There is not a loophole. When you die your loans get paid off first. The money to pay off these loans would be taxed. It could delay paying taxes until you die, but you can't escape it.

> There is not a loophole. When you die your loans get paid off first. The money to pay off these loans would be taxed.

You're missing the loophole, it's the the "step-up basis" rule, which dramatically affects the amount of tax on that liquidate-to-repay event.

1. Repaying 1 day before the owner dies: Liquidate $X, of stock, which 90% of it are capital-gains, heavily taxed.

2. Repaying 1 day after the owner dies: Liquidate $X of stock, which is now considered ZERO gains, almost no tax.

This massive discontinuity also applies when it comes to the transfer of stock to inheritors, and any taxes they might pay for liquidating it. A day before, they get a stock that "has grown X% in Y years." A day later, they get a stock that "has grown 0% in 0 days."

> It could delay paying taxes until you die, but you can't escape it.

But they did escape the taxes, or at least the "gains" portion of them! For decades, the unrealized gains in growing assets were "eventually" going to happen someday... Until, poof, all gains have been forgotten.

The taxable value is exactly how much you borrowed against it!