Long Term Care Insurance Taxation Health Insurance Portability and Accountability Act of 1996 Presented By: Timothy Kelly Individual Commercial Brokerage, Inc.

Long Term Care Insurance Taxation Health Insurance Portability and Accountability Act of 1996 (HIPAA)  Signed into law by the President on August 21, 1996  Defined a “qualified” long term care contract (IRC 7702B(b))  Provides that a “qualified” long term care contract shall be treated as an accident and health insurance contract (IRC 7702B(a)(1))  QLTC benefits are not considered taxable income (IRC 7702B(a)(2))  QLTC premiums may be deductible by an individual subject to certain limitations (IRC 213 (d)(1))  QLTC premiums may be deductible by a corporation subject to certain limitations (IRC 7702B(a)(3))  All LTC contracts issued prior to January 1, 1997 will be considered QLTC contracts Presented By: Timothy Kelly Individual Commercial Brokerage, Inc. Long Term Care Insurance Taxation

Non-Qualified LTCI  Unable to perform without assistance 2 activities of daily living  Require supervision due to a cognitive impairment  Medical Necessity  Premiums are not deductible  Treasury Department did not rule on the taxability of benefits Qualified LTCI  Unable to perform without substantial assistance 2 activities of daily living for a period of at least 90 days  Require substantial supervision due to a severe cognitive impairment  Premiums are deductible  Benefits are not considered taxable income Should I sell Tax Qualified or Non-Tax Qualified LTCI? Presented By: Timothy Kelly Individual Commercial Brokerage, Inc. Long Term Care Insurance Taxation NTQ vs. TQ Approximately 92% of all new policies sold in 2002 were tax qualified.

HIPAA Qualified LTC Contract  Guaranteed Renewable  Provides coverage for qualified LTC services required by a chronically ill individual.  Chronically ill – unable to perform without substantial assistance at least 2 activities of daily living for a period of at least 90 days or requiring substantial supervision to protect from threats to health and safety due to severe cognitive impairment Presented By: Timothy Kelly Individual Commercial Brokerage, Inc. Long Term Care Insurance Taxation

HIPAA Qualified LTC Contract Benefits  Every LTCI benefit recipient will receive a 1099-LTC from the insurance carrier  Reimbursement contract benefits are excludable from income  Indemnity (per diem) contract benefits are excludable from income to the extent they do not exceed the greater of $230 (2004) or the cost incurred (IRS Form 8853)  All taxable payments are listed on IRS Form 1040 line 21 (Other Income) Presented By: Timothy Kelly Individual Commercial Brokerage, Inc. Long Term Care Insurance Taxation

HIPAA Qualified LTC Contract Premiums  “Eligible” Premiums paid by individuals for QLTC contracts are treated as medical care expenses  A deduction is available to the extent medical care expenses exceed 7.5% of adjusted gross income (Schedule A of IRS Form 1040) Presented By: Timothy Kelly Individual Commercial Brokerage, Inc. Long Term Care Insurance Taxation

HIPAA Qualified LTC Contract Eligible Premiums 2004 AgeLimitation 40 or less$ $ $ $ 2, or more$ 3, These amounts are adjusted annually tied to the medical care component of the CPI. Presented By: Timothy Kelly Individual Commercial Brokerage, Inc. Long Term Care Insurance Taxation

HIPAA Qualified LTC Contract Employer Paid Premiums  Employer paid QLTC premiums are deductible if the covered individual is an employee, spouse, or dependent. Benefits are not considered taxable income even if employer pays the premium (unlike disability insurance)  Employer paid QLTC premiums are deductible to a certain extent if the covered individual is an owner  QLTC contracts can not be used in cafeteria plans or flexible spending arrangements  Distributions from a Medical Savings Account may be used to pay premiums for a QLTC contract Presented By: Timothy Kelly Individual Commercial Brokerage, Inc. Long Term Care Insurance Taxation

HIPAA Qualified LTC Contract Employer Paid Premiums for Owners  Owner is considered anyone with a 2% or more stake in the company  C-Corp is allowed a 100% deduction for any QLTC premiums paid for owners  All other corporate structures and self employed individuals are allowed a deduction subject to the Eligible Premium chart (not subject to the 7.5% AGI rule) Presented By: Timothy Kelly Individual Commercial Brokerage, Inc. Long Term Care Insurance Taxation

T.R.E.A.T Tax Reducing Efficient Asset Transfer Presented By: Timothy Kelly Individual Commercial Brokerage, Inc. Long Term Care Insurance Taxation How to Transfer Assets to your Heirs using Federally Tax Qualified Long Term Care Insurance

T.R.E.A.T Employer Sponsored Long Term Care  Use corporate dollars to pay for Limited Pay LTCI for the owners or key employees  Write-off the premium as a usual business expense  Premium is not considered taxable income to employee  Benefits are tax free  Provide lifetime protection from the devastating cost of long term care  Transfer those dollars to the recipients heirs at death income tax free using the Enhanced Return of Premium benefit (IRC 7702B (b)(2)) Presented By: Timothy Kelly Individual Commercial Brokerage, Inc. Long Term Care Insurance Taxation **Please consult with your accountant or tax attorney before implementing this strategy.**

T.R.E.A.T Custom Care II, Age 50, $6,000 per Month, Lifetime benefit, 90 day elimination period, Waiver of HHC Elim, Enhanced Return of Premium Rider, 10 Pay, spousal discount, 5% group discount, Preferred Rate, 35% tax rate. Example – No claims and dies at age 80. Presented By: Timothy Kelly Individual Commercial Brokerage, Inc. Long Term Care Insurance Taxation