Long-Term Care Strategy by Katherine Nixon and Team 

Recently, I was asked, “What was the most important tax planning issue that professionals should be discussing with their clients this year.”  For me, the answer was easy.  As a CPA who has developed a niche in tax-advantaged longevity and long-term care planning and funding strategies here is the  Executive Summary:

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.
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.   
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.

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.

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:

 Characteristic   C-CorporationsPartnershipsS-Corporations & Ltd Liability CosSelf-Employed, Partners, More than 2% Sharehld
Deductibility 100% for employees and owners, even spouses & retireesEmployees – 100%Partners & 2% - See Self-EmployedSee 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.

Federal Tax Deduction Limits
Attained Age before tax year-end (for most 12/31) 2010 2011
40 or less$330$340
More than 40, Less than 50$620$640
More than 50, Less than 60$1,230$1,270
More than 60, Less than 70$3,290$3,390
More than 70$4,110$4,240

For Individuals 
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.

It is All About Priorities, Health, and Choice and Control. 

For me, here is the bottom line:

 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.

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.

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?

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.  Dad passed away in January. 2010.  We are grateful that our brother, Michael, along with his pregnant wife, Ashlee, and their daughter, Ryann, moved home to support his mom, who still worked a full-time job, and to help Dad with his daily activities of living.   The financial, emotional, and physical toll was high. 

Summary:  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.  How many tens of thousands is that?   

Business owners, 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.

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.  Visit our website at longevityplanning.info or call us at 281-370-6622 for more information.  

Circular 230 Notice: In order for us to comply with certain U.S. Treasury regulations, unless expressly stated. Otherwise, any U.S. Federal tax advice that may be contained in this written or electronic communication, including any attachments, is not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding any tax penalties that may be imposed by the Internal Revenue Service or any other U.S. Federal taxing authority or agency or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

It is All About Priorities, Health, and Choice and Control.

Securities are offered through J.W. Cole Financial, Inc. (JWC), Member FINRA, SIPC.  Investment Advisory Services are offered through Jonathon Roberts Advisory Group (JRAG).  Tax preparation services are not offered through JWC/JRAG. SETFS, LLC is not a CPA firm. Insurance is offered as an independent agent.