Suze Ormans says Long Term Care Insurance is a must have.

On the subject of long-term care insurance, Orman called it "a must if you can afford it."

Long-term care insurance (LTC) is one of the most important insurances anybody can get, from the day you buy it to the day you use it. Average age of entry into a nursing home is 84. If you buy it at 60 and all of a sudden you are 75, you can’t afford it anymore. The insurance company took the correct bet that you’d drop it right around the time that it’s really important. My greatest advice to you would be that if you are going to buy LTC, you need to know that, without a shadow of a doubt, it is going to be an easy expense for you to meet every single year for the rest of your life.

Get insured. We’re living longer than ever before. And with that comes the hard truth that we don’t know how we’ll fare. “That’s why it’s important to get long-term-care insurance in your 50s,” says Orman. It will cover nursing home, assisted living or in-home health care costs, which can take a big chunk out of your bank account—or your kids’!—otherwise. Don’t wait until after 60 to purchase it, however. You’ll face higher premiums and may be denied coverage because of a preexisting condition. Act early and give yourself peace of mind. 

Get a free quote:

http://mintcofinancial.com/long-term-care-insurance-quote.asp

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813-964-7100
716-565-1300

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anecamara@mintcofinancial.com

Plan for family Succession

Written by

Tom Cooney and Crystal Faulkner

I own a small business, and some of my children work for me. I don't want to give up control of my business, but I also don't want to miss out on any tax-savings opportunities. Do you have any practical tips for results-driven succession planning?

The Tax Relief Act of 2010 provides you an opportunity to shift a portion or all of the ownership of your business to your children by taking advantage of the $5 million gift tax exemption ($10 million if combined with your spouse) that was included in the law passed by Congress late last year. The additional gift tax exemption combined with the fact that many businesses are worth less than they were before the recession makes this a great time to be thinking about succession planning since a larger portion of the ownership in your company may be transferred at lower values.

The fear of losing control of your company is very valid and a concern we hear frequently from entrepreneurs. You've undoubtedly worked hard to build your business and you want to make sure the value isn't compromised. The good news is that you can transfer a portion of your business without relinquishing control of the entire company. There are many ways to maintain control depending on the legal structure of your business. For example, you may be able to restrict voting and transfer rights on the ownership that you transfer. In addition, you may be able to utilize trusts to own the shares or units transferred.

Before you decide on the method of transfer, your biggest challenge may be deciding if the business should remain in your family or sold to an outsider or to management. Assessing whether your children have the appropriate skills and abilities to run the business is difficult and often emotional but this issue should be addressed early and periodically reviewed. If your children are not yet in significant management roles you may also want to include key members of management in your succession plan. You should consider motivating your key employees to remain with the company through the management transition. You may want to explore phantom stock arrangements or deferred compensation agreements as an incentive for your management team to stay on board through the transition and beyond. In some cases, an ESOP, which allows employee ownership, may be appropriate. If you decide that your business should remain in the family, you'll need to address several objectives to make the transfer successful.

A primary goal that you should consider is how to transfer your ownership to the active family members of your business using the least amount of your gift exclusion and minimizing your tax cost. If you wait until your death to transfer, your estate may not have enough liquidity to meet tax requirements which means the estate may need to sell the company. Of course, you want to retain enough business or non-business assets so that you will be able to maintain your lifestyle after the transfer.

For a smooth transfer, you should focus on creating wealth for yourself independent of your business. You can use creative retirement options which in turn will make the transition much easier. You may be able to utilize deferred compensation plans, consulting agreements, non-compete agreements, employment contracts or other means to help assure your stream of income. If you own real estate in conjunction with the operation of your business you may be able to utilize the real estate to maintain your income stream.

When transferring family wealth through a business it's preferable to transfer ownership to the children who work in the family business. Many parents want to be sure that all of their children are treated equally and make the mistake of allowing the children who do not participate in the family business to also have ownership. Generally, this is not a good idea and often causes family feuds between siblings. Non-business assets (such as life insurance and real estate leased to the operating company) should be used for any of your children who aren't active in your business. This allows you to maintain as much equality as you want without encumbering the management of the business.

Business succession planning is one of the most crucial parts of your estate plan and critical for the long-term success of your organization. If you don't plan appropriately you will needlessly end up paying more in estate and gift tax to the IRS, which reduces your family's overall wealth. It's not an easy process, but proper succession planning is one thing you should definitely do to help carry on your legacy. You should consult with your professional advisors that are familiar with your circumstances for their ideas.

Consult us: 716-565-1300 or anecamara@mintcofinancial.com

www.MintcoFinancial.com

Tax Treatment of Long Term Care Insurance

Tax Treatment of Long Term Care Insurance

There are numerous compelling reasons  to consider the purchase of long term care insurance.  Although the distinct tax benefits of these policies is not the most significant of these, a discussion of potential tax advantages may serve as a motivational tool.  I'll outline the key tax implications of long term care insurance policies – but of course - you should consult with your own tax advisors.

TAX IMPLICATIONS OF TAX QUALIFIED POLICIES:

In general there are two types of long term care policies that are available- tax qualified policies (TQ) and non tax qualified plans.  Although the IRS has not ruled definitively on the taxability of benefits received from a non tax qualified policy, they have definitely determined the preferential treatment of tax qualified LTCI policies. 

Most, but not all, of the plans being offered by insurance companies today are TQ policies. 

There are differences that should be noted between the two types of plans:

Non-Tax Qualified policies.  The contract wording of non-tax qualified policies is generally a bit more liberal than the TQ plans.  With a non TQ policy, benefits may be paid when any one of three triggers happens:

·      Care is medically necessary, or

·      Inability to perform 2 of 6 activities of daily living, or

·      Cognitive impairment

Tax Qualified Policies.  With the Tax Qualified policies, the first trigger (medically necessary care) is eliminated.  In addition, a health care professional must certify that the care is likely to last 90 days (i.e. it is truly long term care);  in addition, the wording of the two triggers is a bit more stringent (although somewhat unclear)

·        Need for SUBSTANTIAL assistance with 2 of 6 activities of daily living, or

·        Require SUBSTANTIAL supervision due to presence of SEVERE cognitive impairment

The Health Portability and Accountability Act of 1996 enabled the IRS to treat TQ long term care insurance policies like accident and health insurance and are treated as a deductible medical expense under Code Section 213(d).  

Medical expenses are currently limited to the excess over 7.5% of a taxpayer's adjusted gross income. (IRC sec. 213 (a) ). 

Qualified LTCI premiums are premiums that do not exceed the age-based limits established by the IRS as listed below.  These limits are adjusted annually for inflation.

Eligible Long Term Care Insurance Premiums

Age attained before                      2007 Maximum Deduction

Close of Tax Year                        Per Individual

40 or less                                         $   290

41-50                                               $   550

51-60                                               $1,110

61-70                                               $2,950

71 and older                                     $3,680

Many states offer tax credit or an income tax deduction for LTCI premiums paid.

In addition, long term care benefits are received tax-free up to $260 per day in 2007 (IRC sec. 7702B(d) ) and may be tax free for more than that if the actual expenses exceed that amount.

Self-employed

A self-employed individual may deduct 100% of the eligible premium for a qualified LTCI policy as an above-the-line business expense if:

·        The business pays the premium, and

·        The individual is not covered by a LTCI policy maintained by the individual's or spouse's employer (whether or not the individual or spouse actually participates).

Corporations, Professional Corporations and  Profit Organizations

C Corporations may deduct all premiums for tax-qualified LTCI for its employees, their spouses, and eligible dependents (IRC sec. 152). 

Even premiums in excess of the age-based limits described above are deductible. 

A plan may be selective, covering one or more employees/spouses and there may be different plans for different employees or classes of employees/spouses.

Partnership and limited liability coMPANIES

Generally, a partnership or LLC may deduct all premiums it pays for LTCI for its employees, their spouses and eligible dependents (IRC sec. 152 and 162).  

The premium is not included in the employee's income.  

The partnership may pay the premiums for partners. 

As long as the LTCI premiums are paid without regard to partnership income, they will be considered "guaranteed" payments under IRC sec. 707(c).  

Therefore, they will be deductible by the partnership and includable in the partners' incomes.  

The partners are then treated by the IRS as self-employed persons and follow the guidelines for self-employed persons with LTCI.

 

S Corporations

The tax treatment for S Corporations depends upon whether or not the participating employee owns more or less than 2% interest in the S Corporation. 

If the participating employee does not own more than 2% interest on any day during the tax year, the entire TQ LTCI premium for the employee, spouse and dependents is deductible by the business as long as the premium is paid by the business.

The premium is not included in the employee's income.

If the participating employee does own more than 2% interest in the S Corporation, the employee is treated like a partner of a partnership, i.e. premiums are deductible by the corporation and included in the employee's income.  The employee is then treated by the IRS as a self-employed person and follows the guidelines for a self-employed person with LTCI.

 

Contributory arrangements

If an employer and employee split the cost of a long term care insurance policy, the employer receives the same federal income tax treatment on the portion of the LTCI premium it pays that it does on the entire premium in a situation where the employer pays the entire premium.

Health Savings Accounts and Long Term Care Insurance

The Medicare Act of 2003 which enables individuals to create HSAs , allows contributions to an HSA to be made on a pre-tax basis. 

In addition, withdrawals for qualified medical expenses are made tax-free. 

TQ LTCI premiums are a qualified medical expense (IRS Notice 2004-50, Q and A 41).  As such, an individual may withdraw money tax-free from their HSA to pay TQ LTCI premiums (with the age-based limitations listed above).

CONCLUSION:

There are significant reasons why you should consider long-term care coverage – and many distinctive tax advantages associated with the purchase and utilization of long term care insurance.  Ask your advisor the pros and cons of long-term care coverage and when it can provide an appropriate  measure of protection for hard earned assets.

 In some situations it may be wise for children to pay premiums on such coverage for their parents – particularly if the burden would be shifted to the children in the event care is needed but not affordable by their parents. 

Questions??? Call us at 716-565-1300

www.MintcoFinancial.com