Here’s a bit of good news for your Gen-X clients considering the value of a long-term care insurance policy.

The Internal Revenue Service recently announced it will increase the premium deduction limit a bit more for buyers in their 40s in 2016 than for buyers in other age groups, according to a recent article by LifeHealthPro.

Federal law makes a tax deduction available to long-term care insurance buyers who have enough medical bills to itemize their medical expenses. These buyers must have eligible expenses not covered by health insurance that exceed 10 percent of their adjusted gross income.

The IRS published the new deduction limits in Revenue Procedure 2015-53.

The new deduction limits appear more beneficial to people who are healthy enough to qualify to buy long-term care insurance, and then, when the policy is in force, develop expensive medical problems.

In 2016, the premium deduction limit increases to:

  • $390, from $380, for ages 40 or younger;
  • $730, from $710, for ages 41 to 50;
  • $1,460, from $1,430, for ages 51 to 60;
  • $3,900, from $3,800, for ages 61 to 70; and
  • $4,870, from $4,750, for ages 70 and older.

Percentage wise, the deduction for those 41 to 50 shows about a 2.8 percent increase over the 2014 limit. For ages 51 to 60, the increase amounts to 2.09 percent of the 2014 limit.

This offers many of your clients a huge advantage of receiving a tax deduction on the front end and still receiving tax-free benefits on the tail. And, don’t overlook another benefit of these deductions: The premiums your clients pay grow increasingly more tax-advantaged over time as they age through the tiers and can claim a bigger and bigger deduction as their medical expenses grow over time.

Frankly, we believe the largest threat to the portfolio of your moderate-income clients is their having to eventually pay for their nursing home care. This level of care must be paid for with a client’s qualified assets before he can become eligible for Medicaid. In most cases, a basic irrevocable trust cannot protect these assets from disqualifying your client from receiving Medicaid benefits.

While there are some vehicles to help clients to protect their assets (i.e. long-term care insurance and specialized Medicaid asset protection trusts), many people remain unaware they exist.

LifeHealthPro’s article also reported a number of other insurance-related limits for 2016 in the IRS’s notice, including the maximum daily benefit limit for a long-term care insurance contract or life insurance chronic care contract that qualifies for special tax treatment. The daily benefit limit increases to $340, from $330.

Other tax adjustments for 2016 include:

  • Estates of those who die in 2016 have a federal estate tax exemption amount of $5.45 million, up from $5.43 million in 2015.
  • The first $14,000 of gifts made to any person (other than gifts of future interests in property) in 2016 will not be included in the total amount of taxable gifts made during that year.

We hope this information was useful to you and helps your clients and their families. If you have a specific case or a question, don’t hesitate to call our office.

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