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                Last week I outlined for you the advantages of the Pension Protection Act (PPA), #PensionProtectionAct which became effective in 2010.  The government has provided some pretty significant tax advantages as an incentive for Americans to self-fund their long term care.  As a result, insurance companies have created varied products to take advantage of the law.  Let’s look at some examples.                 Bob is 70 and has an existing IRA annuity.  He looked at traditional long term care insurance and didn’t like the “use it or lose it” aspect and the uncertainty of increasing premiums in the future.  If he or his wife needs long term care he intends to start drawing the money out of the annuity.                 By repositioning the annuity to one with a long term care rider, if either he or his wife needs  long term care they’ll use the cash in the annuity but they’ll  also have additional coverage under the LTC rider.  Bob designates his wife as an “eligible person” for coverage.  If he dies first, his wife can continue the policy for the rest of her life and get the same coverage.  If he survives his wife any cash remaining in the annuity is passed

                Last week I was outlining the problem with annuities.  What I am specifically referring to is the tax deferred status of annuities.  While the growth inside these investments is not taxed until monies are withdrawn, they are taxed as ordinary income and if left to heirs there is no step up in basis to avoid the tax like there is in the case of stocks and real estate.  Often these annuities will pay out on an accelerated basis at death, causing a large tax hit.                 Americans own billions of dollars of deferred annuities.  Less than 2% of annuity owners ever annuitize them - turn on the guaranteed income stream that is one of the primary advantages of these investments.  Instead they leave these assets untouched to their heirs – with the very large tax bill that goes along with it.                 There is, however, a way to avoid the taxes on these assets and at the same time pay for your long term care should you need it and protect your other assets from having to be spent towards that care.  That’s because Congress passed a law in 2006 that allows for the withdrawal of tax deferred growth from annuities,

                It’s an issue that we see time and again.  Many of our senior clients have annuities that they purchased years ago.  In its simplest form, an annuity is an insurance contract into which you can reposition a lump sum to an insurance company and in return the insurance company will provide you with a stream of income.                 Immediate annuities begin making payments immediately with interest. Deferred annuities, however, allow the annuity owner to turn on the payments at a point in the future.  In the meantime, the original principal amount grows tax deferred.  In this way, annuities provide some of the same benefits as IRAs and other retirement accounts.  The investor does not pay tax on the growth until the money is withdrawn.  Similar to an IRA, there is a 10% penalty for withdrawing funds before age 59 and ½ but there is no requirement that you start withdrawing funds at 70 and ½ as there is under IRA Required Minimum Distribution (RMD) rules.  (I am specifically talking about annuities held in non-retirement account.  IRA annuities must still comply with RMD rules.)                 Annuities have been a way for people to get the same advantages of tax deferred growth as those

            I told you last week that Jim’s dad was running out of money.  Living at home with aides providing him with round the clock care, Jim was thinking that once the cash runs out he can apply for Medicaid under New Jersey’s home based Medicaid program #NewJerseyMedicaid.             Jim’s plan won’t work for a few reasons.  First of all, the home based Medicaid program in New Jersey does not pay for round the clock care.  On average it pays for maybe 10 to 15 hours per week, occasionally more than that but certainly not the 24/7 care that his dad needs.  The only place that the State will pay for all the care is in a nursing home.             Secondly, Jim figured that Dad’s income of $3500 per month would be enough to cover the taxes, insurance and upkeep on the home and his food bill.  Medicaid could then pay the cost of the aides.  Unfortunately, it doesn’t work that way.  Medicaid works like a cost share.  Your income is applied to the cost of your care with the only exceptions being that some of that income can go towards your Medigap supplemental insurance and Part D premium and a small

            Jim called because his dad was running out of money. Dad is living at home with two aides that provide him with round the clock care.  He owns the home he lives in but only has approximately $30,000 of liquid assets left.             Jim figured home based Medicaid would be his solution.  Dad has $3500 a month of income. If Medicaid picks up his home health aide bills, Jim told me that the $3500 would be enough to cover his other expenses including taxes and insurance on the home with maybe a little bit of a supplement every month from Jim.             It was all well thought out. Jim just wanted some confirmation from me.  "Unfortunately", I said to Jim, " it sounds great but Medicaid just doesn't work that way."  What Jim is trying to do can't work for several reasons.  New Jersey's home based Medicaid program is not as comprehensive as its institutional Medicaid program.             Jim was puzzled by my answer. "Don't you have to spend down to $2000 in assets, show you you need long term care and then you'll be approved," he asked.             "Not true," I told him.  Next week I'll share with you the details of

            The last two weeks I have been telling you about an increasing trend that we are seeing in cases that come through our office- grandparents who are paying for college, daycare, camp expenses etc. for their grandchildren.  While a big help to the children of our clients who can’t afford the rising educational costs it can be financial ruin for the clients themselves should they need long term care.  If they don’t have sufficient funds to pay for care and no long term care insurance either, the payments could disqualify them for Medicaid because of the lookback and penalty period.             As I mentioned last week, there is a way to accomplish both goals of helping family members and preserving Medicaid eligibility.  It does require some forethought and planning ahead.  By setting aside funds in a trust, the senior can assist children and grandchildren financially.  When that need arises the funds come from the trust and not directly from the senior so do not fall within Medicaid’s lookback and won’t trigger a Medicaid penalty.             There are a couple of important points to be aware of.  First, is that the trust must be established and funded by the senior at least