Posted by Byran Boyle on Thu, Jun 25, 2009 @ 11:43 AM
Will Your Assets Be Gone with the Wind? Or Will They Last From Here To Eternity?
Are you like Rhett Butler and frankly don't give a damn, or are you more like Burt Lancaster, wrapped in a nocturnal romantic rendezvous on the beach, blissfully unaware of the impending Pearl Harbor attack? Estate and financial planning is not complete without discussing asset protection and the possible sneak attack on your best laid plans. Many individuals think they have prepared themselves by properly drafting legal documents and owning assets jointly by tenants by entireties, or through the use of incorporation or limited liability entities. However, there are unanticipated events that can likely lead to the erosion or even ruin of your estate plan.
These events are often discovered when it is too late, resulting in serious financial consequences. One of these events is the financial consequence of inadequate or improper liability insurance coverage for lawsuits involving auto accidents and slips and falls. However, a statistically more likely event is the financial expense associated with the need for long term care health services, which increase dramatically as you age. With Long Term Care expenses currently averaging around $6,000 per month and higher, it is not hard to imagine the cost to your retirement plan or estate plan for a period of care requiring any substantial period of time. For example, if you needed care starting today and lasting for three years, could your estate or retirement plan assets withstand a drain of close to $250,000? If you need care ten years from now, could you withstand a drain of $400,000? How about $1,000,000 twenty years from now?
Medicaid provides needed benefits for long term care services in a skilled nursing facility for only those patients who are impoverished. Therefore, it is only those individuals who have assets that can be lost to long term care expenses whether incurred at home, in an assisted living facility or in a skilled nursing facility, that this article applies, since it is these individuals who will have to make a decision, cognizant or otherwise, to either self-insure or transfer this risk to an insurance company.
The Internal Revenue Service has provided certain tax incentives for taxpayers who purchase Long Term Care Insurance. Individual taxpayers are permitted to deduct 100% of the premium cost of Long Term Care Insurance subject to certain maximum amounts based upon an IRS Table in accordance with the taxpayer's age and then, only if such premium amounts, combined with other appropriate non-reimbursed medical expenses, exceed 7.5% of your Adjusted Gross Income. Although this tax incentive may be unremarkable for some, for others, particularly those individuals who own businesses or receive long term care benefit through employment, the tax incentives become much more appealing. Business owners, such as sole proprietors, partners or owners of S Corporations, may deduct 100% of the premium paid for long term care insurance subject only to the IRS Table based upon their age. They are not required to meet the 7.5% requirement. Moreover, those business owners who own C corporations can tax deduct the full cost of the premium without regard to the IRS Table and without being required to report the premium amount on their individual tax return. Long Term Care Insurance can also be provided by a business to its owners and/or certain employees on a selective basis without conflicting with nondiscrimination rules.
Since long term care insurance can only be provided to those individuals who qualify medically, it is best to consider this purchase when you are healthy, still working and when you are serious about deciding how best to finance this risk. Not doing so may cause your estate and retirement plan to be a combination of wishful thinking, nicely dressed documents, and a romanticized view of a blissful future, or, do you not give a damn?
Bryan Boyle CLU, ChFC, CPCU, MSFS is an Executive Benefit and Estate Planning Consultant for Howell Benefits located in Wilkes-Barre, Pennsylvania. He is responsible for providing financial planning to corporate and individual clients. He is a registered representative and investment advisory representative of Tower Square Securities, Inc., a securities broker/dealer (member FINRA/SIPC). Howell is a separate entity from Tower Square Securities, Inc. Bryan can be reached at bboyle@howellusa.com.
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