Author Archives: Reeve Conover

Life Insurance Products with Long Term Care Riders

Are they worthwhile alternatives to traditional LTC policies?

 

Provided by Reeve Conover

 

The price of long-term care insurance has really gone up. If you are a baby boomer and you have kept your eye on it for a few years, chances are you have noticed this. Last year, the American Association for Long-Term Care Insurance (AALTCI) noted that married 60-year-olds would pay between $2,000-3,500 annually in premiums for a standalone LTC policy.1

 

Changing demographics and low interest rates have prompted major insurers to stop offering LTC coverage. As the AALTCI notes, the number of LTC policies sold in this country fell from 750,000 in 2000 to 105,000 in 2015. Not all insurers offer these policies. The demand for the coverage remains, however – and in response, insurance providers have introduced new options.1,2

 

Hybrid LTC products have emerged. Some insurers offer “cash rich” permanent life insurance policies that let you tap part of the death benefit to pay for long-term care. Other insurance products feature similar potential benefits.1,2

 

As these insurance products are doing “double duty” (i.e., one policy or product offering the potential for two kinds of coverage), their premiums are costlier than that of a standalone LTC policy. On the other hand, you can get what you want from one insurance product rather than having to pay for two.3

 

Another nice perk offered by these hybrid LTC products: sometimes, insurers guarantee that the premiums you pay will never rise. (Many retirees wish that were the case with their traditional LTC policies.) Whether the premiums are locked in at the initial level or not, the death benefit, coverage amount, and cash value are all, commonly, guaranteed.3

 

Hybrid LTC policies provide a death benefit, a percentage of which will go to your heirs. Do traditional LTC policies offer a death benefit? No. If you buy a discrete LTC policy, but die without needing long-term care, all those LTC policy premiums you paid will not return to you.3

 

The basics of securing LTC coverage applies to these policies. The earlier in life you arrange the coverage, the lower the premiums will likely be. If you are not healthy enough to qualify for a standalone LTC insurance policy, you might qualify for a hybrid policy – sometimes no medical exam is required. The LTC insurance benefit may be used when a doctor certifies that the policyholder is unable to perform two or more of the six activities of daily living (eating, dressing, bathing, transferring in and out of bed, toileting, and maintaining continence).4,5

 

Lump sums are no longer needed to fund many of these hybrid LTC policies. In the past, insurers would commonly require a single premium payment of $75,000-$100,000. No more. Most insurance companies let you fund these policies with monthly, quarterly, or annual premiums. When a lump sum is necessary, it may not be a major hurdle for a high net worth individual or couple, especially since appreciated assets from other life insurance products can be transferred into a hybrid product through a 1035 exchange.2,3,6

 

Are these hybrid policies just mediocre compromises? They have critics as well as fans. Detractors cite their two sets of fees, per their two forms of insurance coverage. They also point out that hybrid LTC policies are not inflation protected, so the insurance benefit is worth less with the passage of time. Also, while the premiums paid on conventional LTC policies are tax deductible, premiums paid on these hybrid policies are not.3

 

Funding the whole policy up front with a single premium payment has both an upside and a downside. You will not contend with potential premium increases over time, as owners of stock LTC policies often do; on the other hand, the return on the insurance product may be locked into today’s low interest rates.

 

Another reality is that many middle-class seniors have little or no need to buy a life insurance policy. Their heirs will not face inheritance taxes because their estates will not exceed the federal estate tax exemption. Moreover, their children may be adults and financially stable, themselves. A large death benefit for these heirs is nice, but the opportunity cost of paying the life insurance premiums may be significant.

 

Cash value life insurance can be a crucial element in estate planning for those with large or complex estates, however – and if some of its death benefit can be directed toward long-term care for the policyholder, it may prove even more useful than commonly assumed.

Reeve Conover may be reached at 843-800-8190 or reeve@reevewillknow.com

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – investmentnews.com/article/20160721/FREE/160729979/long-term-care-insurance-market-sees-rapid-decline [7/21/16]

2 – nytimes.com/2016/03/06/business/retirementspecial/hybrid-long-term-care-policies-provide-cash-and-leave-some-behind.html [3/6/16]

3 – today.com/series/starttoday/have-healthy-retirement-jean-chatzky-how-pay-long-term-care-t106862 [1/10/17]

4 – elderlawanswers.com/hybrid-policies-allow-you-to-have-your-long-term-care-insurance-cake-and-eat-it-too-15541# [4/5/16]

5 – elderlawanswers.com/activities-of-daily-living-measure-the-need-for-long-term-care-assistance-15395 [11/24/15]

6 – kiplinger.com/article/insurance/T036-C001-S003-tax-friendly-ways-to-pay-for-long-term-care-insura.html [8/16/16]

 

 

Why Life Insurance Will Always Matter in Estate Planning

With or without the estate tax, it addresses several key priorities.

 Provided by Reeve Conover

 Every few years, predictions emerge that the estate tax will sunset. Even if it does, that will not remove the need for life insurance in estate planning. Why? The reasons are numerous.

You can use life insurance proceeds to equalize inheritances. If sizable, illiquid assets make it difficult to leave the same amount of wealth to each heir, then the cash from a life insurance death benefit may financially compensate.

You can plan for a life insurance payout to replace assets gifted to charity. You often see this move in the planning of charitable remainder trusts (CRTs).

People use CRTs to accomplish three objectives. One, they can remove an asset from their taxable estate by placing it into the CRT. Two, they can derive a retirement income stream from the trust’s invested assets. Three, upon their death, they can donate a percentage of the assets left in the CRT to charities or non-profit organizations.1

When a CRT is fashioned, an irrevocable life insurance trust (ILIT) is often created to complement it. The life insurance trust can be funded with income from the invested assets in the CRT and tax savings realized at the CRT’s creation. (The trustor can take an immediate charitable income tax deduction in the year that an appreciated asset is transferred into the CRT.) Basically, the value of the life insurance death benefit makes up for the loss of the CRT assets bound for charity.1

Life insurance can help business owners with succession. It can fund buy-sell agreements to help facilitate a transfer of ownership, regardless of how an owner or co-owner leaves a company. It can also insure key employees – the policy can help the business attract and retain first-rate managers and creatives, and its death benefit could help lessen financial hardship if the employee unexpectedly passes away.2

Life insurance products can also figure into executive benefits. Indeed, corporate-owned life insurance is integral to supplemental executive retirement plans (SERPs), the varieties of which include bonus plans and non-qualified deferred compensation arrangements.3

Lastly, a life insurance policy death benefit transfers quickly to a beneficiary. The funds are paid out within weeks, even days. A beneficiary form directs the process, rather than a will – so the asset distribution occurs apart from the public scrutiny of probate. Life insurance is also a backbone of trust planning, and assets held inside a trust can be distributed directly to heirs by a trustee according to trust terms, privately and away from predators and creditors.4

Reeve Conover may be reached at 843-800-8190 or reeve@reevewillknow.com

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – estateplanning.com/Understanding-Charitable-Remainder-Trusts/ [3/28/16]

2 – quotacy.com/protecting-the-future-of-your-business/ [8/17/16]

3 – nationwide.com/supplemental-executive-retirement.jsp [11/9/17]

4 – forbes.com/sites/markeghrari/2017/05/30/pass-on-your-assets-wisely-how-to-choose-the-right-beneficiaries/ [5/30/17]

 

First Employer Play or Pay Mandate Penalty Letter Received

From Savoy Benefits 11/17/17-

A client has received Letter 226J from the IRS. This is the first client we have heard from that has been assessed and issued an employer mandate penalty. The proposed penalty is over $200,000. This employer has approximately 140 employees and offers coverage to all full-time employees and dependents using the federal poverty level (FPL) safe harbor.
 
Why Did the Employer Receive a Letter? 
On the employer’s Form 1094-C filed for 2015, the employer left Part III, Column (a) blank. This specific question asks whether they offered coverage to at least 70% of full-time employees and children (Penalty A). 
 
Since the question was left unanswered, the response defaulted to “No.” Additionally, they did not complete the form with transition relief, so they are receiving the 30-employee reduction rather than the greater 80-employee reduction. Four employees received a premium tax credit, which triggered the penalty.
 
The employer will appeal the penalty. In addition to proving that they offered minimum value, affordable coverage to the four employees who received a subsidy, they will also have to prove that they offered coverage to at least 70% of employees to avoid Penalty A.  
 
For more information, click HERE for our detailed release on the IRS procedures for the assessment and payment of the Employer Shared Responsibility / Play or Pay Mandate penalties.

IRS Announces Procedures for the Assessment and Payment of Excise Taxes Under the Employer Shared Responsibility Mandate

From Savoy Benefits  11/9/2017 :

 

Basics of the Employer Shared Responsibility / Play or Pay Mandate
Starting in 2015, employers with at least 50 full-time including equivalent employees, on average, in the preceding calendar year, are subject to the Employer Shared Responsibility provision of the Affordable Care Act (ACA). All union, part-time, variable hour and seasonal employees are counted to determine the 50 threshold as well as are any affiliated companies as determined by IRC 414 (b), (c), (m) or (o). Such an employer is known as an Applicable Large Employer (ALE).

If an ALE does not offer at least Minimum Essential Coverage (MEC) or does not offer affordable minimum value coverage to their full-time employees and their dependents to age 26, the employer may be subject to a tax assessment if at least one full-time employee receives a premium tax credit from an exchange marketplace. Individuals are eligible for a subsidy if their household income is up to 400% of the Federal Poverty Level, they are not eligible for Medicare or Medicaid, and are not enrolled in the employer’s health plan.

Employers who have been counting on the IRS not to enforce the employer shared responsibility payments must be aware that the IRS issued new FAQs on November 2nd outlining upcoming issuance of penalty demand letters in QA 55-58. The IRS FAQs can be found HERE.
 
QA 55 – How does an employer know that it owes an employer shared responsibility payment?
According to QA 55, the IRS plans to issue Letter 226J to affected ALEs. The letter will include:

  • A summary table itemizing each month an employer may be liable for a payment
  • A response form, Form 14764, “ESRP Response”
  • Form 14765 which will list by month an ALE’s assessable full-time employees
  • A description of actions the ALE employer should take to dispute the letter’s findings

Letter 226J will include a due date for the employer’s response. It will generally be 30 days from the date of the letter. If an employer does not respond or does not respond timely, the IRS will issue a notice and demand for payment, Notice CP 220J.

The IRS states that Letter 226J for calendar year 2015 will be issued in “late 2017.” Click HERE for further details on understanding Letter 226J.

QA 56 – Does an employer who receives a Letter 226J proposing an employer shared responsibility payment have an opportunity to respond to the IRS about the proposed payment, including requesting a pre-assessment conference with the IRS Office of Appeals?

Yes. ALEs will have an opportunity to respond to Letter 226J before any employer shared responsibility liability is assessed and notice and demand for payment is made. Letter 226J will provide instructions for how the ALE should respond in writing, either agreeing with the proposed employer shared responsibility payment or disagreeing with part or all or the proposed amount.
 
If the ALE responds to Letter 226J, the IRS will acknowledge the ALE’s response to Letter 226J with an appropriate version of Letter 227 (a series of five different letters that, in general, acknowledge the ALE’s response to Letter 226J and describe further actions the ALE may need to take). 

If the ALE does not respond to either Letter 226J or Letter 227, the IRS will assess the amount of the proposed employer shared responsibility payment and issue a notice and demand for payment, Notice CP 220J. The IRS allows a 30-day period to respond.

QA 57 – How does an employer make an employer shared responsibility payment?
If, after correspondence with the IRS or a conference with the IRS Office of Appeals, it is determined that an ALE is liable for an employer shared responsibility payment, they will issue a notice and demand for payment, Notice CP 220J. Notice CP 220J will include a summary of the payment. For payment options, such as entering into an installment agreement, refer to Publication 594, The IRS Collection Process. The general steps from billing to collection are outlined below:

  1. If you owe taxes, we will send you a bill. This is your first bill for tax due. Based on your return, we will calculate how much tax you owe, plus any interest and penalties.
  2. If you don’t pay your first bill, we will send you at least one more bill. Remember, interest and penalties continue to accrue until you’ve paid your full amount due.
  3. If you still don’t pay after you receive your final bill, we will begin collection actions. Collection actions can range from applying your subsequent tax year refunds to tax due (until paid in full) to seizing your property and assets.

QA 58 – When does the IRS plan to begin notifying employers of potential employer shared responsibility payments?
For the 2015 calendar year, the IRS plans to issue Letter 226J informing ALEs of their potential liability in late 2017.

This means that notices will be issued within the next 7 weeks.

Would your 401k plan survive the suit against Nordstrom?

The suit, which also names the Nordstrom 401(k) Plan Retirement Committee as being in breach of its fiduciary duty, says that while most large retirement plans have been whittling away at plan and administrative fees, Nordstrom’s “administrative fees increased by 30% from 2011 to 2016,” according to the complaint.

Nordstrom “failed to adequately and prudently manage the plan,” the complaint alleges. “It allowed unreasonable fees to be incurred by participants; it did not act prudently to lower costs; it failed to use lower cost investment vehicles; and it made inadequate disclosures on fees.”

Its a shame that, in this day and age, any employer would be in this position, as our clients understand-  it is easy to protect on this issue.  The question that will arise is can Nordstroms committee show documentation that the fees were “reasonable and necessary” for running the plan the emploiyer desired.  you don’t have to have the lowest fees, nut you do have to be conscious of them and document the decisions you make.

 

 

Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA.
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