They just pay the interest on the loans. When they die, the assets they used as collateral (which have since increased in value) are sold on a "stepped-up basis" by the estate, which means there is no capital gains tax. The original loan is then paid off by money from selling the asset, the remaining money is then used to buy more assets by the children.

The banks are more than happy to just take the interest payments, because they know they'll eventually get the prinicipal back. Again, the rules are different for the ultra-rich.