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Tax-Free Exchanges Can Curb Long-Term Care Expenses

April 8, 2013

Free Exchanges Can Curb Long-Term Care ExpensesMany people fear long-term care expenses. The reality is these expenses can add up and put a dent into funds set aside for retirement. According to the Genworth 2012 Cost of Care Survey, the median for a private nursing room is $81,030 annually. One way to ease the long-term care cost concern is to secure a long-term care insurance policy.  

 

Premiums for long-term care insurance can be costly. However, for people thinking about purchasing long-term care insurance a tax-free exchange can help pay the premiums. A person considering this option should evaluate the different long-term care insurance options. Some other factors a person should reflect on include: costs, benefits, tax effects, and the impact on the policy or annuity. The IRS permits the exchange of a life insurance policy for an annuity contract without acknowledging taxable gain. Recently, legislators made it permissible to make tax-free exchanges of an annuity or life insurance policy for a long-term care insurance policy. A partial tax–free exchange can use part of an annuity or a life insurance policies worth to fund a new annuity or policy. However, the exchange must be a direct transfer of funds from one provider to another to be tax-free. The advantage to the tax-free exchange is it supplies funds for the care policy while simultaneously yielding tax benefits. Additionally, a tax-free exchange can allow a taxable gain to be engrossed by long-term care premiums.

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© 2014 James R. Modrall, III

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