MKA Executive Planners Blog

Why Long-Term Care Coverage is Important: Many people believe that medical insurance policies and Medicare or Medicaid will pay for long-term care expenses.  Medicare does pay limited benefits for rehabilitation and recovery at a skilled nursing facility immediately following a stay at a hospital.  However, it does not pay for the more common situation where health declines slowly over time resulting in the need for assistance with daily living activities, without a preceding stay at a hospital.  Most Medical insurance policies do not pay for custodial long-term care expenses.  Medicaid assistance is not based upon a need for "custodial care" which supports activities of daily living like dressing, bathing, and using the bathroom.  Eligibility for Medicaid assistance is based upon financial criteria.  The basic rule for MassHealth long-term care eligibility is that the applicant, whether single or married, can have only $2,000 in countable assets in their name.  If the applicant is married and the spouse plans to continue in the community, the spouse is allowed to keep a maximum of $109,560 in their name. If an applicant applies to MassHealth with more assets than this, they will be required to spend down those assets to the applicable limit, usually on healthcare costs.

My prior article Investment Concerns With Taxable Trusts, addressed the new tax landscape for taxable trusts.  Subsequent to that article, on January 28, 2013 the IRS published Rev. Proc. 2013-15, the updated income tax rates for 2013.  The change resulted in a small increase in the tax brackets and an increase in the top marginal tax rate for trusts from 35% to 39.6%.  The following is an updated comparison of individual and trust tax rates.

The primary factor that makes life insurance a potential retirement savings option is the tax favored status afforded life insurance.  With proper policy design, the buildup of cash value in the policy is not subject to taxation, and most policy distributions are not subject to tax provided the policy remains in force until death.  The taxation of life insurance, when properly designed and monitored, is much like that of a Roth IRA.  Banks have utilized cash value life insurance for years to enhance their after tax rate of return.

Feeling confused?  You’re not the only one.  Between the income and payroll tax increases in Obamacare and the fiscal cliff parachute, it is hard to tell what is happening - even if you have a program identifying the players.

Generally speaking, if a trust earns income (dividends, interest, rent, capital gain, etc.) either the trust or some other person is required to pay income tax.  The taxpayer will be either the trust or the grantor, during his or her lifetime.  Although the capital gain rate is the same for individuals and trusts, the income tax brackets for trusts are quite compressed; with the top tax bracket kicking in after taxable income reaches $11,500.  The focus of this article is trust income, exclusive of capital gains (Ordinary Trust Income).

Not too many people realize what a powerful asset protection vehicle life insurance is.  Most people do not understand that the investment inside a life insurance policy grows income tax free and may be accessed at any time with the condition only that the policy does not lapse.  In addition, the investment options (usually a wide variety of mutual funds) are extremely broad, and may be self-directed by the policy owner.  When we think of estate tax benefits we are usually trying to maximize the death benefits.  When we use life insurance as an asset protection strategy, the primary focus should be to maximum cash value accumulation.  This means the smallest death benefit possible so that the maximum investment return on cash value is achieved.

For 2012, the federal exemption from all three transfer taxes is $5,120,000 ($10,240,000 for married couples).  The gift and estate tax exemptions are each scheduled to revert to $1,000,000, and the generation skipping transfer tax exemption (GST) is scheduled to revert to $1,390,000 on January 1, 2013.  No one really expects a complete reversion, but it is highly unlikely that that all three types of transfer taxes will be sustained at the current, historically high, levels.  Here are a few reasons why a great deal of wealth will be transferred between January 1 and December 31, 2012, in variety of ways.