Wednesday, May 22, 2013

Long Term Care vs. Retirement Income

With Americans living longer than ever before and remaining active at ages that were unthinkable a generation or two ago, the need to plan for old age and retirement becomes increasingly important. And an important part of this is planning for health needs. The US Department of Health and Human Services estimates that 70% of people of the age of 65 or older will need some form of longer term care during their lives. This care could be for a few weeks, a few months or could be permanent.

The cost of this kind of care can be greater than most people realize. For example a private room in a nursing home can cost $205 per day or over $74,000 per year. A home health aide will cost $25 per hour. These are major expenses and when they arise can throw financial planning for retirement out of gear, leading to severe financial hardships. In many cases, assets that have been set aside for retirement need to be compromised. There are today insurance policies that can protect you from these contingencies and because of the money back guarantee and income tax free death benefit that they offer, should be treated as a saving cum insurance tool that does not require cash outflow with no chance of monetary return.

This type of insurance policy is a universal life insurance policy with long term care benefits incorporated into it. Here’s how it works:

If There Are Long Term Care Costs: In many cases the policy can provide you with up to 5 times the dollars needed to reimburse long term care costs. The specified death benefit amount is used to cover long term care costs up to the monthly maximum as lain down in the policy. There is also an option or a rider to provide for coverage beyond the depletion of the death benefit.

If Long Term Care Costs Do Not Arise: If you do not require long term care the full death benefit amount remains intact. If only a part of the death benefit amount has been used to meet long term care costs, the balance remains available as death benefit. The entire available death benefit amount will go to your beneficiaries free of income tax and will not be subject to probate if anyone besides your estate is named as the beneficiary.

The Option to Change Your Mind: A Return of Premium Rider is available on both single premium as well as certain flexible premium policies. If you should decide to discontinue the policy, the premiums paid by you till that time will be returned to you, less any loans, withdrawals or benefits paid. The terms of the Return of Premium Rider will govern the terms of the refund.

Here’s an example of how this type of policy could benefit you. Suppose you have set aside $300,000 of you retirement portfolio to cover possible long term care costs. If you move $100,000 into a single premium policy, you could get up to $80,000 plus per years for 6 years to cover long term care costs. That totals to $480,000 or nearly 500% of the premium amount. If there are no long term care expenses, your beneficiaries could receive over $150,000 as tax free death benefit. In case some part of the death benefit is used for long term care costs, the remaining portion will go to your beneficiaries’ tax free. The exact amount to benefit available will vary from case to case. And if you should change your mind about the policy, you can request for return of premium, less any benefits paid, loans or withdrawals.

An insurance policy to protect you from long term care costs can give you all the protection you need while freeing up a significant part of your portfolio for use where greater returns may be expected.

Friday, May 17, 2013

How Forgiving is the Tax and Law for Gay Couples?

The ongoing debate and legal cases regarding gay marriage are likely to continue for a long time, and the acrimony may increase. While both sides have their points of view to put across, what is often missed in the passion the issue ignites is the issue of taxation and the law for gay couples.

Whether you are for or against the freedom to live an alternative lifestyle is not the issue. The issue is one of equality under law. The question to be asked is why should a heterosexual married couple, a heterosexual unmarried couple, a LGBT couple a single person, gay or straight, be treated differently under the law and for the purpose of taxation?

As an example, married couples often get free group health benefits for their spouses and children. No one else does. Why is there this differentiation? Why does 1 year of marriage confer more benefits than 10 years of a committed but unmarried relationship? Would it not be fairer to either give this benefit to everyone or to take it away from married couples so that everyone is treated equally? If a married heterosexual dies, the spouse gets everything including tax free social security. No other relative has any claim, unless otherwise provided for in the deceased person’s will. There is nothing wrong with this, but why is it limited to only married couples?

The situation in regard to unmarried couples who have not gone through the formality of marriage or LGBT couple is very different. There is not protection for the surviving partner under the law or tax codes. The duration of any relationship is of no consequence. There is no social security, estate taxes must be paid and the relatives of the deceased have a greater claim on the assets than the surviving partner. Not only does this frequently lead to ugly disputes and court cases, it is ignores the wishes of the deceased.

A large number of people, of all sexual orientations, never make a will, create a trust or prepare medical directives. They either keep postponing the matter just do not think about it. In the case of those in relationships outside the traditional legal marriage structure, this can mean a failure to provide for the continued well-being of the surviving partner. These people do not plan to fail, the fail to plan.

And even the estate available for bequeathing is subject to greater taxation than in the case of a legally recognized married couple. The question here is not one of personal beliefs on the subject of gay and unmarried couples. The matter is one of equality for all under the law and in matter of taxation. The matter of gay marriage is one that will, it is hoped, be finally resolved to everyone’s satisfaction and that the varying moral, ethical, religious and legal points of view are all accommodated. But let us not forget the need for ensuring that, whatever the outcome of the gay marriage issues, that everyone is treated as being equal under the law. Why should a couple in a strong committed relationship of 20 years be treated differently from a couple that has gone through 5 legal marriages and divorces in the same period? Until the legal issues are resolved, it is important for all couples, of all kinds, to protect themselves from legal and tax problems by ensuring that they have taken care of the required legal formalities.

While married couples are protected by laws and tax codes, they should still have their wills, trusts and medical directive drawn up to make life easier for the survivor. In the case of unmarried or LGBT couples, this is even more important because of the lack of legal and tax protection that is available to them. Talking to a reputed insurance broker is a good place to start.