Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Saturday, March 30, 2013

Tax-Free Exchanges Can Curb Long-Term Care Expenses

TaxfreeMany 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.

See Alder Pollock and Sheehan P.C., Insight on Estate Planning - April/May 2013: How to Fund Long-Term Care Insurance with a Tax-Free Exchange, JDSupra, Mar. 28, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention. 


Disability Planning - Health Care, Elder Law, Estate Planning - Generally | Permalink

TrackBack URL for this entry:


Listed below are links to weblogs that reference Tax-Free Exchanges Can Curb Long-Term Care Expenses :


Post a comment