What that change does to a loan that outlives the borrower

A loan does not end when the borrower does. It becomes a claim, the collateral remains pledged, and the arithmetic of repaying it depends on a basis figure that may have changed overnight.

Three things happen at once and they are usually handled by different people. The debt becomes an obligation of the estate. The pledge continues, because the security interest attached to the assets rather than to the person. And in many agreements the death of the borrower is itself an event permitting the lender to demand repayment — a document term, unrelated to any tax rule, and one that sets the timetable everything else has to run on.

Now the basis mechanic decides what repayment costs. Carry the previous lesson's figures forward: collateral of $2,910,000 with a basis of $184,000, and a loan of $1,240,000. Selling $1,240,000 of collateral at the same price repays the loan exactly. Under an adjustment to value the basis attached to those shares is also $1,240,000, so nothing is recognised. Under a carryover the basis attached is $184,000 × ($1,240,000 ÷ $2,910,000) = $78,405, so $1,161,595 is recognised.

At an assumed 23 percent that is $267,167, to be met from an estate whose liquid assets have just been used to repay a lender. The percentage is an assumption of the example, and the mechanism it illustrates is not about the percentage. It is that the same repayment, of the same loan, out of the same collateral, either does or does not create a further obligation depending on a rule operating at a moment nobody chose.

Whether any of this describes a particular arrangement turns on the system, on the documents, and on facts specific to the holder. It belongs with a qualified adviser rather than with a lesson, and the sequencing of the lender's demand against everything else is a question for the estate's own counsel.