| Guest Author Raymond Lavine | |||||||||||||
| Long term care may affect you or your loved one. You need to know what it’s all about so you can start taking action based on your circumstance. So here’s a quick overview.What do we mean by long term care? It means you need help performing your activities of daily living (ADLs). Examples are dressing, bathing, toileting, eating and continence for the foreseeable future.Who would provide this help? Long term caregivers do. They’re divided into skilled and custodial caregivers. Custodial caregivers are aides, volunteers, family or friends. Generally heath care plans will pay for care provided by skilled caregivers (medical specialist like doctors, nurses, etc) and custodial services but only if given as part of a skilled care procedure.
Where can LTC be provided? You can receive LTC in your home, at an adult day center, an assisted living facility, a hospice facility or at a nursing home. What are typical costs for these services? It really depends on where you’re living and what you’re receiving for care. But ballpark annual costs1 may be $25,000 for home health care, $40,000 for assisted living base rate, and $80,000 or more for nursing home costs Who pays for LTC costs? LTC costs are paid by either you, Medicaid, or from a LTC insurance policy. Medicaid will pay only if your assets and income are very low. If Long Term Care Insurance is to pay, you’ll have had to purchase the policy and pay the premiums until you qualify for LTC. How much are LTC insurance premiums? That depends on your policy choice. Premium costs, though, generally increase the older you are when you purchase the policy. And choosing more, larger or longer lasting benefits will generally increase premium costs too. Who should not buy LTC insurance? Anyone who can’t maintain paying the premiums until they qualify for LTC shouldn’t purchase it. Premiums for guaranteed renewal insurance may increase with time. When do you become eligible to receive LTC? It depends on the guidelines for who is paying the benefit costs. Under a tax qualified LTC insurance policy, a licensed health care practitioner must certify you as chronically ill (i.e. you can’t perform some number of activities of daily living for an expected 90 days or you have a severe cognitive impairment.) and that a plan of care is in place for you. 1 MetLife Mature Market Institute, “The MetLife Market Survey of Nursing Home & Home Care Costs,” September 2009. MetLife Mature Market Institute, “The MetLife Survey of Assisted Living Costs,” October 2009.
W hy Should You Invest In Long-Term Care Insurance?An elderly person needs long term care when he or she can’t handle normal daily activities such as bathing and eating. Someone must step in and help him or her from then on. Long-term care is expensive.1 The average cost for one year in an assisted-living facility is $37,572 while home health care runs in the $21/hour. The cost of private nursing homes is neraly $80,000 per year. Who can pay for this? Often people think that government programs – like Medicare and Medicaid – do. But this is not generally the case. Medicare pays for health care for people 65 and over. It doesn’t pay for long term medical service such as assisted living or adult day care. In fact, Medicare2 pays only the first 100 days of skilled care, such as physical therapy or nursing. But you’re eligible for the care only if you have been in the hospital for at least three days. And the care you receive must relate to the treatment of an illness or injury. Medicare pays 100% for the first 20 days and all but the first $137.50 per day for the next 80 days (for 2010). That’s it. Medicaid pays for health services for the very poor of any age. Qualifications for Medicaid vary by state. But generally the law says you must first spend down to the poverty level, using up all but about $2,000 of your assets. There may be long waiting lists for facility care. Under Medicaid, nursing home care is essentially the only option. Home care, assisted living facility care, adult daycare, outpatient services, and alternate caregiver services are not usually reimbursed under Medicaid. So what do people do? Either you’re poor enough to qualify for Medicaid, rich enough to pay all long term care out of pocket, or somewhere in between. People with assets of less than $200,000 generally can’t afford long-term-care premiums, and many in this group would qualify for Medicaid. It’s the couples with assets in $200,000 to $2 million range that may have to seriously consider buying long term care insurance. They could see their savings devastated by long-term-care expenses with little hope of passing something on to their kids. 1 MetLife Mature Market Institute, “The MetLife Market Survey of Nursing Home & Home Care Costs,” September 2009.
Are You Taking Advantage of Your Long-term Care Tax Benefits?Congress passed HIPPA1 as an incentive for people to take financial responsibility for their long-term care. It generally provides for deductibility of qualified long-term care expenses, and excludes from taxable income your qualified long-term care benefits.2 Higher deduction limits for LTC premiums are geared to help seniors make payments. Let’s see what this means. You can add long-term care expenses, paid for both qualified long-term care services and premiums for qualified long-term care insurance products, to your medical expenses deduction on your Schedule A of your IRS form 1040. Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services that are required by a chronically ill individual and provided through a plan of care prescribed by a licensed health practitioner. That is an IRS mouthful! Someone is chronically ill (i.e. needing long-term care) when within the last 12 months, a licensed health practitioner has certified him or her as unable to perform at least two of the ADLs (activities of daily living–dressing, eating, toileting, transferring, bathing, and continence) without help for at least 90 days. Qualified long-term care insurance contracts are those that provide only coverage of long-term care services. They must be guaranteed renewable and must not provide for a cash surrender value that can be paid, assigned, pledged, or borrowed. And lastly, it must not pay for expenses that would be reimbursed under Medicare, except as a secondary payer. The amounts of these LTC premiums you can include in medical expenses are limited though. But they increase substantially with age. See the table for includible limits on LTC premiums.
Your LTC benefits are generally excludable from taxable income as long as they are used for qualified long-term care services (e.g. nursing home, home care, and personal care and maintenance services). Note that your medical deduction is subject to an overall limit of 7.5% of your adjusted gross income. 1 The Health Insurance Portability and Accountability Act (HIPPA) of 1996.
Abourt guest Author Raymond Lavine
Raymond provides Long Term Care Insurance planning to Individuals; Companies, and Business Owners and Professional People. Raymond offers: Empathy; Knowledge; and Experience where it is not about the product, it is about helping you with why people need to know about and Long Term Care Insurance and how it will help peoples lives personally and financially.
I grew up in Los Angeles, California. After graduating high school I entered the U.S. Army joining the 82nd Airborne Division i the U.S. and 173rd Airborne Brigade in Vietnam. Raymond, received several combat decorations along with earning a C.I.B. and Jump Wings. After leaving the Army, I attended college and graduate school and have been involved in financial services for 35 years: commercial banking; insurance; mortgage banking; and private and investor banking.
I will work with you at your home, office, or by telephone and on the computer.
You can reach Raymond Lavine at: |
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Do You Know the Basics of Long-Term Care?
OWN A BUSINESS? SEE THIS GREAT END OF YEAR TAX STRATEGY
YEAR END DEDUCTION OR TAX ON RETAINED EARNINGS?
GUEST COLUMN By Ira L. Barnett, LUTCF
OK. We’re coming to the end of the year and my C-corporation made more money than projected (surprise, surprise in this economy) and has a decision to make: take a tax hit to Retained Earnings or find a deduction to offset some of the profits.
The Federal government, anticipating the Baby Boomer’s need for extended healthcare services, as they age, and wanting to deflect high utilization of Medicaid, created HIPAA (OK, this isn’t the only reason).
HIPAA (The Health Insurance Portability and Accountability Act of 1996) affects how Long Term Care insurance (LTCi) premiums and benefits are taxed, but, in this context, the primary concern is deductibility of the premiums.
Hey, wait a minute, we’re Baby Boomers. Spouse and I are getting older and we can expect, as that happens, that one (or both) of us will develop a condition that doesn’t allow us to do the things we used to do as easily as we used to do them. In fact, we may need, on occasion, someone to give us a hand.
Since we’re a C-corporation, we have kind of a ‘Trifecta’:
1. I can deduct, as a business deduction, 100% of the cost of LTC insurance for myself
AND for Spouse.
2. The premiums paid are not includible as income on my/our personal tax return.
3. Benefits paid aren’t taxable, at time of claim.
Oh, by the way, I do NOT have to cover any other employee. I can pick and choose, and if I only want to cover myself and Spouse – it’s OK.
But, if we do cover another employee, we can give them a very reduced benefit plan (compared to ours), and maybe, get some accommodations on the premiums charged and/or the underwriting rules applied to all of us. Wow, this is getting better and better.
In fact, I need to call my brother-in-law. His firm is an LLC taxed as a corporation and he’s eligible also. Oh yeah, Cousin Lou has that not-for-profit, and he’s can do this too.
Guess the next step is to sit down (and quickly) with my accountant and attorney, and that LTC insurance specialist that was calling, and have a conversation (wonder why my financial planner didn’t bring this up?).
Ira L. Barnett, LUTCF has been in the financial services industry since 1980. He is consulting with CFP®’s, CPA’s, attorneys and stock brokers to help them integrate Long Term Care insurance into
their practices, not as an insurance product, but, as a risk management strategy,.
Ira’s practice is centered in Orange County, California and he can be contacted via e-mail at iraleeb@aol.com or by telephone at either (847) 361-0030 or (714) 983-7901.
CIRCULAR 230 NOTICE: To comply with U.S. Treasury Department and IRS regulations, we are required to advise you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this e-mail, including attachments to this e-mail, is not intended or written to be used, and cannot be used, by any person for the purpose of (1) avoiding penalties under the U.S. Internal Revenue Code
LONG TERM CARE INSURANCE – CAN YOU AFFORD NOT HAVE IT?
10 Vital Points to consider about your LONG TERM CARE INSURANCE
As an Asset Protection attorney ANY avoidable source of loss, risk or exposure to my clients is unacceptable. One often overlooked area is the possibility that you or a loved one may need long term care as a result of age, illness or accidents. In cases where such care is required, the financial effects can be devastating even to the most affluent clients and are a needless expense that can be avoided.
For help in this area I turned to an expert, Dr. Jonathan Smith, M.D. a medical specialist who knows what this care costs and who now provides education and coverage to clients and advisors all over the U.S. on this easily addressed but potentially serious exposure. He shares important thoughts on this issues with us below. The insurance part is good enough, but some options are also both creditor protected AND have a return of premium guarantee if you never need it. Interestingly, even DOCTORS (who know better) often neglect this area of their own planning.
Here are Dr. Smith’s points, they are tough to argue with…
1. The successes of medical science and the Medical Profession have helped people to live longer, but not necessarily healthier.
2. Women live longer than men.
3. The Federal Government says “at least 70% of the people over age 65 will require some form of Long Term Care services at some point in their lives”. (1)
4. The Term Long Term Care services is applied to any 1 of 3 levels of services a person receives when that person fails to perform at least two of the six Activities of Daily Living (ADL), or is mentally incompetent.The ADLs are:
A – ambulating, walking around
B – bathing oneself
C – continence; continent of urine and/or stool
D – dressing
E – eating; feeding oneself
T – transferring; moving between bed and chair, etc
5. The inability to perform the ADLs may occur at any age.Example: as a result of a severe automobile accident, a person is left unable to walk (Ambulating). Toileting and Bathing are accompanying failures. As a result, who is going to move that person to a toilet each time there is a need to urinate?Or shall that person be left to soil him/herself?
6. The cost of care can be CATASTROPHICALLY EXPENSIVE.
Example: When the minimum wage in California is $8.00 per hour for UNSKILLED help, the cost for labor for home-help is $192.00 per day, and, if paid from a tax-deferred account, is nearly $120,000.00 per year! (assuming an overall tax rate of 40%)
7. Medicare and private health insurance programs do NOT pay for the majority of long term care services. (1)
8. Successful business owners have a special tax advantage when it comes to protecting earned assets from the aforementioned real and crippling financial losses.
9. Successful business owners can own PEACE OF MIND for themselves and their dependents, thus sparing each other the effects of the potentially devastating financial losses.
10. The successful business owner can experience the DIGNITY of receiving care at home, instead of ‘spending down assets’ to be eligible to be admitted to a Medicaid facility. He still has the ability to leave a LEGACY with the premium payment money returned upon his death.
It comes as a surprise to many that there is an insurance policy that has been around since HIPAA (1997) which specified Long Term Care Insurance as “A Health Benefit” in the tax code. (HIPAA LEGISLATION PUBLIC LAW 104-191 AUGUST 21, 1996 IRC Sec. 7702B)
Such a product is QUALIFIED LONG TERM CARE INSURANCE with CONTRACTUALLY-GUARANTEED FULL REFUND OF ALL PREMIUMS PAID with no reduction in the refund for benefits paid.
HOW DOES IT WORK? Money is paid to the the Insurance Company; the amount is enough to buy the Peace of Mind, the Dignity of the Insured and/or his family, and the size of intended Legacy.
The premium payment may be partially tax deductible, or completely tax deductible, if paid as a benefit to employees in a C corp,{IRC Sec. 162(a) and Regulations.162-10; IRC Sec. 162(a) and ISP Coordination Paper UIL 162.35-02; IRC Sec. 7702B(a)(3) IRC Sec. 7702B(a)(1)}: and is ERISA independent (ERISA: 29 USC 1191b IRC Sec. 1167; Not subject to ERISA) (please consult your tax attorney/ accountant we never provide specific tax advice in a setting like this).
Long term care Insurance is ‘purchased’ for a level of benefits, and upon death of the insured, the insurance company contractually guarantees to refund all premiums paid (and this is a nontaxable event!{IRC Sec. 7702B(b)2(C)(1)(E)}
As of January 1,2010, PPA (2006) suggests a 1035 exchange from a qualified plan to Qualified Long Term Care Insurance (PENSION PROTECTION ACT PUBLIC LAW 109-280 AUGUST 17, 2006, SECTION 844)
(Sec. 844) Excludes from gross income any charge against the cash value of an annuity contract or the cash surrender value of a life insurance contract made as payment for coverage under a qualified long-term care insurance contract which is part of or a rider on such annuity or life insurance contract if the investment in the contract is reduced (but not below zero).
Requires an individual excluding such charges from gross income to file a return with the Secretary of the Treasury. (http://thomas.loc.gov/cgi-bin/bdquery/z?d109:HR00004 
I recommend anyone interested consult a specialist; use these references for guidance:
(1). http://www.longtermcare.gov
(2) www.aarp.org/families/caregiving/state_ltc_costs.html
(3) www.dhcs.ca.gov/services/ltc/Pages/ConsAWordfromtheDirector.aspx.
About guest author Jonathan Smith, M.D.
More than a quarter century in Anesthesia practice (monitoring of people’s health, managing their risks and protecting them from death), made me aware of the financial burden on people living longer, but not necessarily healthier. I saw the need for Guaranteed Full Refund of Premium Long Term Care Insurance as a way to protect Earned Assets from the often debilitating losses to long term care, while preserving Dignity by affording home care; and capital for a Legacy. I own such a policy and advocate the concept. Clients and advisors can reach me directly at jonathan.smithmd@gmail.com for help.
