The aging demographics of the United States coupled with the Pension and Recovery Act of 2006 (the “PPA”) and the Deficit Reduction Act of 2007 (“DRA”) have provided an excellent planning opportunity to create efficient vehicles from the ground up. fiscal point of view to solve client planning problems. needs. Beginning January 1, 2010, a tax-free planning option will be available to individuals who wish to provide long-term care using an existing life insurance or annuity contract purchased after 1996. new (dating back to 1997), the 2010 tax-free planning opportunity may be beneficial to an individual with a higher than necessary life insurance policy death benefit, unaffordable monthly or annual premiums, a deferred annuity contract overdue or underperforming, or a desire to incorporate long-term care into your estate plan.

Under the provisions of the PPA, annuity funds may be withdrawn completely tax-free on a FIFO (first in, first out) basis for long-term care benefits (as amended by Section 72(e) of the Code). Internal Revenue). The PPA also includes a “1035 exchange” option that allows penalty-free, tax-free withdrawal of the full value of the annuity for qualified long-term care expenses. However, no income tax deduction will be permitted for any payment made of the cash surrender value of a life insurance contract or the cash value of an annuity contract for coverage under a care insurance contract. qualified long-term (Section 213(a) of the Code).

This benefit is enhanced by the modification of the Medicaid “look-back” period from thirty-two (32) months to sixty (60) months for transferred assets, and the authority for all states to adopt “health care insurance plans.” long-term partnership”. under the DR. Qualified partnership plans allow an insured to “exclude an amount of assets equal to the value of benefits vested in a partnership long-term care policy from qualifying Medicaid.”

Transcendence:

The benefits of converting an existing annuity or life insurance contract include (i) no surrender fee will be applied to account withdrawals for qualified spending; (ii) withdrawals for qualified long-term care expenses will be classified as a reduction of the tax-free base; (iii) a spouse may be added to a policy for care purposes; (iv) ten (10%) percent of free withdrawal provision for withdrawals from non-long-term contracts; (v) the possibility of purchasing an optional lifetime provision with guaranteed premiums; and (vi) the cash from the annuity will continue to be available if the long-term care portion of the policy is never used. However, the conversion will also result in (i) the beginning of a new surrender charge period for the contract; (ii) medical underwriting (at a time when people’s health may be getting worse); (iii) health care benefits that are limited in scope and a specific number of years; and (iv) the cost of the long-term care rider that reduces the tax-deferred income stream of the annuity. In addition, the typical policy will contain a two-year waiting period from the time the annuity is purchased before benefits can be activated and a 90-day “elimination period” once a claim is filed.

Conclution:

A hybrid policy of this nature should not be used as a substitute for comprehensive long-term care insurance. It is recommended that these policies are only used when a person cannot afford or is not interested in comprehensive long-term care insurance.