       |
Financial Planning Strategies Using Long-term Care Insurance
Besides being a cost effective way to protect assets and avoid dependency upon the government or relatives, long-term care (LTC) insurance is an important financial planning tool in the following situations:
Estate planning The two main goals of estate planning are to:
LTC insurance helps achieve both. It insures that the maximum amount of money is left for heirs by protecting against a large and quite common loss. Clients who are gifting to their heirs are justified in reducing those gifts to pay LTC premiums, because the policies protect the value of an inheritance. This includes assets in family and marital trusts which might otherwise go to pay for LTC for the surviving spouse. LTC policies can also provide a cash flow that prevents the need to sell assets to pay for custodial care. That reduces capital gains tax, since those assets can then be bequeathed to the heirs. Because of the step up in tax basis at death, the heirs owe no tax on accrued capital gains . Prenuptial agreements There is a big hole in most prenuptial agreements: If one spouse exhausts all assets paying for LTC, the other spouse must begin paying for that care with his/her assets and income. This happens regardless of any provision in a prenuptial agreement. Both spouses must be impoverished before the government steps in. Medicaid does not begin paying benefits until the healthy spouse spends down his/her assets to $80,000 or less. No one should remarry or marry at a late age without both spouses first obtaining LTC insurance. Increasing disability benefits Long-term care insurance is an alternative for individuals who cannot obtain disability insurance (DI) coverage or cannot obtain enough DI. LTC payments are triggered by the need for assistance with two activities of daily living (ADLs) or for supervision because of cognitive impairment. It does not matter whether the policyholder is working or has any earnings history. LTC insurance payments are based upon amounts paid for LTC. Previous income does not matter. Disability insurance is triggered when an individual cannot work because of illness or injury. The payments are a percentage of income earned over the last three years. Payments stop at 65 for most policies. LTC insurance is an excellent choice for a non-working spouse. Since the spouse has no income, he/she cannot obtain any disability insurance. But LTC insurance payments do not depend upon earnings. Qualification for LTC insurance is easier than DI for many people. Individual DI policies are usually denied to anyone taking antidepressants, yet these individuals can still purchase LTC insurance. Profession is unimportant for LTC insurance underwriting, making it the only choice for dancers, actors, etc. Clients could receive health, disability and LTC benefits at the same time. There is no coordination of benefits when health insurance pays for doctors, DI replaces lost income and LTC insurance pays for custodial care. Corporate benefits For a C-corporation, LTC insurance is triple tax free:
This includes policies for the owners, employees' and their spouses. S-corporations, partnerships and LLCs have the same benefits for employees owning no more than a 2% interest. More than 2% owners are considered self-employed. Self-employed individuals can deduct the "eligible premium" for a qualified LTC policy as an above the line business expense. Eligible premium depends upon age. It varies from $270 to $3400 for 2005 returns. These amounts increase with inflation. Long-term care insurance is not includable in Cafeteria Plans or Flexible Spending Accounts. Arthur Stein does not provide tax advice and/or services. For information on your specific situation, please consult your personal tax advisor regarding any tax implications of purchasing long term care insurance. Copyright
2005 Arthur Stein. All Rights Reserved.
No reproduction without permission. Contact astein@ltcguide.com |