities and beneficiaries to wait for years and to ‘hope’ while Dean speculates further on a football team,” the petition says. “Dean has failed to present any plan to address the Trust’s bleak financial picture, because there is no other plan than the one urged by [Berberian]. Dean simply refuses to discuss it. … His plan is hope.”
In response to the filing, Dean Spanos and two of his siblings released a statement Thursday pledging to keep the team in the family. They said that, if necessary, they were prepared to buy their sister’s stake in the franchise.
Each of his four adult children — Alexandra Spanos Ruhl, Michael Spanos, Dean Spanos and Berberian — owns 15% of the Chargers. The family trust controls 36% of the team, with the remainder owned by non-family members. After Alex Spanos and his wife, Faye, died in 2018, Dean Spanos, the oldest of the four children, and Berberian were left as the sole co-trustees.
The stake in the Chargers makes up 83% of the trust’s holdings. The petition paints a bleak picture of its finances, estimating an annual shortfall of $11 million with little cash flow or reason to believe the numbers will improve. The debt includes $164 million “associated with the Trust’s Interest in the Chargers” and at least $75 million in estate tax.
IB has ridiculously cheap margin, which I guess is kind of similar. But with that, you get can get a margin call, get liquidated, and then you will pay tax. So that is a giant rub.
What Riverman is describing is kind of a way to get around that (it sounds like that what the steps in between are all about)
But the IB margin solution ends up being similar.
The other thing I didn’t realize until Riverman explained it is that the plan requires you to die, so you can get the stepped up basis. If you live longer than you think (so you accrue more interest than you planned for), you could get really fucked.
In reality it is way more complicated and maximum tax efficiency requires strategic gifting, generation skipping trusts, etc., but the people this really works well for are so fucking rich there is no chance the interest payments or a margin call will cause them more than a mild, momentary headache.
Well I’m definitely not one of those people, but I’d be very interested in a way to scale down the whole operation and make it work for a salaryman like me.
It only really makes sense if you have a heavily concentrated position in a highly appreciated stock.
Yes, this is the problem I’m specifically trying to address.
So if I do my experiment with Wells Fargo, what should I ask for exactly? Would it be a “secured line of credit”?
Also what is the going interest rate for this kind of thing? The ones I’ve seen online in the last ten minutes look terrible.
If the stock is unrestricted and saleable, pretty low interest rate. It is a pretty good loan to make, you are collateralized by the stock and put in a 40 percent margin or w/e and can just sell it down if you have to and get your money back. Usually still has recourse to other assets. I looked at this at one point for very different reasons (and like 9 less zeroes) but the stock could only be traded in trading windows so couldn’t get a loan. Before the bank knew that complication were dying to do it at a very low rate.
Also the taxes not as much of an issue if the margin call comes into play as the stock isn’t as appreciated at that point.
This interest was definitely deductible before the last tax reform, not sure if it is now.
Can’t wait for the executive privilege claims after he sat for an hour-long interview with the National Review.
if you’re rich enough to do this, they will have a “private banker” suck your dick, you don’t have to know the exact magic words to unlock the loans, they will basically set it all up for you.
Your line of questioning is really confusing, like the idea that there’s a bunch of people in the banking industry looking to cater to rich people never occured to you?
My private banker calls and leaves voicemail like once a month. I never return his calls.
time to boycott golf imo. only municipal courses for me from now on
No that obviously occurred to me. What I’m trying to figure out if there is a way to take advantage of this method on a smaller scale. Small enough that I could do it (i.e. very small) and it would make sense .