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FIN 412 · Senior Year · Generational Wealth

Trust Loans, SBLOCs & the Buy-Borrow-Die Stack

The full playbook: how billionaires fund their lives with zero W-2.

Securities-Backed Lines of Credit (SBLOCs)

Pledge a brokerage account → borrow up to 50–70% of its value at SOFR + 1–3%. No credit check on income. No tax event. The portfolio keeps compounding. Used by every wealthy client at Goldman, Morgan Stanley, JP Morgan Private Bank.

Borrowing from your own trust

An irrevocable trust can lend money to its beneficiaries (or even to the grantor in some structures) at the IRS-published Applicable Federal Rate (AFR). The loan is a real obligation — secured by a promissory note — and the proceeds are not income.

Why it's powerful: the trust holds assets outside your taxable estate, the loan you take from it is tax-free, and at death your estate owes the trust (reducing estate tax) while heirs receive the trust assets with planning advantages.

The full stack: Buy / Borrow / Die

  1. Buy appreciating assets in tax-efficient wrappers (brokerage, real estate, business equity, insurance, trust).
  2. Borrow against them — SBLOC, policy loan, HELOC, trust loan — to fund lifestyle. No realization, no income, no tax.
  3. Die with the assets. Heirs receive them at stepped-up basis; the embedded gain is erased. Outstanding loans are paid off from the estate.

Risks the gurus skip

  • Margin calls. A 2008-style drawdown can force liquidation at the worst time — the exact realization event you were avoiding.
  • Interest rate risk. SBLOCs are variable. A 1% to 8% SOFR move changes the math entirely.
  • Estate tax exemption changes. The 2026 sunset of the TCJA exemption (~$14M → ~$7M per person) reshapes who needs this.
  • Step-transaction doctrine. Aggressive trust loans without economic substance get unwound by the IRS.

Who you need on the team

  • Estate-planning attorney (drafts the trust)
  • CPA with high-net-worth experience (tracks AFR loans, basis, gift reporting)
  • Private banker or RIA (SBLOC, custody)
  • Licensed insurance specialist (designs the MEC-aware policy)

Key terms

SBLOC
Securities-Backed Line of Credit — revolving loan secured by a brokerage portfolio.
AFR
Applicable Federal Rate — IRS minimum interest rate for intra-family/trust loans.
Stepped-up basis
IRC §1014 — heirs inherit assets at fair market value at date of death.
Grantor trust
Trust where the grantor pays the income tax, effectively making tax-free gifts to beneficiaries.

Check yourself

  1. 1. The 'Die' step works because of…

    • A. A loophole closed in 2017(reveal)
      ✗ Not quite — review the section above.
    • B. IRC §1014 stepped-up basis(reveal)
      ✓ Correct
    • C. Roth IRA rules(reveal)
      ✗ Not quite — review the section above.
    • D. The estate tax credit(reveal)
      ✗ Not quite — review the section above.

  2. 2. An SBLOC's biggest hidden risk is…

    • A. The loan is taxable(reveal)
      ✗ Not quite — review the section above.
    • B. You can't pay it back(reveal)
      ✗ Not quite — review the section above.
    • C. A margin call forcing liquidation(reveal)
      ✓ Correct
    • D. FINRA approval(reveal)
      ✗ Not quite — review the section above.

Educational use only. This is not legal, tax, or investment advice. Work with a licensed estate attorney, CPA, and insurance specialist before implementing any of these strategies.

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