Long Term Care Income Tax

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This is the Truth Network. Welcome to Finishing Well brought to you by cardinalguide.com with certified financial planner Hans Scheil, best-selling author and financial planner helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now let's get started with Finishing Well. Well, welcome to Finishing Well with certified financial planner Hans Scheil and today's show, how fun, long-term care income tax, or hopefully the lack of long-term care income tax as the case may be.

We hope you'll see the way that you can save. But, you know, I was thinking, Hans, about, you know, what this looks like biblically, and I couldn't help but think of Peter going to Jesus saying, you know, we've got to pay the temple tax here. And the temple tax is sort of a religious thing, you know, and Peter being the good Jewish boy that he was, you know, wanting to make sure he got his, you know, tithe in.

What does that look like, right? And so Jesus says to Peter, Peter, you know, do you think the king's son, you know, when they go to levy taxes out there, do you think the king's son has to pay any tax or no? And Peter goes, oh no, the king's son doesn't.

And then he goes, well, just so that, you know, nobody raises it, you know, and I are at us, go, and he tells them how to catch the fish. But what I want to talk about is how amazing is it what Jesus told him before that? And I don't know if you've ever taken it to heart that what Jesus is saying is, hey, Peter, you know who your daddy is?

Like our father who art in heaven, like he's like the big king, okay? When it comes to the temple, let me just make it clear, right? The law has been fulfilled through Jesus Christ, okay? You are now a son of God. And so there is no tax, so to speak, for you to go to church.

There is no tie that's absolutely required in any way, shape, or form. It's like God's not mad at you because you're the son of the king, okay? He's not sitting there figuring out whether you went before tax or after tax or however you did it, okay?

It's just not part of the equation, okay? The equation is you're a son. And because you're a son, you have all these resources that God gives you so that you can steward him to build the kingdom. In other words, the son would probably give way more than 10% because he wants to build that. But maybe at times he thinks he needs to work on this project over here with the income that he has, you know, that he knows God's building the kingdom over here because the son is not under obligation of the temple tax. The son is under the obligation of man.

I'm getting to build my dad's kingdom, and how fun is this? And God loves a cheerful giver, not somebody who feels like I have to, right? So if you think in any way, shape, or form, you know, Jesus gave us his passage to set us free to be sons, okay? And in that way, interestingly, the government is really, in my opinion, Hans, really helped us out in this particular situation when it comes to long-term care to make this a better thing for families, period. Yeah, and so what we're talking today about is long-term care insurance and how does it relate to the income tax code that comes from the IRS and the tax writers.

And income taxes and the postponement of them, the levying of them, the paying of them affects just about everything we sell and everything that we utilize, all the tools we utilize to put together a retirement plan. And long-term care insurance is no different. And as soon as we start talking about long-term care insurance, income tax, the first thing that people think, man, can I deduct the premium? So can we get this premium, get the policy started, and can I write it off my taxes? And the answer to that is, of course, maybe. Of course, maybe.

Maybe you can, maybe you can't. Okay, so long-term care insurance premiums, as long as theirs are from a tax-qualified long-term care insurance policy or a linked benefit long-term care life insurance policy, as long as it's tax-qualified, they qualify for a deduction. Now, there aren't really any non-tax-qualified long-term care policies on the market that I know of today, and I certainly don't sell for them.

So I'm just kind of taking you around in a circle that's maybe. So if you, first of all, anybody can write it off, but in order to write it off a long-term care insurance premium, you're going to first need to itemize deductions. And ever since the Tax Cuts and Jobs Act that started in 2018, most people take the standard deduction now. So no, you can't write it off if you're taking the standard deduction. But if you are itemizing deductions or you had a large amount of medical expenses, when I say a large amount, more than 7.5% of your adjusted gross income, well, yes, you could write it off. So you could include this in your other medical expenses and your health insurance premiums.

And if those exceeded 7.5% of AGI and then you had enough money that it benefited you to take the deduction instead of the standard deduction. So just all that gobbledygook I've just been throwing at you, most people don't write off their long-term care insurance premiums. Now, an exception to that would be if you own a company and you're still working, somebody like me, okay, and I own an insurance agency and a financial planning firm, or I work in there, somebody like Tom that's a principal that works in the business, we could structure a way to buy long-term care insurance, pay for it through the business, and write the premiums off. So if you work for a company where they very much want you to work there, and they're into executive benefits, and we could together talk them into buying you a policy, there's a way to even discriminate within that is you can just carve out certain people and cover them. So there's a lot of flexibility when it's paid for through a business.

So I don't want to just rule it out, anybody that wants to hear more about that, you can just get in touch with me, it's very easy to set up. But I want to talk about the real thing, and now that I got your attention about income tax and tax deductibility or not paying income tax on certain things when it comes to long-term care insurance, the real benefit to this is that if the benefits were you when you collect on the policy, when you're in the nursing home, when you're in the assisted living, when you're receiving home health care, the real benefit is you don't have to pay tax on that money, these policies are paying five, six, seven, eight grand a month to you, that's $100,000 a year, and they're coming all tax-free to you. Right, because holy mackerel, what would that would do to your income, right?

Especially somebody was just on Social Security and all of a sudden here comes $100,000, you know, to put you in a crazy tax bracket, that's the scary thing. So I mean, some people may just take, they've always taken that for granted, but it's not something to be taken for granted is we only market tax qualified long-term care policies. So if you buy one from us, you're not going to have to pay taxes on the benefits. Okay, so go ahead and take it for granted, but I want to go a little deeper besides the benefit of you're going to receive these tax-free benefits from your long-term care policy, it goes deeper than that.

Because in the video, the YouTube video that we made and the show notes, I can actually print the tax law that says all this stuff I've been droning on about it. You don't really need to go there and read the tax law, that's not the point, but I wanted to just show you in the show notes where the actual tax law of rule 7702b that legitimizes long-term care from the IRS standpoint has the same wording almost exact as there are in these long-term care policies. So it's the IRS saying if you want this policy to be a tax qualified, the insurance company, if you want your policy that you're selling to have tax-free benefits, then what you need to do is you need to put all these provisions in there. And the provisions are very consumer friendly, such as in order to qualify for benefits, you need substantial assistance with two of the six activities of daily living.

So what that means is if you want to file a claim on this policy, if you want to bring somebody out to your house through a home health care agency to provide services to you, you need to be able to prove to the insurance company that you need help with at least two of six and those are eating, toileting, transferring, bathing, dressing, incontinence. That's written right into the tax code, those six things and the fact that you need substantial assistance with two of the six. So that's the government saying if that's not in there and you're not meeting those, then the actual policy, it's not tax-free.

The benefit is not tax-free. So consequently, the insurance companies had to put all this almost identical language into their policy. So it really works for the benefit of the consumer.

Yeah. And the way that it works like you talk about is, is it's kind of really awesome in that the government is going to ensure that the insurance companies provide something that is actually quantitative, right? Or that if you do need help with two of those activities, you really do need long-term care. And when you really do need long-term care, you really do need your policy to pay off. And that's way more important than whether or not somebody were going to pay tax on it, but because the government's going to ensure that this happens in order to be tax qualified, right? And insurance, obviously the insurance companies are going to do what they said they were going to do and they have to pay. A lot of consumers dismiss long-term care before they ever get to this kind of detail. And it's fine with me if you take for granted that obviously you're buying an insurance policy. It's going to kick out 60 to 100 grand a year, something like that, and benefits for several years. It's pretty safe to assume that now after I collect that, pay my nursing home bill, pay my assisted living bill, pay my home health care bill, what do you think the government's going to come in and ask me for a bunch of taxes? I mean, assuming that is okay, I'm just trying to walk you through how it works really in the tax code and how there's a benefit of making these things tax qualified.

It actually has a consumer benefit to protect you that the insurance company has to put language that's favorable to you in the past. Yeah, and we've got a whole lot more to talk about. And as we told you about it, this show is really helpful to me because this is such a critical aspect of taking care of my family, right?

That I experienced this in my life just firsthand with my mother-in-law actually in the last few days of what it means to have a family member under your care and the stress of all that on the rest of your family. This is a huge thing for family. So when we get back, I hope you'll listen carefully to these wonderful options that could really help your family. So this show is always brought to you by Cardinal Guide, cardinalguide.com, where you're going to find out how to get in touch with Hans and his book, The Complete Cardinal Guide to Planning for and Living in Retirement. It's all there at cardinalguide.com.

So we come back a lot more on long-term care income tax. Investment Advisory Services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Welcome back to Finishing Well, a certified financial planner, Hans Scheil. And today's show is long-term care income tax.

And that sounds a little dry at the beginning, but believe me, there's all sorts of good stuff inside here, right? Because Hans, this is something that really, really, really impacts family. And I know it's really been at one of the core things of your heart is this concept of more families having this protection for their family, because it really, it benefits the kids and the heirs and all that a lot more than the person that's getting the care. Well, sure. And there's, you know, in the first part of the show, we talked about, number one, is it possible to deduct tax deduction, the premiums that you pay for long-term care?

And the answer to that is yes, it's possible. Many people don't. And we went over that on the first part of the show. But the real benefit of the IRS ruling on this stuff many years ago in creating what they call the tax-qualified long-term care policy is they told the insurance companies, look, if you want these things to be tax-qualified and have tax-free long-term care benefits when they're paying out the thousands and thousands of dollars a month and $100,000 a year, and they're paying that out for several years, if you want that to be tax-free, this is the language you need to have in your policy. And on the video, I showed people what that language is.

It's Rule 7702B in the IRS law. And so what does this mean to you or what does this mean to me as the consumer? Well, the detail of it, not much. But what I want to share is that there's language now in the modern long-term care policy or the modern hybrid life long-term care policy that is consumer favorable. And one of those things, it says that you need to prove to the insurance company if you're filing a claim that you need human assistance, substantial assistance, with two of the six activities of daily living, which are eating, toileting, transferring, bathing, dressing, and continence.

And my suggestion, I help a lot of people with claims, people that I've sold the insurance to, people that are doing financial planning with me and their parents are in the situation, people that come to me for financial planning for the parents, and now I'm dealing with the adult kids and I'm helping them file a claim on a policy that's been enforced. The two ones that I focus on are bathing and dressing. I mean, the other ones are more difficult to prove, but if a person needs long-term care, they're going to need help taking a bath. They're going to need substantial assistance taking a bath. They're also going to need substantial assistance getting dressed, picking out their clothes, laying them out. Putting on their socks. Let me just tell you that that is something that having done a lot of care now, yeah, they can't put on their socks.

It's hard to reach down like that and whatever, and so there you go. People with, my mother used to come out with, my mother liked colorful and bright things, you know. I mean, she just always, she liked hats.

I mean, she's just fairly stylish in that respect, and when she had dementia, she would come out with the craziest things on. And so we, you know, somebody had to go there and not only help her get the stuff on, but early on, maybe they didn't have to, but they needed to at least pick it out and just take a good look at her before she went out in public. So anyhow, bathing and dressing are, you know, what we're going to say the easiest things to document. And so a lot of people, I'm going to leave the other four alone in many cases, because it's just simple and it's cut and dried, bathing and dressing.

We meet the two of the six and call it a day, send in the claim. Sometimes you can give them too much information and you can get the doctor to give too much information. Now, in this definition of the qualification for care, it's an either or thing because you either need help with two of the six activities of daily living, or you have substantial cognitive impairment, where it's a threat to your safety and wellbeing to be left alone. So that was my case with my mother. It wasn't until the end she needed help with the two of the six activities of daily living, but she needed continuous supervision and direction because of her cognitive impairment for years. So that's where a lot of the claims come in on long-term care policies.

And it is written just the way I've been speaking in the tax code for a tax qualified long-term care policy. But that the fascinating thing about that, you know, because I know your story was in your mom's case, right? After your dad would never buy that policy and your dad was an insurance agent, you know, but fascinatingly that when he was gone immediately, your first thing was, mom, we're getting you a long-term and boy, oh boy, oh boy. I mean, you lived the benefit of that decision early on, right?

Well, we did. And my sister was objecting. I mean, she just was, no, you're not buying that. And she had heard all the things, you know, this is, I don't know, it's over 20 years ago, but, and so what I did, I said, well, I'm going to pay for it myself because I, you know, I just, this is, because I knew that if my mom needed care, I was going to be coughing up the money just out of my own resources. So I was buying it as well to protect me.

So I just paid for it. And then my mom later picked up the premium after we kind of got her at bay. And then the same sister who's now deceased, she, she was trying to collect off the thing for my mom's care because she was a nurse.

And so, I mean, it gets kind of weird when you get people, it's a real emotional decision making, and I don't want to take that away. I'm the rational financial planner along with the emotional son or the emotional, I mean, you got all that stuff mixed together. This just makes good business sense to get long-term care insurance. And what I have personally is I have a hybrid life long-term care policy. And that all applies in this because the life insurance benefit, if my wife and I don't use our long-term care, we just use it a little bit, there's going to be a substantial life insurance benefit payment that's going to go to our kids when the second one of us dies. And that's going to be tax free too, under the same 7702B. So it's really where the IRS is ruling on the legitimacy for tax purposes of these insurance policies.

Yeah, and that's a huge issue. And again, that's the consumer benefit is to know that the IRS is right here in the middle of this warding within these policies, to help us to make sure that these things, you know, do what they're supposed to do. But what they're supposed to do is a huge benefit to us. Well, it's just to create a payment to create money, when it otherwise would cause hardship on the family, I don't care how wealthy you are, long term care shows up, it's a problem, where are we going to get the money from, even if you have vast investments and resources, this is you buy this stuff for your family. And we have also indemnity policies that we can sell. And we sell a lot of those to the very well to do, because they don't have to, you don't have to send in receipts for the care, they just, they just pay you a monthly amount, like 10 grand a month, you get the checks, you spend it how you see fit. Yeah.

And this is what this looks like. Personally, I mean, I've seen it here in the last few weeks, because unfortunately, you know, my mother in law went under the care of hospice, right. And prior to that, my wife was the one giving her the care because she didn't have a long term care policy. And all of a sudden, but boy, I mean, you know, here comes somebody to help her bathe, here comes somebody to help her do this, because hospice is paying all this now.

And oh my goodness, what it has done for my family to have this additional care at this point in time, if we'd have had that for the last four years, oh, my goodness, I, you know, it's almost hard to describe the pressure that is put on my family over the last, you know, three years, although we're glad to do it as my mother in law, but man, you know, how nice would it be to know your kids didn't have that pressure? Oh, yeah. Absolutely. Something that people need to consider very seriously. And if you come into me for financial planning, retirement planning, I'm going to look through all your resources. And if if you can't afford it, then I'm going to tell you that. And I'm going to come up with another alternative. But if you if you can afford it, I'm going to show you how. And then I'm going to make a recommendation that you put some of your resources toward this. And, you know, I'm basically going to put in the notes that I showed it to you, because just to protect myself. And so I'm just telling you, you call me, you're going to get this stuff quoted to you, because it's part of finishing well, right?

It is the whole idea of the show is we want everybody to see that man. Yeah, we all want to go in our sleep in the middle of the night, you know, it's one fell swoop and nothing, you know, that may be what we want. But the statistics bear out that, that this is something that has happened time and time again, it happened with my both my parents and the one parent that lives Tammy's parent. I mean, we all face this in every single case.

You know, and so what, you know, here comes a decision that's coming our way. And, and here because of the advantages, you can see the government. If the government got involved in this, right, Hans, they had they see this is something that legitimately is a really good thing for, you know, families in general.

Yeah, I have it myself. I recommend it to people, we can use qualified money, we can use IRA money, and distributed within the policy over a period of years. We have traditional long term care insurance, we have short term care, recovery care, which had tends to have lower premiums and a little easier qualification. So we have a very vast array of solutions for long term care. And I, it really doesn't matter how old you are.

I mean, people in the 70s buy this stuff all the time. Well, again, it was in just great show, Hans, thank you so much for what you're doing. And we want to remind you that this show is brought to you by CardinalGuide.com. At CardinalGuide.com, there's going to be a seven worries tabs. And then those seven worries tabs, one of those is going to be long term care. And if you go to the long term care tab, you're going to see show notes and all the podcasts and the videos and all sorts of resources along these lines.

If you want to see the tax codes and all this stuff, it's all there in the show notes of the video that they did right along the same lines of long term care income tax. But also for, you know, ease of use, you know, it's easy to get up with Hans right there or Tom, and just contact them to get you know, because you don't want a cookie cutter approach to this kind of thing when it comes to your family. You know, they want to get in there and help you with what you need. And it's right there at CardinalGuide.com. Thanks. Yeah, and we're in 50 states in the District of Columbia. We work by zoom with a lot of people.

We got offices in Charlotte, Greensboro, and Durham. So where we can meet you face to face. All right. Thank you, Hans. God bless.

God bless you. The opinions expressed by Hans Shile and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.

Any statements or opinions are subject to change without notice. Investments involve risk, and unless otherwise stated are not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.

Finishing Whale is designed to provide accurate and authoritative information with regard to the subject covered. Investment Advisory Services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Whale, brought to you by CardinalGuide.com. Visit CardinalGuide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Hans' best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement and The Workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to CardinalGuide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Whale radio show on the website and send us a word. Once again, that's CardinalGuide.com. CardinalGuide.com. This is the Truth Network.