LGBT community needs long-term care

By MICHAEL GLASSMAN
Special to the Blade 

There is a huge need for long-term care insurance in the LGBT community simply because most members of the LGBT community do not have children to look after them in their older age. An article that appeared on Businesswire.com states:

“Having choices and protecting retirement assets and personal savings from long-term care costs should be important to everyone, however, it may be especially significant for the LGBT community. The reality is the LGBT community lacks the traditional support that married heterosexuals enjoy and as a result face a greater need for long-term care insurance.”

What unique considerations do gay and lesbian couples need to take into account when buying Long Term Care Insurance? Mainly, insurance companies have specific requirements for recognizing gay and lesbian partnerships. However, many blue-chip Long Term Care Insurance carriers offer the married, partner or spousal discount to gay and lesbian couples provided they have been in a committed relationship for at least one to three years (this varies from company to company). The married, partner, or spousal discount is significant with companies like Massachusetts Mutual Life Insurance Company (MassMutual) offering a 30 percent premium discount. Typically, discounts apply to each policy when both people meet the criteria for the covered partner discount. Generally, both partners must be approved and both must maintain coverage beyond the free look period. To be eligible for a covered partner discount, certain criteria must be met. Discounts are subject to state approval and may not be available in all states

You have likely seen the statistics that talk about the risk of needing long-term care as you age. And like most, you’ve told yourself “It will never happen to me.” You may very well be right. But what if you’re not? Rather than focus on the risk of an event happening to you, take a moment to consider the consequences that providing care over an extended period of years would have on the emotional, physical and financial well-being of those you have promised to take care of.

Many people believe that Medicare, Medicaid or the VA if they are veterans will pay for their care. These programs primarily cover medical procedures or rehabilitative care.

Long-term care requires custodial care. This is defined as the assistance or supervision that a person who is physically or cognitively impaired needs to get through the day. With few exceptions, no federal or state program will pay for custodial assistance over an extended period of years. Therefore, the family has to pay out of pocket.

No one can guarantee that you won’t need care. But you can create a plan that will protect your partner and family.

The plan should preserve your family’s emotional and physical well being by allowing them to hire professionals to provide care:

The plan should allow you to preserve your retirement portfolio.

Once this plan is in place, long-term care insurance can be an effective solution.

Implemented correctly it provides a stream of income that pays for professionals to help keep you at home and/or residential alternatives such as assisted living facilities or nursing homes.

This allows the following:

• Your family to supervise rather than provide your care, helping to protect their emotional and physical wellbeing.

• Your retirement income to keep funding your lifestyle, therefore allowing you to keep your financial promises

• Helps you preserve the financial viability of your surviving partner or children who may need an inheritance.

Long-term care describes the care you need if you become incapacitated, either physically or cognitively, due to a degenerative disease or incident such as Parkinson’s, stroke, diabetes, or Alzheimer’s.

These conditions severely compromise your ability to get through the most basic of daily routines. In reality, the need for long-term care is a safety issue that requires 24 hour a day attention.

Since you are no longer safe, those you love are forced to reorient their lives to make sure that you are. This change can have a devastating impact on their emotional and physical well-being.

There are unique tax advantages that long-term care insurance offers business owners and/or their employees.

If you have a C-Corp you have the following benefits:

• 100 percent of the premium is deductible as an ordinary business expense for all employees regardless of percentage of ownership. IRC 162(a).

• The company can also deduct 100 percent for the employee’s spouse (check with your CPA) and the couple’s tax dependants, whether or not they are considered employees. IRC 162(1),162(1)(2), 213(d)

• The premium is excluded from the employee’s income and therefore not subject to federal income tax withholding, social security, Medicare and federal unemployment taxes. IRC106(a), 105(b)

• The company is not subject to anti-discrimination rules; it can discriminate by class, offering long-term care to some employee classes but not to others. Treasury regulation 1.105-5, 1.106-1

If you have a Subchapter S-Corp:

• Your company can pay and deduct the actual long-term care premium IRC 162(a)

• The premium is considered income to the insured so a W-2 and 1120S is issued.  Revenue ruling 91-26

• The shareholder/insured includes the W-2 amount on the 1040 and pays self-employed taxes. He than can deduct the eligible premium and pays taxes on the balance. IRC 162(1), 213(s)(1)(D), 213(d)((10)

• The company is not subject to anti-discrimination rules; it can discriminate by class, offering long-term care to some employee classes but not to others. Treasury regulation 1.105-5, 1.106-1

If you have a Partnership:

• The partnership can pay the actual premium and deduct it as a normal business expense. A K-1 for the amount is issued to the partner who includes it on form 1040 for self employment taxation. IRC 162(a), 707(c)

After paying self-employment tax, the insured deducts the eligible premium based on age. The balance is subject to taxation. IRC731(a)(1)

Partnerships can discriminate by class, offering long-term car insurance to some employee classes but not to others because group long-term care insurance plans are not subject to nondiscrimination rules like other plans. Treasury regulation 1.105-5, 1.106-1

Self-Employed Individuals/Sole Proprietors:

• Your company can pay the long-term care insurance premium and fully deduct it. IRC 162(1)

• The actual premium is reported on your 1040 and subject to self employment tax. IRC 162(1)(2)(c), 213(d)

• After paying self employment tax you deduct the eligible premium based on your age; the balance, if any, is considered income.

You can deduct the premiums paid for employees from business income. IRC 162(a)(1)

The Sole Proprietor can discriminate by class offering long-term care insurance to some employee classes but not to others. Treasury Regulation 1.105-5, 1.106-1

Non-self employed individuals:

• The eligible premium is based on your age.

• You must file an itemized return and list the eligible premium as a medical expense.

• The first 7.5 percent of your adjusted gross income must be subtracted from the total medical expenses listed on your return. The balance, if any, is deducted from your gross income. IRC 213(d)(10)

• The eligible premium can be paid from a Health Saving Account or a Health Reimbursement Account without itemizing and without being reduced by the adjusted Gross Income exclusion. IRC 223(d)(2)(A), IRC Notice 2002-45 for HSA

Your employer can pay the actual premium for your long-term care insurance policy with pre-tax dollars and the premiums are excluded from are excluded from income. Benefits are also tax free.

The value of long-term care insurance

It is the ability to protect the emotional, physical and financial wellbeing of your family should you ever become frail and need care over a period of years.

It does so by providing a stream of income that pays for that assistance, allowing those you love to supervise rather than provide physical care—a great relief during a truly difficult time.

Talk to anyone who has had the experience with long-term care and he or she will tell you that providing direct care can be very emotionally and physically stressful.

Since care is now paid for, there is no need to reallocate your income, so it remains in place to pay for the financial commitments you have taken into retirement. Just as important, your investment portfolio remains intact allowing your tax plan to execute properly and preserves the estate for your surviving partner children or others.

(The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Special thanks to the Corporation for Long Term Care Certification CRN 201404-159476)