Thank you for your very informative article, “Long-Term Care Insurance and Tax Planning” (Aug. 08, page 44). As a CPA/PFS, I believe that every financial adviser should help their clients make an informed decision regarding long-term care insurance, given the ever-escalating cost of long-term care. We have found time and time again that the main goal of our older clients is to ensure that they are never a burden on their family, especially a financial burden.
I would suggest involving the family members, and even if they choose not to purchase the coverage, at least they all made the decision with their eyes wide open. This can be an expensive purchase, especially if made later in life, but the cost of not transferring this risk may be more expensive, and likely one that may fall not only on the aging client, but also on the entire family.
Transferring this risk is why most people buy long-term care insurance, but there are other motivating factors for the least likely long-term care buyer: the ultra high-net-worth individual. These factors are wealth replacement and estate tax reduction. There is an increasing trend for the very wealthy, who can likely afford not only the coverage but also the best of care in their later years, to purchase long-term care policies. And many are purchasing policies with almost double the premium by adding the benefit of a return of premium rider. After all, the worst-case scenario is the opportunity cost on a relatively small amount of their funds.
And here’s the twist: Although they are the insured party, they are not the owners of the policies. Instead, the benefit and/or return of premium will be going to their children or a trust for their children’s or grandchildren’s benefit, outside of the aging client’s taxable estate! Yes, there are gift and income tax considerations, but this strategy is certainly worthy of exploration!
Susan J. Bruno, CPA/PFS