As part of a comprehensive elder law plan, we often recommend various courses of action to our clients. In certain instances, we may instruct clients to make direct gifts of their assets to their children. Our planning may entail the transfer of a deed or the purchase of a life estate in a child’s home.
Oftentimes, we propose that a client transfer his or her home and liquid assets to a Medicaid irrevocable trust. Provided the client is in good health and feels that he/she is capable of waiting five years before requiring long-term nursing home care, an irrevocable trust is an excellent vehicle through which an individual can safeguard his assets while continuing to receive the income from those assets.
The common thread that is inherent in much of our planning is the fact that there is now a five-year look-back for Medicaid nursing home benefits. In light of this lengthy period, individuals should strongly consider purchasing long-term care insurance to protect their assets during this period-of-time. The most auspicious time to invest in a policy is when one is in good health and young. Although “young” is a relative term, once individuals reach their mid seventies, premiums tend to go up considerably. In addition, once a person becomes ill, it is much harder or even impossible to obtain long-term care insurance.
Congress gave us an incentive to purchase long-term health care insurance. In certain instances, the premiums are deductible as a medical expense, thereby reducing the policy’s actual cost to the policyholder.
The Internal Revenue Service recently announced the 2007 rules regarding the deductibility of long-term care insurance premiums. A premium is the sum of money paid by the policyholder (insured individual) to the insurance company to keep the policy in force. Such premiums are deductible to the extent that the premiums are for “qualified” long-term care policies, and that they, along with other allowed medical expenses, exceed 7.5 percent of the individual’s adjusted gross income.
Long-term care insurance premiums are decutible for the taxpayer, his or her spouse, or other dependents. A “qualified” policy is a policy procured after January 1, 1997 that adheres to regulations of Insurance Commissioners. Such regulations include offering the comsumer the options of inflation and non-forteiture protection.
There is, however, a limitation on how large a premium can be deducted by a policyholder. Such limitation depends on the age of the taxpayer at the end of the year. For an individual who is 40 years of age or less, the maximum deduction for 2007 is $290; for an individual who is over 40 but not more than 50, the maximum deduction is $550; for an individual who is over 50 but not more than 60, the maximum deduction is $1,110; for an individual who is over 60 but not more than 70, the maximum deduction is $2,950; and for an individual who is older than 70, the maximum deduction is $3,680.
In addition, New York State now gives its residents a 20 percent tax credit for the purchase of long-term care insurance. This is very significant as this is a credit and not merely a deduction. As a tax credit, this amount comes off the top of any New York State taxes that are owed. For example, if your long-term insurance premium is $5,000, you will pay $1,000 less in New York State taxes in that taxable year (20% of $5,000).
If an individual is contemplating the purchase of a long-term health care policy, it is important to know that there are a myriad of products available and each policy has numerous themes and variations. Accordingly, it is imperative to seek the guidance of an insurance agent who specializes in long-term care insurance. In addition, the policy should be reviewed by an elder law attorney to ensure that it fits withing the individual’s overall estate and elder law plan.
Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts and wills. The firm has offices in Forest Hills, Great Neck, and Brooklyn, NY. Mr. Fatoullah has been named a “fellow” of the National Academy of Elder Law Attorneys and is a former member of its Board of Directors. He also serves on the Executive Committee of the Elder Law Section of the New York State Bar Association. Mr. Fatoullah has been Certified as an Elder Law Attorney by the National Elder Law Foundation. Mr. Fatoullah currently chairs the Legal Committee of the Alzheimer’s Association, LI Chapter and is a co-founder of Senior Umbrella Network of Queens. This article was written with the assistance of Debby Rosenfeld, Esq., a senior staff attorney at the firm. The firm can be reached by calling 718-261-1700 or 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES.
* Certified as an Elder Law Attorney by the National Elder Law Foundation.
