LegacyCare Pro News - April Edition

As I mentioned in my weekend post, there are many ways to help make your clients' Long-Term Care plans more tax savvy. This is for both premiums as well as how benefits are paid out. This includes how clients use Tax-Qualified Accounts to supplement policies when they need care. All things we need to consider when you’re tryng to maximize the benefits and give your clients greater access to Home Health Care.

Again, here are some tax advantage ways to protect your clients:

1) Use their Business or Health Savings Accounts to get their LTCI plan started in their 50s.

Health Savings Accounts are great for funding Long-Term Care Insurance with "pre-tax" dollars. Contribution limits for 2024 - $4,150 for Single Coverage; $8,300 under Family Coverage.

• One spouse can pay for the other spouse's LTCI premiums out of their Health Savings Account...even if they don't have a policy.
• The allowable "pre-tax" LTCI premium payments are limited to the same LTCI Deduction Table as Business Owners. See below for the table.
• Younger clients could do their "one-time" 401k rollover early in their careers. When they reach age 51, they will have enough in their HSA to start their LTCI policy.

S-Corp and Sole Proprietorship are limited to the LTCI Deductible premium table below.

• Your clients may want to take advantage of using "pre-tax" dollars for some level of coverage. If they never make changes, they still have a BASE of coverage.
• Protect insurability in their 50s and look to upgrade as the tax benefits increase.

2024 Long Term Care Insurance Federal Tax-deductible Limits

Taxpayer's Age At End of Tax Year - Deductible Limit

40 or less - $ 470

More than 40 but not more than 50 - $ 880

More than 50 but not more than 60 - $1,760

More than 60 but not more than 70 - $4,710

More than 70 - $5,880

C-Corp owners are allowed 100% deduction of LTCI premiums since they're seen as employees. This does not necessarily mean that they need to do a 10-pay.

• We tend to use 10-pay premiums when the Monthly Benefits are 100% of the Cost of Care and/or when they're employees with no ownership. This means using traditional Long-Term Care Insurance as part of an Executive Carve out.
• If an employee’s Long-Term Care plan is fully paid through work, then you need to talk to them about their Legacy planning through their Portfolio. There's a way to delay funding until age 70. This would allow wait for Social Security maximization or full funding through an inheritance.
• For Family-Owned Businesses - Even though they are as C-Corp can deduct the full 10-pay premiums, they still may want to take those premiums out of the business over time...especially, if they live in High Cost of Care areas where they will need higher benefits to pay for care. Or, have greater Legacy issues due to one sibling running the business with siblings expecting their share of the business at Mom or Dad's demise. (Think about professions where the siblings cannot be owners.)

2) Monitor the deductible Long-Term Care Insurance premiums allowed and increase their plans accordingly. Mutual of Omaha allows us to make these adjustments without insurability. They can start with a minimum of 1% compound and upgrade at attained age up to 5% compound.

• With MOO, your clients will be limited to $5000 a month if a parent or sibling has a dementia diagnosis. If they want this option, then they need to get something started before their health changes as well as parents.
• Most LTCI plans will be 100% deductible after age 61. For those who live in higher Cost of Care areas, this may not be true. However, you still want to maximize using "pre-tax" dollars from their HSA or Business.
• Allows clients to "play it by ear" without worrying about insurability...even if they wait to age 65 to upgrade. Some may need to wait until they're on Medicare to be able to afford more premiums. DO NOT WAIT UNTIL AGE 65 to talk about Long-Term Care planning.

3) Use Non-Qualified Annuities to pay for LTCI directly. This means that those payments are using "pre-tax" dollars, and the gain will not be realized when used for Long-Term Care premiums. Several carriers allow for this from internal or external Non-Qualified Annuities.

• If your client as an existing Long-Term Care Insurance policy, then call the carrier to see if they allow for this type of 1035 exchange premium payment or do they have an annuity that can be used for LTCI premium payments.
• You may want use current annuity or 1035 exchange into one if they have large capital gains inside their Non-Qualified Annuity.
• One-time transfer into a Long-Term Care "friendly" annuity needs to be tested. You may lose purchasing power and supplementing dollars with a lump-sum option over annual payments.

4) At claims time, use Tax-Qualified money to pay for care expenses. You definitely want to use Tax-Qualified money to supplement your clients’ Long-Term Care plan.

• Most households will be above the 7.5% floor for Medical Expenses and will most likely use itemized deductions.
• Always have clients consult their Accountant and keep good records of their spending.

5) If you have an Asset-based Long-Term Care in mind and your clients have large Tax-Qualified accounts, then you must ask yourself, "Do they want the Death Benefit to decrease on the front end or back end?" Think taxes on inherited IRA.

• If Legacy planning is a concern and your clients have large Tax-Qualified Accounts, then you want to protect the Death Benefit. This means separating the Long-Term Care and Life Insurance.
• If your clients are healthy, you may be able to give their heirs back 2x, 3x or 4x the up-front commitment.
• What does an extra $25,000, $50,000 or $75,000 do for the Asset-based LTC plan vs. a combination of traditional LTCI & Life Insurance using those extra dollars? If you don't understand this question, then you need to take 10 minutes to talk with me.

6) Uncle Sam, Nursing Homes and Home Health Care agencies have one thing in common. You don't get your money back. This is why you may want to separate the Long-Term Care Insurance and Life Insurance. This will allow you to discount every dollar spent or pay family members with "tax-free" dollars.

• If clients have a Long-Term Care policy that pays less than the cost of Nursing Home, then they will more than likely need to supplement heavily to stay at home. Have you addressed the supplementing side of Long-Term Care? What if they go above Cash Flow?
• Survivorship Life will give the children a "permission slip" to spend the money for the most desired and expensive level of care - Home Health Care.
• Life Insurance with Indemnity or without Long-Term Care rider can both be used to pay family members.

7) Gifting as part of your clients’ Generational Transfer planning. You can use part of your clients annual gifting to set up their children's Long-Term Care & Legacy plans. This may save your clients’ children hundreds of thousands of dollars in care and taxes. Here are some things to look for:

• If your clients have children who don't have the money to start their Long-Term Care & Legacy plans right now, but they will when they inherit Mom & Dad's estate.
• What if a client’s child(ren) have some health issues? Diabetes, cancer survivor, etc.
• If your client gets a dementia diagnosis, then it may limit their children's plans. Go ahead and let Mom & Dad help them get their Long-Term Care plan started...especially, if it's the one who is most likely to provide care for them.
• At age 70+, you are not talking about Legacy planning, you are talking about funding what's already in place.

I'm sure many of you will say, "We do all of this." However, you may not be putting all of the pieces together in a way to give your clients a better quality of care as well as helping them make smarter decisions. Plus, you need to be able to test and track performance if you really do want to make sure that your clients’ plans are tax savvy. Can you prove your plan design? What was your intent? Do you know your clients’ next move before they make their first?

If you want better solutions for your clients, then start with our Long-Term Care & Legacy Needs Analysis. DM for a personalized copy. There are things that I'm looking for that most Life Brokerages are overlooking, or you cannot prove with quotes.

Also, feel free to reach out for a demo of the software in your area or allow us to run a case through the software for you. We do not care what BD or RIA resource you use. We are looking to test our software with Advisors and with all levels of clients. ~ Barclay