Recently, I was asked, “What was the most important year-end tax planning issue that professionals should be discussing
with their clients this year.” For me, the answer was easy. I am a CPA, a financial
advisor, and an insurance agent who has developed a niche in tax-advantaged longevity and long-term care planning and funding
strategies.
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Here is the
Executive Summary:
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1. For Individuals and Couples:
Consider purchasing HSA health insurance. Through your HSA, your long-term care insurance premiums
are tax-deductible up to the Federal limits listed below.
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2.
For Affluent Clients:
Consider buying a fixed annuity or second-to-die whole life insurance policy with funds that equate to three years’
care in today’s dollars and add a rider that provides for long-term care costs up to a lifetime of coverage at guaranteed
never-to-increase premiums, which allows clients to self-fund a portion of their long-term care costs and yet, still build
a fence around the rest of their assets allowing assets preserved for other priorities. Clients only have
to answer a minimum of questions and often, no exams.
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3.
For Business-owning
Clients: Consider purchasing long-term care insurance for owners, spouses, and other selected employees
and deduct the tax-qualified premiums as a business expense. Business owners can offer long-term
coverage to most anyone that they choose to qualify.
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How do I express all that I know
and understand in just a few words? The experts say don’t quote statistics.
Yet, it is those statistics that make it so compelling for most everyone to consider long-term care insurance.
We insure our cars and our homes for couple of thousand dollars a year to protect against losses that may be in the
tens of thousands. Yet, a couple thousand dollars a year could provide for
long-term care costs that average hundreds of thousands of dollars. These statistics are if
you need long-term care today. If you are in your 50s and need long-term care in your 80s, the costs could
reach a million dollars. Today, less than 10% of Americans share this risk with an insurance company.
Yet, it is said that over 40% of Americans will need this type of care in their lifetimes. For
me, it begs the question why doesn’t everyone at least consider long-term care insurance? Working to retire and retiring well can be a challenge. Retirement planning
should include a discussion about the role of long-term care insurance protection for all individuals, but especially affluent
and business owning clients. It is said that
like minds attract.
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At this point, if you are still with me, you see a future
where we are living longer. When we become frail, we are going to need some extra help and that help costs
money. With long-term care insurance, we can share those costs with an insurance company.
The good news is that you can get coverage and tax deductions too.
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For Businesses
Businesses realize the most tax advantages of purchasing long-term care insurance (LTCi)
for their employees. Businesses can deduct up to 100% of LTCi premiums. For
me it is helpful to show it as a table:
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| Characteristic | | C-Corporations | PartnershipsS-Corporations & Ltd Liability Cos | Self-Employed, Partners, More than 2% Sharehld |
| Deductibility | | 100% for employees and owners, even spouses & retirees | Employees – 100%Partners & 2% - See Self-Employed | See 2009 limits Includes spouses, other dependents |
| Tax Savings | | Employers don’t pay payroll taxes for LTCi premiums paid for employees, their spouses,
& eligible dependents. |
| Choice andControl | | Carve out select groups of individuals for coverage. Include spouses and even retirees, |
| | Fund business agreements utilizing
long-term care choices. |
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2009 Federal Tax Deduction
Limits from the IRS Revenue Procedure, 2008-66
| Attained Age before tax year-end (for most 12/31) | Individuals | For Same AgeCouples |
| 40 or less | $320 | $640 |
| More than 40, Less than 50 | $600 | $1,200 |
| More than 50, Less than 60 | $1,190 | $2,380 |
| More than 60, Less than 70 | $3,180 | $6,360 |
| More than 70 | $3,980 | $7,960 |
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For Individuals
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Long-Term Care Insurance (LTCi) today is more than just tax deductions and nursing home
coverage. Long Term Care Insurance provides a stream of benefits that allows you to
live at home for as long as possible. LTCi protects retirement savings and income streams
allowing fuller lifestyles longer. LTCi provides help to preserve your spouse’s and children’s
physical and emotional health. LTCi premiums can be paid from Health Savings Accounts (HSAs). In addition, for everyone
who purchases long-term care insurance, benefits paid are generally received tax-free. LTCi is difficult
or expensive to buy after a major health change. LTCi offers better rates to individuals who are
in good health. LTCi offers lower rates to younger people. LTCi allows
you to choose how well and how long you live at home independently.
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It is All About Priorities, Health, and Choice and Control.
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For me, here is the bottom line:
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1) If you can afford long-term care insurance, you should buy it and buy it early in life
while you still have your health to qualify.
Although it seems young, 45-55 are the best ages to obtain this coverage because health issues generally
start arising around 50. Children should consider purchasing insurance for their parents especially
when you do not live close or have siblings that you would like to remain friends with through these health challenges.
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2) You are placing an undue burden on your spouse, children,
and friends if you think that they will take care of you in your old age or after a crippling incident.
This burden often:
a) makes them a prisoner in their home or yours.
b) greatly affects their health.
c) is often not shared by all family members and
d) is usually supported by the one person that you would least desire to ruin both financially
and physically.
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3) The need for extended care can happen any time in our life
with a serious illness or accident. If it happens today, how will you pay for the costs?
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It
is said that most get into the extended care consulting business because of a life experience. It is true
for me. My Marine fighter pilot, Aggie, research engineer father, Papa Joe to his grandchildren,
was stricken on April 5, 2007 and given only days to live. When a local pastor and his wife were visiting
my father’s bedside and were softly praying for him, my dad opened his eyes and said, “I am not dead yet.”
Startling the couple and the doctors, Dad went from critical condition through a nursing home all the way back home
over the next year. He is the most comfortable at home. He has dementia, which is a
cognitive impairment. The doctor said after a brain scan that Dad was a man in a 72 year-old body with
a 92 year-old brain. The good news is that for three years Dad was content, shuffling through his days.
The tough news is that our brother, Michael (30), along with his pregnant wife, Ashlee, and their daughter, Ryann,
had to move home to support his mom, who still works a full-time job, and to help Dad with his daily activities of living.
The emotional and physical toll is high. However, the alternative of placing your loved one in a
facility is heartbreaking.
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Summary:
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In
Houston, nursing home costs can average $5,000.00 a month or $60,000 a year. If you need three (3) years of
care, you will spend $180,000. In Massachusetts, the average can be over $8,000 a month or $96,000 a year. At-home
care costs can be more costly. Statistically, there is over a 40% chance that you will need this type of care.
At an increase of 5% a year, in thirty-five years from now, the same three years of coverage could cost you and
your family $1 million dollars. Business owning, affluent
clients, and individuals with HSA health insurance can take advantage of sharing this risk with an insurance company and the
U.S. Treasury Department since you are allowed to deduct at least a portion of premiums paid and save on payroll taxes.
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If you needed the care today or 35 years from now, from where would the money
come? If you would like to develop a strategy, we would like to help you. Call
me, Katherine Nixon, at 281-370-6622 for more information. Our firm, Soaring Eagles
Tax & Financial Services, LLC, is not a CPA firm. Insurance is offered as an independent
agent. Securities are offered through J.W. Cole Financial, Inc., Member FINRA, SIPC. Investment
Advisory Services are offered through Jonathan Roberts Advisory Group.
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U.S. Treasury regulations, unless expressly stated. Otherwise, any U.S. Federal tax advice that may be contained in this written
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person for the purpose of (i) avoiding any tax penalties that may be imposed by the Internal Revenue
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