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

 2012 Federal Tax Deductibles Limits

Taxpayer’s Age at End of Tax Year

 40 or less                                            $ 335

Above 40 but no more than 50                                            $ 660

Above 50 but no more than 60                                            $ 1,310

Above 60 but no more than 70                                            $ 3,500

Above age 70                                                                    $ 4,370

 

• 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 (i.e. 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.

   Individual States may also have a deduction or credit for LTCi premiums.  Also consult with a professional tax advisor for tax questions about personal or your business deductions.

We do not provided legal or tax advice. Consult a qualified provider in these matters.

I hate the phrase “for the rest of your life”. It sounds so, un-forever. But that’s a fact. This venture on earth will eventually come to an end.

 So while we’re here we need money to sustain our daily lives. The amount required depends on our lifestyle and availability of funds, now and in the future.

 A common concern for retirement years is the possibility of running out of money. The concern may be not to have saved enough to start with, losses in market downturns or spending more of what we do have than can be maintained at a sustainable rate.

 If you have a pool of money to draw from what are some options to consider in order to stretch out your income?  If you’re in equity markets (stocks/bonds) what amount (annual percentage) could you possibly withdraw and expect to keep from running out of funds?

 One financial firm published a model using samples of how long money would last over a 30 year period based on simulated asset allocation success rates. Assuming an 80/20- stock/bond mix and a 6% withdrawal rate a year produced a 45% chance that a sum of money might last 30 years. A withdrawal rate of 4% increased the chances to 84%. *

 If you’re in your mid 60’s and looking at a possible age 90 life expectancy (and considering inflation, health care costs and other unexpected expenses), would an annual withdrawal rate of 4%  work for you (a rate that is recommended by many advisors)?

 One option is to have money invested in a product (or products) that would be designated to use for paying known fixed expenses such as a mortgage (rent), utilities, food, insurance, etc). Some advisors may suggest purchasing certain types of bonds with different maturity dates, a method called laddering.

 Another low risk plan is using a single premium (income) annuity which offers various income options including life time income for one or two lives.**  Considering your total financial situation and if annuity is suitable, the annuity income could be used for your fixed expenses leaving other funds available for equity products that may be recommended by your advisor.

 You can also use the ‘laddering” concept by purchasing income annuities at different times over a few years. The older you are, the better the income rates. A special federal income tax method also applies to (non-qualified) annuities.  If you (and a spouse for joint annuity income options) are unhealthy, income rates may even be better.

 So if out living your money is a concern, consider using an income annuity with a portion of your funds. You might even rest easier.

 *   T.Rowe Price Associates. Simulation results also assumed an annual inflation rate.

 ** Guaranteed income based on insurance company’s credit worthiness. Annuities

      are not FDIC insured. Other types of annuities may offer income rider options.

   You normally think of financial magazine articles picking their annual top 25 stocks, mutual funds or ETF’s, and what, where and how to use them in a diverse financial portfolio. Recently there have been more articles appearing on a certain type of annuity which could provide more stability for those people who are already receiving incomes.

   All types of annuities including deferred (fixed interest rates), Indexed, Variable and Variable Immediate annuities provide some type of income options. The subject of this article is Income (also know as Immediate) Annuities.

    Income annuities have been around since the late 1800’s.  In their simplest description, the insurance company is given a single premium and in turn, they pay out a specific monthly (or other payment mode) income. As people get older, many become less risk tolerant (compared to securities value changes) and may want an income they can count on.*

    A good place for using Income Annuities is for fixed expenses such as a mortgage, utilities, food, entertainment, or other known costs.  Some advisors may suggest putting 10%, 20% or more of assets in an Income Annuity. In any case proper planning and all considerations should be given before making any financial decisions.

    Laddering (sometimes used with Bond purchases) is buying an Income Annuity every couple of years.  This generally will provide increased incomes due to the persons increase in age which is factored into annuity pricing. In fact, if there is a history of serious health issues, some income options could actually increase the income payout.

    Once the income begins in most cases there is no cash value to get back while living. The income amount is normally fixed unless an inflation option is used which decreased the initial income.

     So how long does income last?  You can pick many options including Life Only (pays out the highest income), a specified number of years or for Life with a minimum number of years guaranteed for one or two combined annuitants on one policy.

    Taxation:  For non-qualified (non-pension source) money, a special tax exclusion is given to part of the income. This tax exclusion (ratio) continues until the total income received equals the original premium amount.  

   There is certainly a place for Income Annuities and if the ups and downs of asset values are intolerable, having the cushion of a known income may help someone sleep a little easier.*

 * Guaranteed income subject to credit and financial worthiness of issuing insurance company which is regulated by each State Insurance Commissioners office. Each State also has a special trust fund set up to provide funds for each policy up to a specific amount in case of a company’s default.

It depends on the purpose. Do you need coverage for a short term debt/obligation, income replacement for the family, cover college expenses, estate and inheritance taxes, charitable gifting, or funding for a business buy-sell agreement?

 A basic simple calculation for personal / family needs may be 10 to 20 times earnings. Keep in mind future salary increases and inflation. The following life insurance industry website is a  great source for help with these answers and a calculator to give you a better idea in your planning. It also includes a discussion and a calculator for Disability Income insurance as well as Long Term Care information.   http://www.lifehappens.org/life-insurance

   Guess what. You see that the DOW lost another 1000 points. Can you take the ride? What Top 25 Stocks or Mutual Fund picks in last years financial magazines are in their recent additions? Life Insurance can also be a very economical tool to proved guarantees that offset market losses, especial if a death occurs at the wrong time.

   And despite what some articles may say about cash value insurance, given time, “over funding” a Whole Life, Universal Life or Variable Life policy to supplement retirement income for a business –large or small- can also be a very effective financial plan by making tax favorable withdrawals and /or loans from the policy. This option can also be used to fund a Key Person insurance policy.

   If the need is there, look to life insurance as a cost effective way to provide the financial resources-and when they’re needed. You can then look at your options of what type of plan to use (Term or Permanent Insurance). Having a professional life insurance representative to assist in personal planning will give you a better picture and the ability to offer suggestions and solutions.

     The initial stress of being told that someone has cancer can for many people be devastating. The experience can either be negative or many remain positive about this life event. Either way, a lot of thoughts and feelings are going on during this time.  

      In the past, the opportunity to be considered for life insurance was either not an option or expensive if even available, or offered after a considerable length of time since remission.

   Today however, there are better chances of qualifying for life insurance for women and men with certain types of cancer. Even the possibility to issuing policies on a standard basis without additional premium surcharges may be offered and in some cases without a waiting period after treatment before applying for insurance.

    A few life insurance companies in recent years have improved their underwriting capabilities on certain types of breast and prostrate cancer.  

   For example, one company will consider a standard issue policy (subject to favorable medical history, lab – x-ray and other test results) on first time breast cancer patients for localized small (1 cm. or less Stage 1) tumors and with strong prognosis.

   Another company will do the same and offer insurance immediately after surgery but with a small extra charge for a few years, then standard premiums.  They will also consider preferred premium rates for women with noninvasive (Stage 0) cancer. And Stage 1 tumors larger than 1 cm. maybe offered after a one year waiting period with a temporary surcharge.  Other cancer situations may qualify for life insurance after a certain time has passed and then subject to favorable results.

   Prostate cancer history with men has also seen improved underwriting with another insurance company that may offer standard rates if age 70 and up, has been treated with radiation for moderate aggressive cancer, and  a PSA level of 0.5 or less after treatment.  For ages 60 and up, possible standard rates may be offered after surgically removed.  Any underwritng decisions may be affected if there is a history of other medical conditions.

   A recent study indicates in the next few years that women will own 60% of the wealth in the U.S.  Women however, fall short of life insurance coverage compared to men. The use for life insurance can:

1)      Replace income lost due to a family wage earners death. Many times that’s a working married mother or a single (stay-at-home) mom raising children. Maybe having money for college education is important.

2)      Replace caregiver costs of taking care, both physically and financially, for a parent.

3)   For a small business owner, the money available for succession plans to fund  

      business buy-sell agreements with other owners or partners and,  

4)      Any final expenses for funeral costs, uninsured expenses, cover taxes that may be

due, estate administrative costs, etc.

 

    So, with advances of more aggressive and favorable experiences in underwriting certain types of cancer’s, the opportunity by some companies to offer life insurance has opened the door where once closed, or were highly ratable, or at least postponed.  If the insurance need is there, then explore the possibilities.   It may be available where once it was not.

   A current life insurance policy that was issued with an extra rating for cancer and is five years or older may be worth checking into to see if a medical underwriting review is possible.

 

Cal DesVoigne

LifeStyle Financial Resources, LLC

Wilmington  NC    www.LifeStyleFinancialResources@gmail.com

 

 

We do not provide legal or tax advice. Consult your own legal or tax providers for assistance

Any insurance company offers are subject to actual medical history and underwriting results

While you’re alive, while you have a sound mind and in good health (or not) you, your spouse and family need to do the following planning.  Because if you don’t your plans and wishes may not materialize and ultimately someone else (including the courts) will make the decisions on your behalf, like it or not.

Last Will and Testament

    In simple terms, the document outlines your wishes including how you willingly want to dispose of your property, who it goes to plus other instructions you may have.

   There are a number of types of wills and although they are best set up through the help of legal council, simple will forms can be obtained on the internet or office supply stores. A hand written (holographic) will may also be recognized in many states.

   If you die without a will (intestate), the state will make the final decisions which may not even be closed to what you wanted.  Check your state’s Intestate Succession Law to see how property is really divided up. You may not like the results.

   Alternatives to wills may included life insurance polices (payable to a named beneficiary), property held in Joint Tenancy with Right of Survivorship, Tenancy in Common, IRA’s or Living Trusts.

Power of Attorney

   This document is for you to appoint someone (or an organization) to handle your affairs if you are unable to or unavailable. Both General and Special Power of Attorney appointments can be specified as to the purpose or use of the powers. Durable Power of Attorney gives durability provisions when the person is incompetent or incapacitated. The same person (agent) can also be named for the following appointment.

Health Care Power of Attorney

   The document allows you to designate someone (the agent) who has authority to make healthcare decisions for you if you become mentally or physically unable to.

Advance Directives (Living Will)

   This gives specific instructions to your “agent” and/or healthcare provider about the final wishes in handling end of life decisions. Most states adopt the Natural Death Act and have their own advanced directive forms that are available. The Federal Patient Self-Determination Act also covers the rights for end of life situations.

  Some other advanced directive forms such as Five Wishes published by the Aging with Dignity organization, expand on a persons final wishes. You should check your state to verify if certain advanced directives forms are approved or recognized as legal.

   Going through the process of completing these documents now (and /or trusts for more advanced situations), then keeping them up to date, can eliminate unnecessary guessing or decisions by those who care about you. If you haven’t done this, now’s a good time.

The Federal Government has expanded its drug expense assistance for low income seniors and the program could have a significant reduction or even eliminate drug costs.

Social Security administers the Extra Help program which subsidized Medicare Part D prescription premiums and assists with deductibles and co-insurance.

   The program is available if income for individuals is no more than $16,245 per year or $21,855 for married couples. One of the changes this year is that cash value life insurance is no longer counted as a resource.

    To review the specifics on this program, visit The Social Security website, http://www.ssa.gov/prescriptionhelp/.  An on-line application is also available on the same site: https://secure.ssa.gov/apps6z/i1020/main.html.

   If you have a family member or friend who can qualify and needs additional financial help with drug costs (and who doesn’t), the Extra Help program is certainly worth looking into.

 

   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.

Increased life expectancies have many reconsidering whether the fountain of youth is merely a legend.  For many families, longer life spans have allowed them to spend more time with loved ones, time that may not paint the picture imagined.

 As you can imagine, the financial cost and responsibility of caring for an aging parent are not the only demands family members must face.  Most of the concerns and hardships these caregivers deal with are ways to address the needs of their parents while making sure they still provide them with the necessities.  Eldercare creates a complex situation in which traditional roles of parent/child relationships are revealed.

You may already be in that position or soon looking at it of being part of the ‘sandwich generation’, providing support for your own children as well that of your parents. Physically as well as financially.

 The importance of communication

 Thoughtful dialogue on the subject of aging is imperative, yet difficult, especially if your parents’ health is fading.  Parents are likely to value any independence they have left and may feel uncomfortable about discussing their financial and legal matters with you.  In most cases, their initial discomfort is probably a defense mechanism, as they also struggle with accepting their own mortality.  The apprehension you may feel about initiating a conversation on aging is also a normal part of the emotional process. 

 Post-retirement financial planning

 Retirement distributions, the sale of a home or other property may leave your parents with more money than they know how to manage.  Not to mention more financial decisions.  Strategies to maintain purchasing power due to the effects of inflation, preparing for incapacity and minimizing taxes are all important in the post-retirement planning process.  Make sure that your parents receive adequate advice from a qualified financial advisor, estate planning / elder care attorney and CPA.  Ideally, your parent’s advisor should be able to provide them with the appropriate references for their situation. There are numerous re-sources available.

 Almost $80,000 and Counting

 That’s the national average annual cost for a private nursing home room according to the 2009 Metlife Mature Market Institute Survey. In Raleigh, NC for example, according to the survey it’s around $203 per day. An Assisted Living facility is $3,542 monthly, and Home Care aide is $17 per hour. If health is fairly good, a parent would generally prefer to stay at home, possibly theirs or yours. Either way the expense or personal time involved can be exhausting. Even with adequate financial funds being available, long term care insurance should be considered to help maintain and retain personal assets that can be used for other personal or family planning purposes.

 Talk to a financial advisor

 Financial Advisors are often the first to hear client concerns on a variety of issues.  Many advisors can provide you with resources to help you make the best decisions about eldercare, as well as other financial decisions that affect your family. There are a number of important issues to consider with these life events and having the right resources in the beginning can be very beneficial for everyone involved.

 Cal DesVoigne, is President of LifeStyle Financial Resources, LLC in Wilmington NC

http://caldesvoigne.wordpress.com/      Lifestylefinancialresources@gmail.com

 

 

 

Insurance Planning – Options to Consider

 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.

Cal DesVoigne   Lifestyle Financial Resources, LLC      Wilmington NC

lifestylefinancialresources@gmail.com