How America’s Richest Can Access Billions Without Selling Their Stock | Forbes

When Elon Musk wants cash, he can simply borrow money by putting up—or pledging—some of his Tesla shares as collateral for lines of credit, instead of selling shares and paying capital gains taxes. These pledged shares serve as an evergreen credit facility, giving Musk access to cash when he needs it. Musk currently has pledged 88.3 million Tesla shares, nearly 36.2% of his overall stake (excluding options), as of Wednesday worth more than $94 billion.

Musk is one of 32 billionaires identified in the Forbes 400 list of richest Americans to be pledging public stock of companies listed on the NYSE or Nasdaq exchanges as collateral for current or potential lines of credit, as disclosed in company filings. Other pledgers include fellow mega-pledger Oracle chairman Larry Ellison, Walmart heir Jim Walton, and private equity’s richest person, Stephen Schwarzman. (Three others pledged shares of foreign companies are not included in this report.)

Information on companies’ pledging policies—found in annual proxy statements—-offer a window into the murky world of billionaire borrowing. The topic entered the national microscope in June after ProPublica’s report on leaked IRS data showed that several of the richest people paid nothing in federal income taxes in certain years. Last month, a proposed wealth tax from Senate Democrat Ron Wyden failed to win political support. That measure would have taxed unrealized capital gains of America’s richest individuals.

Most details on billionaire borrowing remain private. Individuals who own less than a 5% stake in a company, or who don’t work for that company, do not report stock ownership or pledging of shares to the SEC. Many of America's wealthiest people—232 billionaires from this year’s Forbes 400 list, to be exact—hold their fortunes primarily in private companies. Any pledges against diversified baskets of stock or private assets are not reported in company filings. Disclosure requirements also do not include reporting whether, or how much, an individual has borrowed against their pledged shares. A few billionaires Forbes contacted said they don’t have outstanding debt against their pledges.

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[NotKimiRaikkonen]

The level of financial education in these comment sections is scary.

[ericisabirye]

Invaluable information, now I just have to be a billionaire.

[endlesslearning]

okay, so as much as i know like you can just take up loan, putting the share as a collateral, and then use that fuel your lifestyle while not giving away taxes, and then sell your stocks of a similar size, and then use it to pay up the loan, which will end up making your spreadsheet clear and thus, it is better to give away small amount of money as interest rather than large amount as taxes,
kindly correct me if i am wrong

[Notourtube]

This is just smart financial practices. Anyone that holds a large enough retirement portfolio could do the same… it’s definitely more risky but that’s what people that make a lot of money do, take calculated risks

[hoopstalkcentral]

borrow from banks, invest it in firms then take the dividends and use it as payment to buy planes and real estates

[schiocco]

This is how they avoid paying taxes. This is how they pay fewer taxes than an average citizen with a 30K salary.

[AlexpxThreeTen]

They borrow against their assets, like anybody does. So what’s the problem?

[qreecpy]

Tesla stock doesn't pay a dividend but Microsoft and Apple do. A guy like gates who had 10 billion worth of stock could have been getting 75 million dollars quarterly in cash dividends. If you can't beat them, join them and get in the stock market.

[sandisomkhize]

I like how y’all jus assumed Elon is American

[brianbordenkircher]

It’s very interesting. Very clever. Hope the shares don’t plunge or that investments that the money is used for when taking debt don’t plunge.

[cinematic_rc]

Regular people do this as well. Its called borrowing on margin.

[ClickClackBoom]

But wont they have to sell shares when they have to pay the loan back?

[markhirstwood]

1:50 'thuh only...' It's 'thee only'. When the word after 'the' begins with a vowel, you say it 'thee', not 'thuh'. Come on, Forbes. Unbelievable...

[thenbaplayer]

How do they pay their debt without selling stocks from where do they have the money to pay the banks?

[harshtekwani]

Does Elon sell all his real estate to cover up his loans

[gcoyne]

The loans have to be repaid. Regardless of not paying capital gains on stock, they have to pay the bank loans with their own money.

[dezjamesjr]

99%of billionaires wealth came from shocks, bonds and real estate.

[Panthers]

I get it. But also if you are worth 10 billion just cash out some stock and pay taxes.

[benban]

Why not prohibit financial institutions from accepting such collaterals? I think this will make it easier.

[HugoSanchez-qqoh]

Great video! Thank you for making this video.