For many today, estate taxes are not a major concern. Under current law, a single individual can pass $5 million estate tax free. While a married couple can pass $10 million free of estate taxes.
The potential problem lies in the fact that these current limits are set to expire in January 2013. Without further Congressional intervention, the estate tax limits will reduce to $1 million for a single individual and $ 2 million for a couple at that time.
It is likely that Congress will prevent the limits reducing to these lower levels, but with a projected $1.5 trillion federal budget deficit expected in 2011 and the national debt growing, it is debatable whether the estate tax will remain at the current high levels.
Regardless of the debate about future estate tax limits, you can’t dispute the fact that long term healthcare costs are rising.
As you age, your chance of requiring long term healthcare goes up significantly. So, why not consider a “dual purpose” strategy that can provide additional tax free income if you need special care and also moves funds out of your taxable estate (just in case you have an estate tas problem in the future)?
You can gift $13,000 ($26,000 for a married couple) every year to as many people as you want with no gift tax. As an example, you could make that gift to your daughter who would then purchase a long term healthcare insurance policy with a “return of premium at death” option on you.
The gifts would continue, and she would pay the annual premiums each year. When you die, your daughter will receive the premiums paid minus any benefits you may have used. And since you are not the policy owner, the death benefit will not be included in your taxable estate.
Suppose you want the same type of protection for your middle-aged child?
Long term healthcare insurance premiums paid directly to an insurance company for a policy owned by a third party are treated as health insurance premiums. And health insurance premiums paid for a third party are considered a tax-free transfer.
Therefore they are not regarded as a gift, they do not count towards the $13,000 annual gift exclusion, and the policy owners do not have to treat the premiums paid as income. And if you include the return of premium at death rider, the money could eventually pass to your child’s heirs.
We can show you how a long term healthcare insurance plan can potentially provide for your needs, ensure sufficient income for your spouse, and preserve assets for your beneficiaries.
Please feel free to contact our office for more information and a complimentary quote.
About Eli Mitcham
Husband and proud Dad. I also help investors preserve their capital and protect their retirement against recessions and market crashes (but who really cares about that?)