Which Loans to Carry Into Death

The choreography matters, and it runs opposite to the instinct to die debt-free.

Carry the debt secured by appreciated assets you want stepped up

The asset receives a stepped-up basis under IRC §1014; the executor then sells it to retire the loan with essentially no capital gain. That sequence is the payoff for the entire strategy, and paying the loan down while alive — with after-tax dollars, by realizing gains — destroys it.

Retire debt secured by assets that get no step-up

Traditional IRAs, annuities, and other income in respect of a decedent do not step up (section “Capital Gains Resets With Inheritance”). There is no basis benefit waiting, so the usual cost-of-capital comparison governs and nothing argues for carrying the loan.

Never carry a callable line into a foreseeable death

An SBLOC is a demand loan. A broker learning of the account holder’s death, facing an estate in probate and a portfolio it cannot reach, is a broker with an incentive to call. If the plan is to hold to death, negotiate a committed facility or a mortgage — the instrument’s callability, not its rate, is what decides whether the plan survives its own success.

Leave the executor liquidity

Estate tax is due nine months after death, in cash, and the portfolio may be frozen or falling. Life insurance in an ILIT (section “Irrevocable Life Insurance Trusts (ILITs)”) exists for exactly this, and it is the reason premium financing (section “Insurance Premium Financing”) has a legitimate use at the top of the wealth scale.