There is an opportunity for your company to pay for a Long-Term Care policy which may be leveraged between different tax brackets, either between your company and yourself and/or your company and a key employee. The Himmelstein Financial, in cooperation with Lincoln Financial, designed a solution for business members which allows for a transfer of capital from their corporation with limited tax implications, thus, providing substantial benefits that are very lightly taxed to either the business owner, as a participant, or a key employee.
This program can be used for sole proprietorships, individual partners and / or key employees. The Employer must determine on a couple of variables. The most important is who they wish to cover and how much they will budget for this purpose?
Additional appropriate questions
- Is it more important for the business to get their money back or to have whatever it spends as premium as a write-off?
- Does the business want any type of vesting schedule or does the employee have to be completely vested to receive the benefit (golden handcuffs)?
- Is the business or participant most interested in LTC, Death Benefit, or potential retirement?
- Are there any real health challenges in the proposed participants that they are aware of?
- Does the business have any specific agreements or contracts it wants to fulfill with these contracts? (Buy Sell Succession, Key Man, Deferred compensation, Estate Liquidity for owners)
What will the Business Accomplish by establishing a plan?
- Protection from one of the largest wealth destruction events, needing care.
- Differentiation from other businesses that have not made any plans. This makes it more attractive to employees as well.
- Potential Golden Handcuffs
- Turning lesser taxed business dollars to lightly or tax-free dollars to the participants in the form of benefits at their higher tax bracket personally
- Potential no out of pocket costs to the business
- Opportunity to leverage the corporate dollar to get a substantial write-off
- A deferred compensation
- A method of insuring that agreements and obligations will be met.
Look at how this works?
Once the employer has decided on which employees and how much out of their budget they shall spend on the employee, we establish an equity agreement between the company and the participant (even if that participant as the owner). The Individual would apply for a specific type of policy for LTC that would be individually owned but collaterally assigned back to the company. Each year the employee will pay a small tax (which is based on the economic benefit of the contract which is really very low and stays low due to the minimal amount of incidental life insurance net to employee).
Any premiums paid into the contract are considered an asset of the corporation and at some point, the corporation will get paid back. If one has a Long-Term Care claim the company gets back their money and pays out to the employee, the benefit. Of course, it can deduct when the company writes off the payouts to the employee. If the employee unfortunately leaves the earth early the corporation gets back the death benefit tax free which is equal, or more than the company paid in. If the employee leaves, the company gets their money back or keeps the contract whichever is more beneficial to them. They could decide to sell or forgive the lien back to the former employee in this situation but there is no obligation.
A Chart Enclosed shows the Transactions and a sample printout summarizing the illustrated proposal for a 53-year-old male. To see the full illustration click or paste the following link:
http://www.himmelsteinfinancial.com/wp-content/uploads/Mguard-split-dollar.pdf
