Farm owners look to MDPT when they are selling land or farm commodities for two main reasons:
MDPT allows the farmer seller to defer the taxes incurred from the sale. Ordinary income and capital gains taxes can be deferred up to thirty (30) years.
The MDPT process provides the seller with up to 95% of the net sale in cash, in the form of a low cost loan from Pegasus Intellectual Capital Solutions. That same seller would have received only 65 – 70% of the sale due to taxes following the typical taxable approach.
Paying the future taxes
What if there was a way to structure a plan to pay the taxes that will be due in thirty (30) years? Thirty years seems like a long time, but life happens, and thirty years is upon us quickly. The power of MDPT is the opportunity to grow the extra 25% - 30% gained from the sale over thirty (30) years and improve your asset base. You can do whatever you want with the funds but there will always be an eye towards the future payment of the deferred taxes.
Structuring the Plan
Any financial plan set up now, looking ahead thirty (30) years, has to be dependable but also flexible. Many times, something is either dependable (fixed) or flexible but rarely both. To plan for a certain expense (deferred taxes) in a certain amount of time (30 years) requires dependability and flexibility because no one knows the future so the plan will require adjustments and change. Then, after 30 years, it will have to be ready to deliver the expected value i.e. dependability.
Creating the Plan
The cornerstone of the plan is based upon a Indexed Universal Life Insurance policy from Ameritas Insurance Corporation. The policy premium is financed by a bank to provide a low annual cost to the policy owner. You can set aside a small percentage of the 95% of the net sale that will pay for the interest on the premium. The remainder of the dollars would be put to work in any way you desire.
Ameritas – Dependability
So, is Ameritas dependable (remember flexible and dependable)? Let’s take a look at their numbers and see if they can be depended upon:
Over $99 Billion of life insurance in force
Over 4 million customers
Founded in 1887
Ameritas has a long history of solid financial management so they will be there in the future, thirty (30) years, to deliver when the tax obligation is due.
Ameritas – Flexibility
Allows for adjustment to premiums over time.
Allows for adjustment to face value over time.
Allows for the payoff of the financed premium with accumulating cash value.
Allows for the cash value accumulation, in part, to be linked to the performance of any combination of five (5) external indexes. (see details here)
Allows for premiums to be financed.
No one knows the future. The opportunity to adjust and make necessary changes to the policy allows you to prepare for the future tax deferral payment.
How does it work?
Farmers First Trust has written a white paper, "I Don't Want My Kids to Pay the Taxes" that provides an illustration of structuring a plan to pay the deferred taxes, from the MDPT process, in thirty (30) years using an Indexed Universal Life policy. The white paper can be found here.
Dependability and flexibility don’t often coexist together within a plan for the future. Combining your creativity and objectives with the 95% of the net sale and the structure provided by Ameritas’ Indexed Universal Life policy, creates a powerful cornerstone that prepares a dependable, flexible plan for your future.
Michael L Gustafson is a Principal with Farmers First Trust