Most think of debt as something to avoid. Most have been taught to pay down liabilities. But not all debt is bad. When used strategically and in moderation, debt can be a powerful tool to unlock liquidity, reduce taxes, and enhance philanthropic impact.
At Legacy Planning Advisors, we work with clients who want to apply debt intentionally as part of a broader financial plan to amplify their impact. Used correctly, leverage can increase charitable giving capacity, fund large purchases without sacrificing investment growth, and support multigenerational legacy goals. The key is understanding how strategic debt works and when it may make sense in your financial plan.
Why Leverage Debt As a Wealth Strategy
Not All Debt Is “Bad” Debt
Debt that supports financial growth, estate planning, or charitable giving can create advantages far beyond the loan’s interest cost. Strategic debt is often used not to make ends meet, but to preserve or increase wealth.
For example, if a client takes out a loan to avoid triggering a taxable event (such as selling appreciated stock), they may preserve capital gains while maintaining full investment exposure.
This approach also offers flexibility in managing liquidity needs without interrupting long-term strategies.
Leverage Debt With Care and Intention
Just because debt can be useful doesn’t mean it should be used indiscriminately. Debt carries risk. Borrowing against assets that might decline in value or overextending in a rising interest rate environment can have long-term consequences. Strategic debt works best when integrated into a financial plan with clear objectives and a disciplined repayment strategy.
Instead, anyone taking on debt should ensure that the benefit of borrowing outweighs the costs. Those benefits could be solid investment returns, significant tax savings, or philanthropic advantage.
When Does It Make Sense to Carry Debt?
High-net-worth individuals may encounter several situations where the benefit of taking on new debt makes sense, even if they have the means to pay outright.
1. When Hard or Liquid Assets Can Cover the Debt
Sometimes, taking on debt makes the most sense even when you have hard or liquid assets to cover the debt. In a low-interest-rate environment, borrowing against investments might offer better rates than other structured debt.
For example, a client recently wanted to purchase a new home but hadn’t sold their current property yet. Rather than liquidate investments or rush a home sale, they used a loan secured by a brokerage account to complete the purchase. Once the original home sold, they paid back the loan.
This approach allowed them to preserve their investment portfolio and avoid an ill-timed asset sale. In the meantime, the process was far simpler than taking out a mortgage on the new home.
2. Access to Private Lending
Individuals with substantial assets can often access private lending programs and structured debt vehicles. Private lenders, who use their own capital or funds pooled from investors, don’t have the same stringent regulations or underwriting guidelines as traditional institutions.
This means private lenders can offer more favorable terms and access to capital with more flexible repayment options. If a borrower uses the private loan for carefully vetted investment opportunities, and the returns outpace borrowing costs, taking on debt ultimately amplifies net gains.
Using Debt as a Tool for Estate Planning
Strategic debt also plays an important role in estate planning, such as in the form of life insurance or intra-family loans to protect your legacy. Life Insurance Loans
A common tactic involves borrowing against a permanent life insurance policy’s cash value. Typically, these loans are not taxable. Meanwhile, the policy’s death benefit often offsets the outstanding balance. This gives the policyholder liquidity during life without reducing the long-term benefit to heirs.
This strategy can be especially useful in bridging liquidity needs while maintaining tax-advantaged structures within the estate plan.
Intra-Family Loans
High-net-worth individuals often use intra-family loans to transfer wealth to future generations while potentially avoiding future estate taxes. Intra-family loans must have a formal loan agreement to avoid gift taxes or use up lifetime exemptions. Loans must also have an interest rate at or above the applicable federal rate (AFR) set by the IRS.
The borrower can invest the loaned funds, and any returns higher than the AFR are not subject to gift or estate taxes. This shifts the appreciation of wealth out of the lender’s taxable estate.
Should I Leverage Debt to Increase My Charitable Giving or Legacy Impact?
Philanthropy often plays a central role in the financial plans of Legacy Planning clients. Using debt to fund charitable giving can be a powerful way to expand impact while creating immediate and long-term tax benefits.
Donating Appreciated Assets
Someone who owns real estate or privately held shares now valued at $500k would incur capital gains if they sold their asset. But if they donated that asset directly to a qualified nonprofit, they could be eligible for a full deduction based on fair market value. Even better, they wouldn’t have to pay taxes on the appreciation.
Sometimes, a client may establish a loan to cover liquidity needs while transferring the appreciated asset. The resulting deduction can help offset income in a high-tax year, while enabling the donation to take place when it matters most to the charitable organization.
High-Risk Asset Donation Strategies
Certain assets (such as art, undeveloped land, intellectual property, or cryptocurrency) can fluctuate significantly in value. Holding these too long can expose investors to volatility and possible loss.
Gifting high-risk assets to a charitable organization can help reduce exposure while creating a meaningful philanthropic outcome. Strategically timed donations may allow clients to:
- Exit concentrated or volatile positions
- Avoid future capital gains taxes
- Reduce overall portfolio risk
- Increase charitable deductions
Clients may consider borrowing to maintain short-term cash flow while executing the gift if liquidity is a concern.
“Buy, Borrow, Die”: A Common Strategy Among the Ultra-Affluent
The “buy, borrow, die” approach is a widely used wealth strategy among high-net-worth families. The idea is simple in concept but requires precision in execution.
- Buy
Acquire appreciating assets such as equities, real estate, or business interests.
- Borrow
Rather than sell these assets, borrow against them to fund purchases or maintain lifestyle needs. Because loans are not taxable income, this avoids capital gains realization.
- Die
When the owner passes, the assets receive a step-up in cost basis, effectively eliminating the capital gains liability for heirs.
This approach preserves wealth over generations and reduces taxes while providing liquidity during life. But it must be implemented carefully and typically involves life insurance, estate planning tools, and structured lending agreements. These are some of the reasons clients come to Legacy Planning.
Getting Help With Strategic Debt Planning
Leveraging debt effectively requires a comprehensive financial plan that considers tax law, estate strategies, and charitable giving vehicles. At Legacy Planning Advisors, we work closely with clients to evaluate when debt might benefit their goals… and when it introduces unnecessary risk.
We empower our clients to create and achieve, including:
- Asset allocation and liquidity
- Tax liability and projected income
- Estate goals and generational transfers
- Charitable commitments and values
By integrating debt into a coordinated financial strategy, we help clients enhance outcomes while maintaining control and reducing exposure.
Final Thoughts
Debt should never be approached casually, but should not be dismissed outright. When used strategically and under expert guidance, it can serve as a lever for greater impact, increased returns, and smarter tax positioning. Whether you’re navigating a large liquidity event, evaluating your estate plan, or considering a charitable gift, debt may offer more advantages than you think.
If you are considering the role of leverage in your financial life, we invite you to connect with the team at Legacy Planning Advisors. Our fiduciary advisors will help you understand the options, risks, and opportunities specific to your situation and make confident decisions that protect and grow your legacy. Let’s have a conversation about your unique goals that take your Five Fs (finances, facts, feelings, faith, and family) into consideration.
This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2025 Advisor Websites.
