MKA Executive Planners Blog

There are a whole host of reasons why life insurance is acquired.  I think it is sufficient to note that “Americans purchased $2.9 trillion of new life insurance coverage in 2011, a .5 percent increase over 2010.  By the end of 2011, total life insurance coverage in the United States was $19.2 trillion, an increase of 4 percent from 2010.”[1]

So, you are a top executive at a large healthcare, not for profit or other form of business organization.  Because of the headline grabbers, most people think you are a fat cat, overpaid and sitting on top of the world.  That may be true for the few on the front page, but at a closer look is, quite often it is the other way around. 

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.

Money?  Pensions?  Supplemental Retirement Plans (an MKA commercial)?  Health?  Family?  Activities?  Purpose? 

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.

I don’t know or meet many executives working at human service, community service, healthcare or other not for profit organizations who work just 9:00 to 5:00 five days a week.  It’s more like 10-12 hour days, some nights, and don’t forget the weekends.  Yet, we see newspapers, television and more and more frequently government getting into the business of “gotcha” and complaining or trying to control compensation.

What has happened to retirement benefits?  Defined benefit plans have gone the way of the horse and buggy; 401(k) and 403(b) plans only do part of the job; traditional non-qualified plans are subject to employer insolvency, 409A design limitations and, in many cases, long term vesting or forfeiture provisions.  Cash is nice, but with the public hungry to focus on large salaries and Boards feeling governmental, regulatory and public pressure, what is one to do?

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.

A high level executive at a Wall Street investment bank learned a tough lesson recently.  According to a published news report, he was at a New York City holiday party and left expecting to find his car and driver at the curb.  When it did not arrive, he hailed a cab for the 40 mile ride to his Connecticut home.