Your State and Federal governments want you to seriously consider
the purchase of long-term care (LTC) insurance. Sometimes they will even pay
you to do it. Currently, 26 states offer some sort of tax incentive to purchasers
of LTC insurance. It may be a one-time tax credit for first-time purchasers
or an annual tax deduction.
One of the best examples of a tax incentive is offered by the state of Maryland:
up to a $500 tax credit is available for first-time purchasers of LTCi. This
first-year-only credit is available to the purchaser and his or her spouse
and can also apply to policies bought for dependents.
At the Federal level, bipartisan support has spawned several pieces of legislation
that may still make it through the 108th Congress. Unfortunately, the above-the-line
tax deduction for LTC insurance premiums has lost steam because of the negative
impact Hurricane Katrina expenses have had on the budget. However, legislation
to allow partnership plans to expand beyond the original four states and to
take away negative taxation issues around LTC insurance combination products
and 1035 exchanges still have the possibility of passing.
How to Qualify for Your State’s LTC Insurance Tax
Advantage for 2005
Your tax credit or deduction will only apply to premiums paid in 2005. If
you do not yet own a policy, you must submit an application before the end
of 2005, with a deposit equal to at least what your state will allow as a tax
credit or deduction, to establish your policy effective date as being in 2005.
Then, even if your application is not approved until 2006, you will be eligible
for the 2005 tax advantage.
State and Federal Governments Cannot Pay LTC Bill for Boomers
Long-term care is not an entitlement program like Medicare or Social Security,
and the Medicaid system is already sorely strained by the expense of long-term
care needs. Alarmingly, this drain on the Federal coffers is reducing state
monies available to provide such vital programs as education, transportation
and homeland security.
The federal government last year launched an LTC Awareness Campaign pilot
project to make citizens aware of the need for individuals to plan for their
own long-term care needs. Phase One – in Virginia, New Jersey, Arkansas,
Idaho and Nevada – was a success. This will allow Phase Two (for which
Maryland has applied to participate) to be implemented during the first quarter
of 2006. The foundation of the Awareness Campaign is a letter sent by each
governor to every resident in their state between the ages of 50 and 70. Again,
the message is that everyone should have a plan for themselves and for those
for whom they would be responsible in case long-term care is needed. The Medicaid
program was intended to be a safety net for the poor, and the State/Federal
systems may not be able to meet the projected LTC needs of baby boomers.
Reaching Age 100 is No Longer an Exclusive Club
On October 24, 2005, USA Today reported that there are currently
73,000 persons living in the United States age 100 or older; by 2015, that
number is projected to grow to 115,000. Growing old can be a blessing, but
not if it will be a financial or emotional burden to your loved loves. Planning
now can allow affordable alternatives to paying for long-term care or forcing
your family to piece together a hurried plan because you ignored this critically
important area of your planning.
Not Too Late to Save on LTC Insurance in 2005
There is still time to thoughtfully explore LTC planning in 2005. Insurance
may or may not be the right planning tool for you in this area. Because LTC
premiums are based on age and health status, not putting off until 2006 that
which is better for you to address today is recommendable.
This article should not be used as a basis for legal and/or tax advice. In
any specific case, the parties involved should seek the guidance and advice
of their own legal and tax counsel.
Sally H. Leimbach, CLU, CEBS, CLTC, is a Long-Term Care Insurance Specialist
with FranklinMorris, Coordinating Broker for the Bar Associations Insurance
Agency, Inc. For more information on insurance benefits available to MSBA
members, visit www.msba.org/departments/membership/baia/.