The Internal Revenue Service has issued the 2015 long-term care insurance premium deductibility limits.

Long-term care insurance is becoming more and more vital to getting quality long-term care for ourselves and our loved ones when it is needed most. Having the increased income tax deduction will make it easier for people to afford long-term care insurance. You should factor the availability of the deduction into your calculation whether long-term care insurance is the right choice for you and/or your loved ones. Generally, my advice to our clients is that long-term care insurance is ALWAYS a good idea provided that you can afford it. Now, with the increased deduction limits, and the fact that you can treat premiums paid for long-term care insurance for yourself, your spouse or any tax dependents (such as your parents) as a personal medical expense, long-term care insurance just became a much more worthwhile option for many of our clients.

Personal medical expenses, reported as itemized deductions on your individual income tax return, are deductible to the extent that they exceed 7.5% of your Adjusted Gross Income (AGI). The portion of the long-term care insurance premium that is allowed as a medical expense in 2015 (and the change from 2014) is shown in the table below.

Attained Age Before Close of Taxable Year

2014

2015

40 or below

$370

$380

Above 40 but not older than 50

$700

$710

Above 50 but not older than 60

$1,400

$1,430

Above 60 but not older than 70

$3,720

$3,800

Older than 70

$4,660

$4,750

To fit within the increased deduction limits, the long-term care insurance policy must be a “qualified” policy. A “qualified” policy, issued on or after January 1, 1997, satisfies certain requirements within the policy details. For example, policies that offer optional provisions for “inflation” and “nonforfeiture” protections are qualified policies. Policies purchased before January 1, 1997 are grandfathered into the new deduction limits, and will be treated as “qualified,” provided that they policies have been approved by the insurance commissioner of the state in which they are sold.

Taxation of Benefits: Benefits from reimbursement policies – policies that pay for the actual services a beneficiary uses – are not included in taxable income. Benefits from indemnity policies – policies that pay a predetermined amount each day, or otherwise called “per diem policies” – are likewise excluded from taxable income, except to the extent that the per diem amount received exceeds the beneficiary’s total qualified long-term care expenses per day. The per-diem limitation for periodic payments received under a qualified long-term care insurance contract for 2015 remains at $330 (the 2014 limit was also $330).

Planning Tips:  Long-term care insurance may be expensive, but there are things you can do to minimize the cost. For example, some long-term care insurance companies offer a “shared care” policy where husband and wife can share the benefit pool under one long-term care insurance policy. With a shared care policy, the pool of benefits is split between you and your spouse. This is especially helpful when there is a difference in ages between the spouses.

The most significant way to reduce the cost of long-term care insurance is think about how long you will need the policy. First, unless you have a family history that includes specific, long-term illnesses, the typical insured under a long-term care insurance plan is not likely to need coverage for more than five or six years. Second, when combined with a viable Medicaid plan, long-term care insurance is only required for a five- or six-year period. By limiting coverage to approximate a five- or six-year period, you can save thousands of dollars in premiums.

Medicaid Planning: A long-term care insurance policy is typically combined with a legal and ethical Medicaid plan to provide full and complete long-term care for you and/or your loved ones. Everyone is entitled to Medicaid-funded long-term care; eligibility for the government benefit is a different question. Eligibility for benefits depends on both a medical qualification and financial qualification.  The Law Offices of Jeffrey A. Asher, PLLC, will assist you with the financial eligibility question and get you and/or your loved ones Medicaid benefits when appropriate.

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About Jeffrey A. Asher

Jeffrey A. Asher is admitted to practice in NY and CT. Mr. Asher is a member of the New York State Bar Association, where he serves on the Executive Committee of the Elder Law and Special Needs Section, the Executive Committee of the Trusts and Estates Law Section, is co-chair of the Legislation Committee of the NYSBA Elder Law and Special Needs Section, is co-chair of the Committee on Elderly and Disabled of the NYSBA Trusts and Estates Law Section, and is Chair of the Elder Law Section of the New York County Lawyers’ Association. Mr. Asher recently appeared in the HBO Documentary “Bobby Fischer Against the World: Fight for the Fischer Estate.” Mr. Asher also is a legal commentator on Trusts and Estates and Elder Law matters for Court TV, TruTV, and CNN Headline News.

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