LifeStyle Financial Resources LLC

No Estate Taxes? You Might Just Want to Hold Your Breath

2010-01-31T08:55:00.000-08:00

In 2001, a progressive Federal Estate Tax became law of the land. The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) would change the tax rate and annually increase the size of estate value minimums before estate taxes were applied.

It included what is known as the ‘sunset’ provision which the current rules expire at the end of 2010 and would revert back to pre-EGTRRA law. In the year 2010 there would be no Federal Estate Taxes (in 2009 the exemption before estate taxes were applied was $3.5 million per person with a maximum 45% tax rate).

So here we are in 2010 and (at least for now) there is no Federal Estate Tax for any one dying this year (individual State tax rates would still apply).

A permanent repeal for this year? Not likely. While Congress has been focusing on national health care, they let the estate tax issue expire. It’s anticipated this will be back on the front burner very soon.

So what are possible options? 1) Leave as is (no tax) with year 2011 rates going back to the 2002 level of only a $1million exemption and 55% tax rate. 2) Go back to the 2009 levels. 3) Increase levels beyond $3.5Million. If rates and limits do change this year, Congress could make them retroactive to January 1st (i.e. apply taxes to decedents estates after death during the year) even if the law was changed late in the year. This maneuver most likely would trigger law suit actions.

But wait. There’s more. Along with disappearing federal estate taxes, also gone is the unlimited step-up in basis rule which could actually affect more people inheriting property. Had a death occurred in 2009, the basis (what the original purchase value was) is generally ‘stepped-up’ to the market value on the date of death and no capital gains tax is paid. If sold in the future for more, then tax on the gain would be subject to tax.

Heirs in 2010 have a maximum appreciation value of $1.3million to apply to the step-up in basis. An additional $3 million in appreciation can be passed to a surviving spouse. Hopefully, good record keeping is kept so original cost basis can easily be established.

So now what to do? Maybe just wait and see. If estate planning has been done (i.e. special estate tax reducing trusts, etc) contacting your legal advisor might be a good idea for any questions.

In any event, estate planning, including succession planning for business owners should be done. At the very minimum, have a (current) will in place. Life insurance can also be a very economical tool to use in the planning process.

Bottom line is to make your own plans now knowing that nothing in Congress is permanent or predictable.

2010 Tax Deduction Limits Increased on Long Term Care Insurance Premiums

2010-01-31T08:47:00.000-08:00

Tax-qualified LTCi premiums are considered a medical expense and can be deducted to the extent they exceed 7.5% of the individuals Adjusted Gross Income (AGI). The amounts eligible are listed below. Individual taxpayers who itemize can treat premiums paid for tax-qualified LTCi for themselves, a spouse and tax dependents (e.g. parents) as a personal medical expense.

2010 Federal Tax Deductibles Limits
Taxpayer’s Age at End of Tax Year. Source IRS Procedure:2009-50

• 40 or less $ 330
• Above 40 but no more than 50 $ 620
• Above 50 but no more than 60 $ 1,230
• Above 60 but no more than 70 $ 3,290
• Above age 70 $ 4,110

• Self Employed: Same as individual limits.
• Partnerships, members of an LLC that is taxed as a partnership and shareholder/employees of a Sub S corporation who own more than 2% of the Corporation are taxed as self-employed individuals. Premiums are part of AGI but may deduct up to 100% of eligible LTCi age based limits without regard to the 7.5% AGI requirement. Other tax deduction results will occur with different tax methods used by sole shareholder/employee in an S Corporation.
• C Corporations: LTCi policies purchased for employees, their spouses or dependents are generally fully deductible. If a higher deduction is needed, (plus fewer years to pay) a limited pay policy (e.g. 10 years) could be considered.

Gift Tax Exclusion: In addition to the current $13,000 gift tax exclusion per donee, the donor can pay for medical expenses of the donee (IRC Sec. 2503(e). Qualified LTC insurance premiums are considered medical expenses and deductible up to the age-based limits as shown above.

Long Term Care insurance will not solve all financial care-giving situations but what it will do is help to preserve financial assets and one’s independence, increase care-giving options, and reduce stress and personal finances that family or friends incur.

Insurance Planning - Options to Consider

2009-07-03T13:41:00.000-07:00

If you’re considering buying personal insurance, you have unlimited options, both as to product choices and the companies offering them. The questions you may have are what do I need, what should I consider, and in what sequence.

A lot will depend on the purpose for the insurance and your age. For individuals, there are four primary insurance planning considerations: Life, Disability Income, Critical Illness, and Long Term Care. Let’s take a brief look at these options.

1) Life Insurance: The foundation of any one’s planning-especially if you have a family, a business, a large estate where you want to preserve assets (who doesn’t) from various state and federal taxes, or possibly charitable giving desires.

Types of life insurance plans include term polices. These are designed for temporary needs, covering a specific purpose or time or cash flow considerations. Depending on age and if you qualify, you can buy guaranteed level premium plans covering ten to thirty years in length. These are strictly death benefit policies and offer no cash values.

Permanent plans (Whole Life, Universal and Variable Life) have cash values and are designed for long term use. Premium and cash values may fluctuate in Universal and Variable Life plans. Whole Life policies offer level premiums and guaranteed (basic) cash values.

These plans can provide cash values that could be used for borrowing in an emergency, college costs or a business need. If values are sufficient, they could be used as a supplementary retirement income source. There are unlimited uses for life insurance.

2) Disability Income Insurance: Available while employed, these plans replace a percentage of income when a sickness or accident results in a long period of not being able to work. Benefits begin after a waiting period. Many foreclosures are due to loss of income due to a disability. A plan through an employer has limited benefits while an individual policy is portable and can help make up what a policy through an employer may provide. The odds of experiencing a short or long term disability are pretty good.

3) Critical Illness Insurance: These plans are well known in Europe and Canada and in the past few years have become more aware of in the U.S. Unlike disability income plans that replace incomes, these policies pay a lump sum to the insured when qualified serious health events occur. Conditions may include: Stroke, Angioplasty, Bypass Surgery, Heart Attack, certain Cancers, Renal or Hearing failure, MS, Organ Transplants or Alzheimer’s. It’s your money to use as you wish. Maybe pay medical deductibles, alternative care not paid by medial plans, pay bills, etc. These may be available in group plans with limited benefits or individual plans with higher lump sums. Also, these plans are available even if you have a Disability Income policy.

4) Long Term Care Insurance: Yes, getting older may result in substantial unforeseen expenses; nursing home costs (average over $203 per day*), Assisted Living facilities, Adult Day Care, or continuous staying at home services. Medicare or health insurance isn’t going to pay for long term custodial care. States are running out of funding for Medicaid. Actually, a good percentage of long term care needs occur before age 65. **

No, these plans are not inexpensive at older ages and aren’t for everyone. Some employers may offer a plan and some states have Partnership Programs where basic plans can be purchase. If you are healthy now but can’t afford a plan, if you have children, see if they will help pay the premium. Some benefit maybe better than no benefit.

So, you have a number choices to cover various needs and life events that can happen when you least expected it. That’s what insurance is for. Get profession advice and product price comparisons and from quality insurance companies that specialize in these plans.

* 2009 Glenworth Financial Cost of Care study. Average national private room.
** Freeseniorcitizenssolutions.com. 40% of people receiving long term care services are between ages 18-64.

Boater's Should Have New Tracking System -Feb.1,2009

2009-01-31T12:11:00.000-08:00

Along with being involved in the insurance services industry, I am a Staff Officer for the U.S. Coast Guard Auxililary. Effective Feb.1, 2009, communication for anolog type EPIRB's devices (Emergency Positioning Indicating Radio Beacon) broadcasting on 121.5/243 MHz will no longer be recgonzied through satellite systems. The newest program requires a new digital device that uses 406 MHz digital. See the following video on this new requirement by NOAA and the U.S. Coast Guard. This is an important change, one that has been in the works for two years.

http://www.youtube.com/watch?v=hq4hIbGMRTQ

Long Term Care Insurance Premiums to Costly? It Depends.

2009-01-29T17:03:00.000-08:00

Most people think the need for long term care assistance is for people in their 70’s and 80’s. The fact is that 40% of long term care needs are under age 65. The younger the age the lower the premium. Plus at younger ages people are generally in better health in order to qualify.

These plans not only help pay for custodial care expenses but also preserve assets that may now or later be needed to pay these expenses but were really planned for retirement income. And especially now when a number of people’s assets have decreased significantly.

Before considering Long Term Care insurance, consider the premium cost (also as a percentage of ones income- if it makes sense to pursue) and then consider the cost of care. Using the April 2008 study by Genworth Financial, the following are sample national average costs for different services:

Home Maker Service: (non-certified) $18 per hour. Certified is $38 per hour.
Adult Day Care Facility: $59 per day
Assisted Living Facility: (private room) $3,000 monthly.
Nursing Home Facility: (semi-private) $185 per day. Private room, $209 per day. The national average (now) is over $75,000 a year.

These costs do not consider incidental expenses for personal items, drugs, spending money, etc.
In Alaska, a nursing home runs $515 per day ($187,902 per year.) In New York City it’s $398 per day ($145,392 per year). To see what cost’s are in or near your area, go to
your internet search engine and look up Genworth long term care study or Metlife Mature Market. These will give you a lot of information which should be helpful.

No, Medicare isn’t a plan for long term care expenses. Medicaid can provide assistance once the beneficiary spends-down their assets as set by each state. With funding going down and expenses going up, don’t count on the state or the federal government to pick up the tab.

And if the thought of giving (or gifting) away assets in order to qualify for Medicaid is a consideration, be very aware of the strict rules that are in the Deficit Reduction Act of 2005. There could be a rude awakening in the delay of Medicaid benefits if not followed.
Contact legal counsel such as an elder care attorney for assistance in this area.

A few states (and more are joining in) are a part of the Federal Governments supported Long Term Care Insurance Partnership Program. For a person purchasing a LTCi policy in those states, the benefit from the plan can be used first and then still qualify for Medicaid.
See, http://www.ltcfeds.com/help/faq/miscellaneous_partnership.html#1 .
Under certain situations, all or part of Long Term Care insurance premiums may be income tax deductible by individuals as well as businesses. See the following web sight for information.
http://www.aaltci.org/long-term-care-insurance/learning-center/tax-for-business.php

Premiums will vary by policy benefits: A 90 day waiting period before benefits start will be less costly than a 30 day waiting period. A 3 year plan will be less than a 5 year or life time benefit. Using an inflation rider such as 5%, (compound or simple interest) where the initial daily or monthly benefit increases each year before a benefit is paid out, is more expensive than no inflation rider. Some plans also offer an inflation rider based on the annual CPI (Consumer Price Index) rate which can result in lower premiums
compared to a fixed guaranteed inflation rate option.

How to pay for LTC insurance premiums? A number of options to consider.
Out of current earned income.
Withdrawals from investments (principle, interest or both).
Assistance in part or whole by a relative (children).
Purchase an annuity with its income used to fund the LTCi policy.
A plan offered through an employer. Keep in mind that in a number of situations premiums in part or whole may be deductible. Some states also offer a tax credit.

Some new Life Insurance and Annuity plans offer an optional LTC rider.
If both spouses are considering individual policies look at a plan with a Shared Care option or one policy that pays the benefit on more than one life –benefit paid on who ever has the claim first. Many carriers also offer spousal discounts.

In the early days of Long Term Care plans, only nursing homes were covered. Today, numerous options are available and if feasible, a person would rather stay at home to receive care as long as possible. Today’s plans also cover or offer this option.

What triggers benefits in the first place before a Long Term Care insurance policy will pay out. Normally, when you cannot do yourself or require substantial assistance with two out of six ADL’s (Activities of Daily Living) events, e.g., eating, bathing, dressing, toileting, transferring, and maintaining continence. See policy’s definitions to see specific wording on what qualifies benefits to begin. Normally, cognitive (memory) impairments can also trigger benefits.

Also keep in mind the cost of care giving. Possible lost wages and well as personal health issues are factors when taking care of a person. Many times the caregiver will be the spouse or adult children. You may have already experienced this or know someone who has. Here again, Long Term Care insurance can play a big part in care giving expenses and many times pays for respite care for the caregiver.
There are a number of resources on this subject through your state as well as web sights including http://www.aarp.com/ and http://www.longtermcare.gov/. Plus many others.

If you or someone you know is considering purchasing a Long Term Care policy now or in the near future, look at all your options- the various policies and benefits available, definition of what triggers the income, the company’s history in marketing these plans (and their financial strength), and the source who you may be buying a policy from. Always request and expect professional advice.

Cal DesVoigne
LifeStyle Financial Resources, LLC
lifestylefinancialresources@blogspot.com