Creating a Personal Pension with a Deferred Sales Trust
Creating a Personal Pension with a Deferred Sales Trust
Imagine selling your business, investment property, or other valuable asset and, instead of receiving one giant check, you create your own personal pension that sends you regular payments for years to come. That’s essentially what a Deferred Sales Trust (DST) can do for you. This article explores how a DST can function like your own personal pension and why that might be better for your financial and mental wellbeing than managing a large lump sum.
What Is a Deferred Sales Trust?
Think of a Deferred Sales Trust as a special arrangement where, instead of receiving all the money from your sale at once (and paying a large tax bill immediately), you:
- Sell your asset to a trust
- The trust pays you back over time through installment payments
- You only pay taxes as you receive these payments
It’s like creating your own personal pension from your sale proceeds.
Why Regular Income Feels Better Than a Lump Sum
Have you ever noticed how differently you treat a large windfall versus your regular paycheck? Research shows there are good reasons for this:
Your Brain Loves Predictability
Regular, predictable income from a Deferred Sales Trust pension creates a sense of security. Your brain actually produces less stress hormones when it can count on consistent income rather than worrying about how to manage a large sum all at once.
The “Gone Today, Here Tomorrow” Effect
Many lottery winners and people who receive large inheritances or sale proceeds report high anxiety about their money. They often think: “What if I make a mistake and lose it all?”
With a Deferred Sales Trust pension approach, you don’t have to worry about mismanaging the entire sum at once. The structure provides built-in discipline.
Real People, Real Benefits: Who This Helps Most
Business Owners
After selling the business you’ve built over decades, adjusting to life without your regular business income can be jarring. A Deferred Sales Trust pension creates a smooth transition by replacing your business income with regular, predictable payments.
Sarah, a bakery owner, sold her business for $2.5 million. Instead of taking the lump sum, she used a DST to create monthly payments of $12,500. “It feels like I’m still getting my regular business income, just without the 4 a.m. wake-ups to make bread,” she says.
Real Estate Investors
If you’re used to collecting rent checks, suddenly having a large lump sum instead of regular income can feel strange. A Deferred Sales Trust pension recreates that familiar pattern of monthly or quarterly income.
Soon-to-Be Retirees
If you’re approaching retirement, converting a major asset into a Deferred Sales Trust pension can provide income security similar to a traditional pension – something fewer Americans have access to these days.
The Tax Advantage Explained Simply
One major benefit of the Deferred Sales Trust pension approach is tax deferral. Here’s how it works in plain English:
- With a normal sale: Sell asset → Pay big tax bill right away → Invest what’s left
- With a DST: Sell asset to trust → Pay taxes only on each payment as you receive it → More money keeps working for you longer
This is similar to how a 401(k) lets you delay taxes until withdrawal, allowing more of your money to grow over time.
Customizing Your Personal Pension
Unlike a traditional pension that comes with fixed rules, your Deferred Sales Trust pension can be customized to fit your life:
Payment Frequency
You can choose to receive:
- Monthly payments (like a traditional pension)
- Quarterly payments
- Annual payments
- Or even uneven payments based on your changing needs
Payment Duration
You decide how long you want your payments to last:
- 10 years
- 20 years
- 30+ years
- Even your lifetime
Payment Amounts
You can structure your Deferred Sales Trust pension to:
- Provide equal payments throughout
- Start smaller and grow over time
- Start larger and decrease over time
- Include occasional larger distributions for major purchases
The Peace of Mind Factor
John, who sold his manufacturing company at age 58, explains it best: “I could have taken $4.2 million all at once. But what keeps me up at night isn’t whether I’m maximizing every last dollar—it’s whether I’ll have enough reliable income for the next 30 years. My DST payments give me that certainty.”
This highlights perhaps the biggest benefit of the Deferred Sales Trust pension approach: peace of mind.
Is This Right for You? Simple Questions to Consider
A Deferred Sales Trust pension might be right for you if:
- You’re selling a business, real estate, or other significant asset
- You prefer regular, predictable income over managing a large sum
- You’d like to spread out your tax burden
- You’re concerned about having disciplined income for the long term
How to Get Started
Setting up a Deferred Sales Trust requires working with experienced professionals who understand the legal and tax requirements. This isn’t a do-it-yourself project, but the benefits of creating your own personal pension can make the professional assistance worthwhile.
Conclusion: Your Money Should Work For You, Not Worry You
When you sell a major asset, you have a rare opportunity to design your financial future. While a lump sum offers flexibility, a Deferred Sales Trust pension approach offers something potentially more valuable: predictability, reduced stress, and the comfort of regular income.
By transforming your sale proceeds into your own personal pension through a Deferred Sales Trust, you can enjoy the peace of mind that comes from knowing exactly when your next payment will arrive – for years or even decades to come.
