Maryland Bar Bulletin
Publications : Bar Bulletin : December 2005

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Year-End Planning
~Qualify for state tax credit/deduction by purchasing long-term care insurance~
By Sally H. Leimbach

Your State and Federal governments want you to seriously consider the purchase of long-term care (LTC) insurance. Sometimes they will even pay you to do it. Currently, 26 states offer some sort of tax incentive to purchasers of LTC insurance. It may be a one-time tax credit for first-time purchasers or an annual tax deduction.

One of the best examples of a tax incentive is offered by the state of Maryland: up to a $500 tax credit is available for first-time purchasers of LTCi. This first-year-only credit is available to the purchaser and his or her spouse and can also apply to policies bought for dependents.

At the Federal level, bipartisan support has spawned several pieces of legislation that may still make it through the 108th Congress. Unfortunately, the above-the-line tax deduction for LTC insurance premiums has lost steam because of the negative impact Hurricane Katrina expenses have had on the budget. However, legislation to allow partnership plans to expand beyond the original four states and to take away negative taxation issues around LTC insurance combination products and 1035 exchanges still have the possibility of passing.

How to Qualify for Your State’s LTC Insurance Tax Advantage for 2005

Your tax credit or deduction will only apply to premiums paid in 2005. If you do not yet own a policy, you must submit an application before the end of 2005, with a deposit equal to at least what your state will allow as a tax credit or deduction, to establish your policy effective date as being in 2005. Then, even if your application is not approved until 2006, you will be eligible for the 2005 tax advantage.

State and Federal Governments Cannot Pay LTC Bill for Boomers

Long-term care is not an entitlement program like Medicare or Social Security, and the Medicaid system is already sorely strained by the expense of long-term care needs. Alarmingly, this drain on the Federal coffers is reducing state monies available to provide such vital programs as education, transportation and homeland security.

The federal government last year launched an LTC Awareness Campaign pilot project to make citizens aware of the need for individuals to plan for their own long-term care needs. Phase One – in Virginia, New Jersey, Arkansas, Idaho and Nevada – was a success. This will allow Phase Two (for which Maryland has applied to participate) to be implemented during the first quarter of 2006. The foundation of the Awareness Campaign is a letter sent by each governor to every resident in their state between the ages of 50 and 70. Again, the message is that everyone should have a plan for themselves and for those for whom they would be responsible in case long-term care is needed. The Medicaid program was intended to be a safety net for the poor, and the State/Federal systems may not be able to meet the projected LTC needs of baby boomers.

Reaching Age 100 is No Longer an Exclusive Club

On October 24, 2005, USA Today reported that there are currently 73,000 persons living in the United States age 100 or older; by 2015, that number is projected to grow to 115,000. Growing old can be a blessing, but not if it will be a financial or emotional burden to your loved loves. Planning now can allow affordable alternatives to paying for long-term care or forcing your family to piece together a hurried plan because you ignored this critically important area of your planning.

Not Too Late to Save on LTC Insurance in 2005

There is still time to thoughtfully explore LTC planning in 2005. Insurance may or may not be the right planning tool for you in this area. Because LTC premiums are based on age and health status, not putting off until 2006 that which is better for you to address today is recommendable.

This article should not be used as a basis for legal and/or tax advice. In any specific case, the parties involved should seek the guidance and advice of their own legal and tax counsel.

Sally H. Leimbach, CLU, CEBS, CLTC, is a Long-Term Care Insurance Specialist with FranklinMorris, Coordinating Broker for the Bar Associations Insurance Agency, Inc. For more information on insurance benefits available to MSBA members, visit

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Publications : Bar Bulletin: December 2005

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