Few things can derail your estate plan as quickly as unanticipated long-term care (LTC) expenses. Most people will need some form of LTC — such as a nursing home or assisted living facility stay — at some point in their lives. And the cost of this care is steep. According to a 2021 survey by Genworth, the national median cost of a private room in a nursing home is about $9,000 per month. For assisted living facilities, the median cost for a one-month stay is about $4,500, while home health aides cost more than $5,000 per month.

Contrary to popular belief, LTC expenses generally aren’t covered by traditional health insurance policies, Social Security or Medicare. So, to help ensure that LTC expenses don’t deplete savings or other assets meant to go to your heirs, have a plan for funding them. Here are some of your options.

Self-Funding

If your nest egg is large enough, it may be possible to pay for LTC expenses out-of-pocket as (or if) they’re incurred. An advantage of this approach is that you’ll avoid the high cost of LTC insurance premiums. In addition, if you’re fortunate enough to avoid the need for LTC, you’ll enjoy a savings windfall that you can use for yourself or your family. The risk, of course, is that your LTC expenses will be significantly larger than anticipated, eroding the funds available to your heirs.

Any type of asset or investment can be used to self-fund LTC expenses, including savings accounts, pension or other retirement funds, stocks, bonds, mutual funds, or annuities. Another option is to tap the equity in your home by selling it, taking out a home equity loan or line of credit, or obtaining a reverse mortgage.

Two vehicles that are particularly effective for funding LTC expenses are Roth IRAs and Health Savings Accounts (HSAs). Roth IRAs aren’t subject to minimum distribution requirements, so you can let the funds grow tax-free until they’re needed. And an HSA, coupled with a high-deductible health insurance plan, allows you to invest pretax dollars that can be withdrawn tax-free to pay for qualified unreimbursed medical expenses, including LTC. Unused funds may be carried over from year to year, making an HSA a powerful savings vehicle.

LTC insurance

LTC insurance policies — which are expensive — cover LTC services that traditional health insurance policies typically don’t cover. Determining when to purchase such a policy can be a challenge. The younger you are, the lower the premiums, but you’ll be paying for insurance coverage during a time that you’re not likely to need it.

Although the right time for you depends on your health, family medical history and other factors, many people purchase these policies in their early to mid-60s. Keep in mind that once you reach your mid-70s, LTC coverage may no longer be available to you.

In evaluating LTC insurance, be sure to find out whether your employer offers a less costly group LTC policy. Also, consider whether tax benefits are available to offset some of the cost. (See “Tax benefits for long-term care” at X.)

Hybrid insurance

Hybrid policies combine LTC coverage with traditional life insurance. Often, these take the form of a permanent life insurance policy with an LTC rider that provides for tax-free accelerated death benefits in the event of certain diagnoses or medical conditions.

These policies can have advantages over stand-alone LTC policies, such as less stringent underwriting requirements and guaranteed premiums that won’t increase over time. The downside, of course, is that to the extent you use the LTC benefits, the death benefit available to your heirs will be reduced.

Life insurance exchanges or settlements

If you have a permanent life insurance policy, it may be possible to do a tax-free exchange for a traditional or hybrid LTC policy. Alternatively, it may be possible to do a “life settlement,” in which you sell a permanent or term life insurance policy for its current value and use the proceeds to fund LTC expenses.

Weigh your options

There are several potential strategies for funding LTC expenses. Work with your professional advisor to review your financial and health circumstances, weigh your options, and develop a plan that meets your needs.

Sidebar: Tax benefits for long-term care

Covering long-term care (LTC) costs is expensive, whether you self-fund or purchase LTC insurance. Fortunately, there are tax benefits available that can help offset some of the expense. If you self-fund the cost of your LTC, your out-of-pocket expenses generally will be deductible as medical expenses, provided you itemize deductions on your tax return. Medical expenses are deductible to the extent that they exceed 7.5% of your adjusted gross income (AGI).

If you purchase LTC insurance, any benefits you receive will not be taxable. In addition, if the policy is “tax qualified,” you’ll be entitled to deduct a portion of your premiums. Currently, deduction limits range from $480 per year for taxpayers age 40 or younger and up to $5,960 per year if you’re over 70. A tax-qualified policy is one that’s guaranteed renewable and noncancelable regardless of health, doesn’t condition eligibility on prior hospitalization, doesn’t exclude coverage based on a diagnosis of Alzheimer’s disease or dementia, and meets certain other requirements.

Keep in mind that LTC premiums are treated as medical expenses, which are deductible only to the extent they total more than 7.5% of your AGI and only if you itemize. Also, be aware that tax-qualified policies may have higher premiums and stricter eligibility requirements than nonqualified policies, so weigh the advantages of tax deductibility against the potential disadvantages of a qualified policy.

© 2023

When planning for the disposition of your estate, it’s critical to understand what happens if a child or other beneficiary predeceases you. There’s no one right way to deal with this contingency, but to avoid unintended results your estate plan should spell out, with precise language, how your estate should be divided among loved ones.

If you use incorrect or vague language, you could unintentionally disinherit family members. For example, two common distribution methods are per capita, which means “by the head,” and per stirpes, which means “by the branch.” Let’s suppose that Zeke has three children — Abe, Betty and Carl — and that Abe has three children and Betty and Carl each have one child. If Zeke leaves his assets to his children per capita, then they will be divided equally among them. If Abe predeceases Zeke, then his assets will be divided equally between Betty and Carl, effectively disinheriting Abe’s three children. Had Zeke left his assets to his children per stirpes, then Abe’s children would have split Abe’s one-third share.

Another distribution method is by representation, under which all members of the same class or generation are treated equally. This method works similarly to per stirpes unless more than one child predeceases you.

Going back to the previous example, suppose that both Abe and Betty predecease Zeke. If his assets are distributed by representation, then Carl would receive one-third, while Abe and Betty’s children would split the remaining assets four ways. Under the per stirpes method, Carl would receive one-third, Betty’s child would receive one-third and Abe’s children would split the remaining third three ways.

If you have not recently reviewed your estate plan with a professional to assure the language governing the disposition of your estate matches your intent, the members of our firm would be happy to assist you.

If you’re reading this, you’ve likely put a great deal of time, effort and expense into designing and implementing an estate plan that meets your goals. But unless your loved ones know that these documents exist — and how to find and access them — your well-laid plans can be derailed. Following are some tips on how, and where, to store critical estate-planning documents.

Handle an original will with care

There’s a common misconception that a photocopy of your signed last will and testament is sufficient. In fact, when it comes time to implement your plan, your family and representatives will need a signed original will to accomplish that purpose. Additionally, if probate is required, the original document must be filed with the probate court.

What happens if your original will isn’t found? It doesn’t necessarily mean that your will won’t be given effect, but it can be a big — and costly — obstacle.

In many states, if your original will can’t be produced, there’s a presumption that you destroyed it with the intent to revoke it. Your family may be able to obtain a court order admitting a signed photocopy, especially if all interested parties agree that it reflects your wishes, but this can be a costly, time-consuming process. And if the copy isn’t accepted, the probate court will administer your estate as if you died without a will.

Storage options

To avoid these issues, be sure that your original will is stored in a safe place and that your family knows how to access it.

Storage options include:

• Leaving your original will with your accountant, attorney or another trusted advisor and ensuring that your family knows how to contact him or her. However, you should ensure that the trusted advisor has a procedure for safekeeping estate planning documents before leaving your original will with him or her.
• Storing your original will at home (or at the home of a trusted family member) in a waterproof, fire-resistant safe, lockbox or file cabinet and ensuring that trusted family members know the combination or have access to the keys.

What about safe deposit boxes? Although this can be an option, you should check state law and bank policy to be sure that your family will be able to gain access without a court order.

In many states, it can be difficult for loved ones to open your safe deposit box, even with a valid power of attorney. It may be preferable, therefore, to keep your original will at home or with a trusted advisor or family member. If you do opt for a safe deposit box, it may be a good idea to open one jointly with your spouse or another trusted family member. That way, the joint owner can immediately access the box in the event of your death or incapacity.

Note that it’s generally advisable not to make photocopies or duplicate originals of your will. If you amend your will, having these outdated copies floating around can create confusion or, worse, an opportunity for someone to attempt to use an outdated will.

Other important documents

Original trust documents should be kept in the same place as your original will. It’s also a good idea to make several copies. Unlike a will, it’s possible to use a photocopy of a trust. Plus, it’s useful to provide a copy to the person who will become trustee and to keep a copy to consult periodically to ensure that the trust continues to meet your needs.

For powers of attorney, living wills or health care directives, originals should be stored safely, but it’s also critical for these documents to be readily accessible in the event you become incapacitated. So, for example, you might want to avoid keeping these documents in a safe deposit box, where they won’t be accessible outside of banking hours.

Consider giving copies or duplicate originals to the people authorized to make decisions on your behalf. Also consider providing copies or duplicate originals of health care documents to your physicians to keep with your medical records.

Shred outdated docs

One last thing to keep in mind when you revise your estate plan: destroy any revoked or outdated documents. Doing so will help avoid confusion or family conflicts. Your estate planning advisor can help you manage all your estate planning documents.

As a business owner, your company is likely your most valuable asset. And you know that you must account for it in your estate plan to help ensure that it remains a valuable asset for your heirs. Thus, a key goal should be to insulate your company and other assets from the claims of creditors and lawsuits.

When you create an asset protection plan proactively, you add a layer of protection before any claims or lawsuits arise. This can deter creditors and possibly thwart the seizure of assets.

Ownership structure matters
Depending on the structure of your business, you may have adequate protection from creditors, minimal protection or none at all. Thus, you might consider changing the ownership structure to create a corporate shield. Here are the three primary forms of ownership:

C corporation. Generally, a C corporation provides limited liability exposure to the personal assets of its principals. C corporations help protect personal liability for corporate debts, contract breaches or personal injuries to third parties caused by the corporation or its employees. So, a creditor can’t seize your personal assets if the corporation can’t pay its bills. This is a distinct advantage over traditional partnerships.

However, the liability protection provided by a C corporation is limited to the corporation meeting specific requirements to treat the actions of the corporation as separate from the actions of its shareholders, also referred to as “piercing the corporate veil”. In order to maintain this distinction, the corporation must have adequate capitalization, not be formed or operated for fraudulent purposes, nor be operated as an alter ego of its shareholders. If a C corporation fails to meet even one of these requirements, the shareholders may find themselves personally liable for actions of the corporation.

Additionally, be aware of an exception for certain personal services. For example, a physician might be held personally liable for damages incurred while performing services on behalf of a medical practice.

S corporation. With an S corporation, income and losses are passed through to shareholders on a personal level, thereby avoiding “double taxation” faced by C corporations. Like a C corporation, however, shareholders benefit from some corporate liability protection, albeit with additional limits as to the number and type of shareholders, allocation of profits and losses among shareholders, and the type of stock that may be issued to investors. For many business owners, an S corporation is the preferred choice, however, the taxpayer(s) selecting S-status must strictly follow the IRS’ requirements, or may risk losing the S corporation election permanently.

Limited liability company (LLC). An LLC operates much like an S corporation without some of the extra formalities. Significantly, LLC principals are afforded the same liability protection as those in a C corporation, however, LLCs are also subject to the same “corporate veil” requirements that a C corporation must meet to maintain its status as an entity separate from its shareholders. Additionally, LLCs also receive the favorable “pass-through” tax benefits available to an S corporation, although LLCs are not required to meet the IRS’ stringent requirements to achieve pass-through status.

Note that filing requirements and creditor protections for LLCs may vary from state to state. Nevertheless, state laws generally protect personal assets of LLC owners from claims based on LLC activities.

Build asset barriers

Most asset protection strategies for businesses involve putting up walls between a company and its assets. One way to do this is to divide the business into separate entities.

For example, you may want to form separate entities to conduct any business activities that are riskier than others. Doing so allows you to limit the liability risk associated with them. Provided the entities are structured and operated properly, you can prevent creditors from going after assets owned by other entities within the group, even if they have common ownership.

Another way to protect valuable business assets is to sell them to another entity created by the company’s owners and then lease them back. If done right, these assets no longer belong to your company, so they’re beyond the reach of the company’s creditors.

Talk to the professionals

Owning a business is a big responsibility, and you want your children to benefit from your hard work after you’re gone. Thus, it’s important to implement business asset protection strategies. Because these strategies can be complex, make sure to discuss with your business and estate planning attorney any of the mentioned strategies to determine your best course of action to ensure your interests are adequately protected for you and for generations to come.

In November an amendment related to property tax assessments in Jefferson County was approved. This amendment provides for a “Special Senior Property Tax Exemption”. The exemption will allow property owners to freeze their property tax amount to the assessed value from the year previous to making the exemption.  The deadline for making this exemption is April 30, 2023.

To claim the exemption, the person must be age 65 or older, and the property must meet the following criteria:

* Real property owned by this person

* Classified as a single-family, owner-occupied residence

* Used as the principal place of residence of this person for at least 5 years prior to claiming

The “exemption” would remain in effect as long as the person continues to use the property as his or her principal place of residence. This “exemption” would not prevent the person from claiming or continuing to claim a homestead exemption or any other exemption available by law. If there are any additions to the property after this “exemption” is claimed, the increase in assessed value due to each addition will be added to the frozen assessment amount. This new total assessed value will be the amount frozen for each successive year unless another addition is made or the property is no longer eligible for this “exemption.”  The property owner can also refreeze the amount if the assessed value of the property is lowered.

This exemption is in addition to any other exemptions that are applicable to property owners age 65 and older.

Also please note that this exemption is only applicable to property taxes in Jefferson County.

You can find the link exemption form and some FAQs here:

https://www.jccal.org/Default.asp?ID=2407&pg=Special+Senior+Exemption+Links