{"id":21026,"date":"2023-11-22T21:20:12","date_gmt":"2023-11-22T21:20:12","guid":{"rendered":"https:\/\/www.thinkadvisor.com\/2023\/11\/22\/does-it-make-sense-to-self-fund-long-term-care-expense\/"},"modified":"2023-11-22T21:20:12","modified_gmt":"2023-11-22T21:20:12","slug":"does-it-make-sense-to-self-fund-long-term-care-expense","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2023\/11\/22\/does-it-make-sense-to-self-fund-long-term-care-expense\/","title":{"rendered":"Does It Make Sense to Self-Fund Long-Term Care Expense?"},"content":{"rendered":"
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What You Need to Know<\/h3>\n
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  • Some people do enjoy paying extra taxes.<\/li>\n
  • Most do not.<\/li>\n
  • Thoughts about tax bills could affect long-term care planning strategy.<\/li>\n<\/ul>\n<\/div>\n

    Question 1:<\/strong> From a financial planning perspective, which is the better option: Buying a long-term care policy or self-funding that expense?<\/p>\n

    Question 2:<\/strong> When you gave that answer, did you consider the tax consequences for the cost basis, which is the original price paid for an investment?<\/p>\n

    Answer:<\/strong> Planning ahead by buying a long-term care policy means your client doesn\u2019t have to worry about which accounts to spend down and which to preserve, or about the capital gains implications.<\/p>\n

    Fritz Ehrsam, a financial advisor in Bel Air, Maryland, handles this issue by asking his clients to think about these questions:<\/p>\n

      \n
    • What are the tax consequences if you need to pull money out of your brokerage account to pay the thousands and thousands of dollars for a long-term care event?<\/li>\n
    • What happens to the taxation of your taxable investments as a result of the potential future step-up in basis?<\/li>\n<\/ul>\n

      If a long-term care policy is providing a stream of income, there should not be a need for forced investment liquidations to cover care expenses.<\/p>\n

      \u201cIf my clients can keep their money invested and not have to liquidate it to pay for their expenses, it means that long-term gains continue tax-deferred, with an opportunity for beneficiaries to receive a stepped-up cost basis,\u201d Fritz told me. \u201cAnd it may eliminate that capital gains tax.\u201d<\/p>\n

      This step-up in basis can effectively make gains during the original owner\u2019s lifetime tax-free for heirs.<\/p>\n

      Consider these situations:<\/p>\n

      Scenario 1:<\/strong> Joe, now age 85, has $1 million invested in the stock market.<\/p>\n

      Joe needs long-term care now. He did not buy a long-term care insurance policy when he was younger. His care expenses are now $100,000 a year.<\/p>\n

      To pay for this, Joe needs to liquidate some stocks.<\/p>\n

      By selling the stocks at this time, he\u2019s facing a significant potential capital gains tax.<\/p>\n

      The question to ask is: When Joe was younger, and he could have bought long-term care insurance, would he have really preferred to give the government up to 25% or 30% of the proceeds from the stock sales?<\/p>\n

      Scenario 2:<\/strong> Joe has $1 million in an IRA.<\/p>\n","protected":false},"excerpt":{"rendered":"

      What You Need to Know Some people do enjoy paying extra taxes. Most do not. Thoughts about tax bills could affect long-term care planning strategy. Question 1: From a financial planning perspective, which is...<\/p>\n","protected":false},"author":1,"featured_media":21027,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[1],"jetpack_featured_media_url":"https:\/\/blog.lifeinsurance-orleans.ca\/wp-content\/uploads\/2023\/11\/does-it-make-sense-to-self-fund-long-term-care-expense.jpg","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/21026"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=21026"}],"version-history":[{"count":0,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/21026\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media\/21027"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=21026"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=21026"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=21026"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}