The next Asset Based Care option is known as The LTC Annuity Strategy and it comprises two financial products rolled into one. First, it is a fixed annuity that pays a current interest rate up to 3.25% every year. Second, it includes a Long Term Care policy that provides a remarkable benefit that expands up to three times your deposit should you be in a position where you cannot perform 2 of the 6 ADL’s or become cognitively impaired.
Long Term Care Insurance seems to be a logical solution and yet as I pointed out earlier, only 5% of adults have coverage. Why only so few? The answers make sense:
Pension Protection Act 2006
The Pension Protection Act was signed into law in August 2006 containing more than 900 pages of changes and refinements to regulations regarding defined benefit plans, defined contribution plans, individual retirement accounts and other issues related to retirement planning.
Hidden in the seemingly senseless banter are two secret treasures that few Americans know about.
Life Insurance for the Living
The first gem has to do with life insurance. Several years ago most carriers adopted provisions to allow insureds the ability to access their life insurance benefit while they were alive to help offset the enormity of end of life medical expenses. Known as the "Accelerated Death Benefit," it was included primarily to combat the selling off of life insurance policies to Life Settlement companies for the terminally ill. The main problem with the add-on was that the IRS hadn't decided if the pre-paid life insurance proceeds payable to insured were income tax free like traditional life insurance payouts to beneficiaries.
The Pension Protection Act specifically codified that all life insurance benefits that are paid out to insureds while alive are totally free from income taxes if the insured is terminally ill and/or cannot perform 2 of the 6 activities of daily living - ADLs (bathing; dressing; eating; toileting; transferring; continence). While most insurance companies have installed the "Accelerated Death Benefit" in their newer policies, only a handful allow the life insurance benefit to be paid out TAX FREE to the insured if they are not terminal and simply cannot perform 2 of 6 ADLs as defined in the Pension Protection Act.
Estate Planning Specialists has extensively researched the industry to determine which carriers offer the most consumer beneficial hybrid Legacy Life/LTC and Return of Premium LTC plans in the country. The differences are dramatic. If you are interested feel free to call our toll free number 1-888-892-1102 and we will share with you the findings of our research.
Turning Tax Deferred Into TAX FREE
The next secret the Pension Protection Act had hidden amongst the verbal rubble became law on January 1, 2010 and affects annuities. Previously, when you earned interest in a single premium or flexible premium annuity and subsequently withdrew any money for whatever purpose, the withdrawal was considered interest first and principal second and therefore all gain was taxed at ordinary income tax rates the year following the withdrawal. As of New Year's Day 2010, because of a little know provision in the PPA, if you cannot perform 2 of the 6 ADLs or have lost your cognitive abilities, and your annuity is PPA compliant, all income extracted will be INCOME TAX FREE! The problem is the only a few annuities are currently PPA compliant.
Again, Estate Planning Specialists has researched the annuity industry and can share with you the top carriers that offer this valuable benefit. Simply put, what this secret PPA provision means is that if you have a current annuity that is non-PPA compliant, which is the vast majority of annuities, should you need the money for long term medical care, the income will be taxable until you withdraw all your interest earnings. If you currently own a non-compliant annuity you can exchange it for a compliant LTC/combo annuity and all your withdrawals for Long-Term Care benefits will be completely TAX FREE.
One brand new annuity is not only PPA compliant it offers an exploding TAX FREE Long-Term Care benefit that increases your annuity deposit up to six times. Furthermore, the LTC benefit increases as the annuity account value increases and should you never use the money for long term medical expenses the remaining annuity value is paid out to your beneficiaries.
Should you want to explore exchanging your non-compliant annuity with a PPA compliant annuity contact us at 1-888-892-1102.
David T. Phillips, CEO
Estate Planning Specialists
When conducting the countless estate planning reviews over my 48 year career I ask each client to share with me their estate planning goals. At the top of almost everyone’s list is the affirmation: “We don’t ever want a long term medical condition to eat away our estate.”
Based on numerous national studies this fear is real and one that keeps us awake at night.
Consider these alarming statistics:
As is evident by these statistics, the unfortunate reality is that someday the vast majority of us are going to have to tap into money from some source to pay for our long term medical expenses. The question we must ask ourselves is: Where is the money going to come from to take care of us? From our savings, investments, children, Uncle Sam or from a third party source? No matter, there is one thing for certain, unless we prepare ahead of time it will be ripped away from our family’s inheritance.
My family will take care of me.
Time, distance and both spouses working have made it more difficult for many families to provide all the care needed. Even if family members can find the time to provide care giving, it can often take its toll on the care giver. If you were suddenly in need of Long Term Care, imagine the physical, emotional and financial burden it could cause your family. Long Term Care Insurance can help preserve your independence without burdening others.
The government’s health care will take care of me.
Medicare, conventional health insurance, and HMOs generally cover only skilled care. Most long term care is not skilled care, and only covers the first 100 days of skilled care in a nursing home. Disability income insurance does not cover Long Term Care services, and Medicaid has strict limitations which require you become impoverished in order to qualify.
I’ll just pay it myself.
The national average for one year’s stay in a private nursing home is over $110,000. Assisted living costs more than $80,000 and in-home care is over $150,000. Keep in mind these are just the averages. Factor in inflation and taxation to liquidate your assets to pay for the exorbitant Long Term Care costs and it won’t take long to burn through a life’s savings.
It won’t happen to me, besides I’m too young.
If you are a female age 65 or older you have an 80% chance of needing Long Term Care at some point in your life. Males have a 60% chance. But its not just for those 65 and older. In fact, 40% of those in nursing homes are under the age of 65.
I can’t afford long term care insurance and it’s a use it or lose it proposition.
You can transfer assets such as: brokerage accounts, CDs, annuities, IRAs and cash into a Leveraged Care Solution which can provide multiple times their value in Long Term Care protection. These Long Term Care leveraged assets will continue to grow in value and remain in the plus column of your balance sheet. Most importantly with Leverage Care Solution, should you dodge the LTC Bullet, you will leave either a life insurance benefit or an account balance to your beneficiaries.
One of the most recent heated political topics over the past few years has been Obama Care. The idea: No one should be without medical insurance. A little known section that was tucked away in Obama’s original health care law was the Community Living Assistance Services and Supports provision (CLASS). The idea: Uncle Sam would provide financial assistance to people who become functionally disabled and require long-term services and support if they pay monthly premiums into a government created LTC plan that would provide a stipend of $50 a day or more to help pay for LTC services.