Portfolio Of Client Stories

Providing a fund for Long Term Care essentially subsidized by the federal government.


The owner of a consulting firm continued to work after retirement to supplement his retirement income. But because he earns $48,000 per year in his consulting business, his Social Security benefits get taxed. Under the IRS rules, the threshold limit of $44,000 is the maximum a married couple filing jointly can earn while collecting Social Security. As a result, 85% of his Social Security benefits are added back into his net income and taxed at the applicable rate. In his case, $30,600 (85% of his Social Security benefits) are added to his $48,000 of earned income, and so now he pays taxes on $78,600, throwing him into a higher 22% tax bracket. That made it hard to save for long term care expenses down the line for either of them.


We suggested that his consulting company purchase a Long Term Care policy on himself and his spouse. At their ages, their combined annual premium of $11,428 would buy them $186,150 of long term care benefits, with an inflation protection rider based on the annual increase in the Consumer Price Index. The policy would pay, after the selected waiting period, a daily benefit up to $170 per day for 3 years.

By buying the two Long Term Care policies through his consulting company (an LLC taxed as a partnership), he and his wife get a reduction in their Adjusted Gross Income of $11,428.

This deduction reduces his “earned income” from $78,600 to $36,572 by keeping his consulting earnings below the IRS threshold amount of $44,000 (the maximum earned income allowed while collecting Social Security benefits).

As a result, he would pay income taxes on his lower net consulting income at the second lowest tax bracket of 12%, rather than at the 22% tax bracket he would have had to pay without the Long Term Care deduction.

Assuming no other applicable deductions, the client would pay $4,008 in Federal Taxes, rather than the $9,171 he would have had to pay without the Long Term Care expense deduction.

The $5,163 savings, courtesy of the Trump federal tax bracket changes, reduces his net, out of pocket cost for the Long Term Care benefits from $11,428 per year to $6,265 per year—a 45.2% discount or subsidy, courtesy of the favored treatment given to Long Term Care expenses.

Even better, when Long Term Care benefits of over $186,000 are paid to either the husband or his spouse, no tax is payable on those benefits, despite the deduction taken by the taxpayers for the Long Term Care premiums—a very rare exception to the general rule that deducted employee benefit expenses are characterized as taxable income when paid out to the employee recipient.