Deconstructing "Buy, Borrow, Die" and the Strategic Alternative 

The "Buy, Borrow, Die" framework is a foundational concept in tax alpha generation for ultra-high-net-worth (UHNW) clients. Its elegant simplicity—leveraging appreciated assets for tax-free liquidity, followed by a basis step-up at death—is a cornerstone of multigenerational wealth transfer. However, for the high-net-worth (HNW) client who may not have the scale or risk tolerance of a billionaire, a more nuanced and flexible approach is often required.

This analysis deconstructs the traditional "Buy, Borrow, Die" strategy and presents a compelling alternative and strategic complement: cash value life insurance. For the discerning advisor, understanding the tactical application of both strategies is critical to delivering superior, customized wealth management solutions.

The "Buy, Borrow, Die" Playbook: An Advisor's Technical View

This strategy is predicated on two key pillars of the U.S. tax code: the deferral of capital gains and the step-up in basis under IRC Section 1022.

1. Buy (Asset Accumulation): The foundation is a portfolio of long-term capital assets, typically concentrated equity positions, commercial real estate, or private placements. The goal is significant, unrealized appreciation.
2. Borrow (Tax-Free Liquidity): Instead of recognizing gains, the client secures liquidity via a Securities-Backed Line of Credit (SBLOC) or other asset-backed lending facility.

• Mechanics: These are typically interest-only revolvers provided by a private bank or brokerage, with the client's investment portfolio pledged as collateral.
• Pricing: Interest rates are typically structured as a spread over a benchmark like the Secured Overnight Financing Rate (SOFR). For substantial portfolios ($10M+), spreads can be highly competitive, making this an efficient form of financing.
• Risks for the Client: The primary risk is a margin call. A significant market downturn could decrease the value of the pledged collateral, forcing the client to post additional assets or liquidate securities at an inopportune time, thereby triggering the very tax event the strategy seeks to avoid. Advisors must stress-test portfolios to model the impact of market volatility on the loan-to-value (LTV) ratio.

3. Die (Tax Elimination): At death, the assets receive a step-up in basis to the fair market value at the date of death. Heirs can then liquidate a portion of the assets to repay the outstanding loan with minimal to no capital gains tax liability, preserving the core of the appreciated portfolio.

The Strategic Alternative: Leveraging Cash Value Life Insurance

For many HNW clients, the rigidity and market-dependent risk of a pure "Buy, Borrow, Die" strategy can be suboptimal. Cash value life insurance, particularly when structured correctly, offers a powerful alternative that mirrors the core tax benefits while adding layers of flexibility, risk mitigation, and investment control.

A Comparative Framework for Advisors

Advanced Applications for the Advisor's Toolkit

Advisors can move beyond a simple "either/or" comparison and strategically integrate these concepts.

1. The Volatility Buffer Strategy: For a client heavily utilizing an SBLOC, a well-funded life insurance policy can serve as a "volatility buffer." During a market downturn that threatens a margin call, the client can access the policy's cash value via a tax-free loan to deleverage the SBLOC or post as additional collateral, preventing a forced sale of their appreciated assets. This creates a powerful synergy between the two strategies.
2. Tax-Free Rebalancing Hub: A Variable Universal Life (VUL) or Private Placement Life Insurance (PPLI) policy can act as a tax-free "rebalancing hub." A client can systematically fund the policy over time. Within the policy, you as the advisor can actively manage the underlying sub-accounts—shifting from growth-oriented equity funds to fixed-income or alternatives—without triggering any capital gains. This provides a level of tax-free portfolio management that is impossible in a traditional taxable brokerage account.
3. Premium Financing: For the right client, premium financing can amplify the benefits. The client borrows from a third-party lender to pay the policy premiums. The goal is for the policy's cash value growth to outperform the loan interest rate, creating a positive arbitrage. This allows the client to secure a large death benefit and build significant cash value with minimal out-of-pocket capital, preserving their liquidity for other investments. This is a complex strategy requiring careful modeling of interest rate risk and exit strategies.
4. Estate Planning and ILITs: The ultimate destination for a large life insurance policy is often an Irrevocable Life Insurance Trust (ILIT). By having the trust own the policy, the death benefit is removed from the client's taxable estate, ensuring it passes to heirs free of both income and estate taxes. This provides immediate, tax-free liquidity for the estate to pay taxes, equalize inheritances, or pay off any outstanding loans from the "Buy, Borrow, Die" portion of their plan.

Conclusion for the Private Wealth Advisor

The "Buy, Borrow, Die" strategy is more than just a billionaire's tax loophole; it's a foundational principle of tax-efficient leverage. However, for the majority of HNW clients, the strategy's inherent risks and inflexibility necessitate a more sophisticated solution.

By presenting structured cash value life insurance, not merely as an alternative but as a strategic complement, advisors can offer a superior value proposition. You provide a mechanism for tax-free investment rebalancing, a non-reportable and private source of liquidity, a robust risk mitigant against market volatility, and an exceptionally efficient wealth transfer vehicle. Mastering the interplay between these two powerful strategies is a hallmark of the modern, value-driven private wealth advisor.