How to Buy a Mercedes with No Out of Pocket Cost
Did you find this article’s headline intriguing? Good, it was meant to be. However, the headline is literally true. So how can someone buy a Mercedes with no out of pocket cost?
Let’s start at the beginning. My firm, Coordinated Financial Services, based in Pittsburgh, is a national firm that deals primarily with nonprofit organizations across he country. Our focus is creating major immediate and deferred gifts for our nonprofit clients.
This past January I was honored to make a presentation to the Hemisphere investment conference in Nicaragua. Part of my presentation explained “How to Buy a Mercedes with No Out of Pocket Cost.”
The “Mercedes Plan” is one of the most favored fundraising strategies for our nonprofit clients. It creates major and immediate charitable gifts.
But instead of making a charitable gift, the strategy can also be used to buy a Mercedes or anything else that you may choose..
How does the “Mercedes Plan” work?
First, we identify a low yielding asset in a person’s portfolio such as a bank CD or a money market account crediting a low rate, most likely less than 1%.
We transfer this asset, say $200,000, to a special insurance policy with historic earnings around 6%. Because of this unique policy, the policy cash value in year one is $200,000.. No money is lost in this transfer.
At the beginning of the second year, the policy owner has the right to obtain a loan from the insurance company. This loan is not deducted from the policy cash value. The policy still has $200,000 cash value earning high interest even after the loan.
The loan can be any amount up to 40% of the prior year’s premium. In my example, this would be $80,000 (40% of the initial transfer amount).
The policy owner takes the $80,000 down to the Mercedes store and buys the new, shiny Mercedes.
So now where are we?
The insured still has $200,000 cash value earning a higher interest rate.
The $80,000 loan is secured by the policy’s death benefit.
At the end of ten years, the policy cash value is close to what the yield would have been if the $200,000 had stayed in the CD at the local bank.
In addition, the life insurance coverage has been an additional benefit.
And don’t forget about the Mercedes looking better than ever. They do seem to last and age gracefully..
How else can this concept be used?
In our everyday practice of dealing with fundraising efforts for our nonprofit clients, the $80,000 would have been used as a tax-deductible gift to a charity.
But the focal point of this strategy is the ability to borrow funds directly from the insurance company without depleting the policy values. This is the key to the strategy.
The loan never needs to be repaid. It can be recovered by the insurance company out of the policy’s death benefit.
What other strategies are there?
How would you like to leave each of your children or grandchildren a million dollars at no out of pocket cost? We have a second strategy that can accomplish this.
We can structure planned gifts to anyone, your children or grandchildren, your alma mater, your local hospital or church. If you qualify for this plan, significant deferred gifts can be created with no out of pocket cost.
This article cannot go into the specifics of each of our unique plans but we implement them everyday in our practice and they work great. We have a long list of satisfied clients.
