Qualified Money for LTC

Earlier this week, an advisor (we will call him Andy) called me with an interesting question.  It went something like this:

“I have a client – a single man who is in his early 60s and is unmarried whose parents both recently died after spending a ton of their money on assisted living and nursing home care.  It scared him to watch their money evaporate so quickly as a result of that.”

We have a motivated client here who asked for advice.

“Anyway, he spoke with a competing advisor who stomped on the idea of long term care insurance because it is a ‘losing’ proposition.  The other advisor neglected to recommend any traditional or ‘linked benefit’ insurance solutions.  Instead, the advisor suggested that the client move money from an existing qualified index annuity that is out-of-surrender into a qualified longevity annuity contract (QLAC) which will begin to produce a lifetime income at age 80.”

I have a problem with that whole sequence.  The competing advisor, obviously, is not a believer in insurance and believes that he can out earn any situation that may arise.  As you would expect, there is some general concern about the quality of the “advice” but that is not part of this story.

Andy was equally concerned when his client shared the recommendation.  But, the seed of doubt was planted in the client’s mind about the viability of long term care insurance.

Here are my concerns for the other advisor’s recommendation.

While the income requirements of the qualified longevity annuity contract are deferred, the taxes will not be when distributions begin.  Moreover, the taxes on the distributions are the obvious impact but the other potential issues are due to the higher income exposure to taxes on social security my result, the cost for Medicare will increase, and any means tested benefits could be adversely impacted simply by enacting this strategy.

With those pieces of information in mind, Andy asked me, “what would you suggest that I do?”

Simple – reopen the discussion and educate the client about the tax impact of the plan.  Follow that by, suggesting that the client consider a “win-win” strategy and use Asset Care funded with Qualified Money .

According to the other advisor’s plan and assuming that the client funds the qualified longevity annuity with $100,000 will generate beginning at age 80 $2,036 of taxable income per month ($24,432 annualized) for life.*   But this is supposed to be a long term care strategy.  Using this plan, the income begins at age 80 whether it is needed or not.  But, if there is a situation that arises at a younger age, what is the ease of access to the monies and at what cost?

*QLAC rates, https://www.immediateannuities.com/qlac-qualified-longevity-annuity-contract/

That same $100,000 IRA rollover into Asset Care funded with Qualified Money will immediately produce a tax-free monthly long term care benefit of $5,469 ($65,628 annualized) for life.  Moreover, the long term care benefits paid from the policy do not impact taxes or any programs or benefits (social security incomeMedicare, etc.).  There is more, if the client never utilizes the long term benefits from Asset Care funded with Qualified Money, $136,736 will be paid to his beneficiaries.  There are two drawbacks, for the first 10 years following the rollover, a taxable distribution will be taken and a 1099 will be generated for those monies moving to fund Asset Care and the client needs to be insurable.

Let me ask you this.

Where does the qualified longevity annuity contract (QLAC) strategy offer a better solution that Asset Care funded with Qualified Money?   The only scenario where the qualified longevity annuity contract (QLAC) wins is when the client has a significant health issue which renders him uninsurable.

On all other counts, based upon my analysis, aside from no underwriting requirements, the qualified longevity annuity contract (QLAC) comes up short a funding strategy for long term care.

For more information about Asset Care funded with Qualified Money, contact Justin Fox at justinfox.isp@oneamerica.com  or at (844) 658-3725.