May 3, 2023
No matter how diligently you prepare, your estate plan can quickly be derailed if you or a loved one requires long-term home health care or an extended stay at an assisted living facility or nursing home. Long-term care (LTC) expenses aren’t covered by traditional health insurance policies or Medicare. So it’s important to have a plan to finance these costs, either by setting aside some of your savings or purchasing insurance. Let’s take a closer look at three options.
1) LTC insurance
An LTC insurance policy supplements your traditional health insurance by covering services that assist you or a loved one with one or more activities of daily living (ADLs). Generally, ADLs include eating, bathing, dressing, toileting, transferring (getting in and out of a bed or chair) and maintaining continence.
LTC coverage is relatively expensive, but it may be possible to reduce the cost by purchasing a tax-qualified policy. Generally, benefits paid in accordance with an LTC policy are tax-free. To qualify, a policy must:
- Be guaranteed renewable and noncancelable regardless of health,
- Not delay coverage of pre-existing conditions more than six months,
- Not condition eligibility on prior hospitalization,
- Not exclude coverage based on a diagnosis of Alzheimer’s disease, dementia, or similar conditions or illnesses, and
- Require a physician’s certification that you’re either unable to perform at least two of six ADLs or you have a severe cognitive impairment and that this condition has lasted or is expected to last at least 90 days.
It’s important to weigh the pros and cons of tax-qualified policies. The primary advantage is the premium tax deduction. But keep in mind that medical expenses are deductible only if you itemize and only to the extent they exceed 7.5% of your adjusted gross income (AGI), so some people may not have enough medical expenses to benefit from this advantage. It’s also important to weigh any potential tax benefits against the advantages of nonqualified policies, which may have less stringent eligibility requirements.
2) Hybrid insurance
Also known as “asset-based” policies, hybrid policies combine LTC benefits with whole life insurance or annuity benefits. These policies have advantages over standalone LTC policies.
For example, their health-based underwriting requirements typically are less stringent and their premiums are usually guaranteed — that is, they won’t increase over time. Most important, LTC benefits, which are tax-free, are funded from the death benefit or annuity value. So, if you never need to use the LTC benefits, those amounts are preserved for your beneficiaries.
3) Employer-provided plans
Employer-provided group LTC insurance plans offer significant advantages over individual policies, including discounted premiums and “guaranteed issue” coverage, which covers eligible employees (and, in some cases, their spouse and dependents) regardless of their health status. Group plans aren’t subject to nondiscrimination rules, so a business can offer employer-paid coverage to a select group of employees.
Employer plans also offer tax advantages. Generally, C corporations that pay LTC premiums for employees can deduct the entire amount as a business expense, even if it exceeds the deduction limit for individuals. And premium payments are excluded from employees’ wages for income and payroll tax purposes.
Think long term
Given the potential magnitude of LTC expenses, the earlier you begin planning, the better. We can help you review your options and analyze the relative benefits and risks.
May 3, 2023
Attorney Keith Meacham was today’s guest speaker at the Greenville Estate Planning Study Group luncheon, which was held at the Poinsett Club.
June 8, 2021
September 11, 2020
Do you own a business with one or more individuals? Undoubtedly, your interest in the business represents a substantial part of your net worth and is likely your “pride and joy.” So it’s normal if your fondest wish is for the business to continue long after you’re gone or for you to keep it running if a co-owner or partner dies.
However, if adequate provisions aren’t made, the business may flounder if a leadership void isn’t filled. Or bitter family disputes may tear the organization apart. In the end, a “distress sale” may leave your heirs with substantially less than the company’s current value.
Fortunately, disastrous results may be avoided if you have a buy-sell agreement drafted during your lifetime. The agreement can dictate how the business is sold, to whom and for how much. Life insurance policies are often used to fund the transaction.
Buy-sell agreements in a nutshell
A buy-sell agreement may be used for virtually every type of business entity, including C corporations, S corporations, partnerships and limited liability companies. Typically, it applies to the shares of stock and any business real estate held by respective owners.
Although variations exist, the agreement essentially provides for the sale of a business interest to other owners or partners, the business entity itself, or a hybrid. Alternatively, the agreement may cover a sale to one or more long-time employees.
The agreement, which is typically signed by all affected parties, imposes restrictions on the future sale of the business or property. For instance, if you intend to leave a business interest to your children, you may provide for each child to sell or transfer his or her interest to another party or parties named in the agreement, such as grandchildren or other relatives.
Significantly, a buy-sell agreement often establishes a formula for determining the sale price of the business and its components. The formula may be based on financial statement figures, such as book value, adjusted book value, or the weighted average of historical earnings, or a combination of variables.
Understanding the benefits
Having a valid buy-sell agreement in writing removes much of the uncertainty that can happen when a business owner passes away. It provides a “ready, willing and able” buyer who’s arranged to purchase shares under the formula or at a fixed price. There’s no argument about what the business is worth among co-owners, partners or family members.
The buy-sell agreement addresses a host of problems about co-ownership of assets. For instance, if you have one partner who dies first, the partnership shares might pass to a family member who has a different vision for the future than you do.
Work with us to design a buy-sell agreement that helps preserve the value of your business for your family.