The only asset I have to pay for NH is a life insurance policy, but I have to pay 1/3 to IRS. True? - AgingCare.com

The only asset I have to pay for NH is a life insurance policy, but I have to pay 1/3 to IRS. True?

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Question is for Gabriel Heiser.
My only money to pay for the NH is the life insurance policy for my husband. Cash Value is $76,653. That would pay for almost a year, but the IRS is going to take 1/3 for taxes. Is there any way of getting around this! It just makes it all that much sooner that I will have to apply for Medicaid. I don't understand. I also have a 301 K annuity for myself ....surrender value $41,000 and a life insurance policy on myself cash value $13,796. No savings. We do both have SSI and small pensions. What advice do you have for me?

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You don't have to cash in a life insurance policy. Most of the time, you can roll it over into a long-term health insurance policy, and not take any hits on taxes or early withdraw fees. Check out this website: insure/life-insurance/life-insurance-or-long-term-care.html. It states that are life insurance policies with a long-term care rider as one option. MassMutual is rolling out such a rider on one of its whole life products. The rider lets you access up to 90 percent of the death benefit for long-term care. Any portion of that amount you don't use is paid to your beneficiary when you die. If you don't need any long-term care, your beneficiary receives the full death benefit.

Look at it this way: LIFE INSURANCE answers this question: "How will my family survive without me?" It's needed if you have dependents who would suffer financially if you died.

LONG-TERM HEALTH INSURANCE answers this question: "Who will take care of me, and how will I pay for it?" Having a financial plan to pay for care on your own, gives you more choice in the type of treatment you can receive and where you want to receive it.
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You may be able to reach him directly If you go to his website Medicaidsecrets website. He may take some time to find your post here.
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Oh one thing to keep foremost in mind, you as the Community Spouse do get to.keep your home, and about $114,000 in assets, and a car. There's also a spousal support amount (monthly ) that sometimes allows a portion of **your husband's ** pension to be directed to you, so that you can remain in your own home. Have you read Gabriel Heiser ' s book, Medicaid Secrets, it is available on his website, also check your public library.
Your situation as you describe is actually very hopeful, you have some good assets, and your husband will be able to receive care at a facility --but may have to spend down your joint assets to that approx. $114,000 figure. You can also pre-pay your funeral, your husband's funeral, check with your state DHS for the amount you can pre-pay. I hope you do find a good elder care law office that has experience with taxes and Medicaid, to put your mind at ease. The last thing you need at this time is stressing over the finances! Best wishes.
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Have you talked with an elder.care lawyer? Find one that has tax experience. Also, talk with the facility about the pending Medicaid...actually, most facilities (that I have visited) required a financial statement for.all prospective residents.. they want to make sure you can pay, and if you are going to be applying for Medicaid that possibility should be discussed with the facility. They may have some helpful people to help.with the application -- remember they want to be paid too, and they have other residents on Medicaid (right? they do accept Medicaid?).
One thing about the taxes, yes there will be capital gains tax on any gains, and yes you can deduct medical expenses-- but the deductible amount for medical is only the portion that is over 10% of income. So if income is $50,000 you can deduct the amounts over $5,000 (the first $5,000 isn't deductible).
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But it is the only money that I have to pay for the home. He went in on Friday 9/11. I can't wait until Jan to pay for now! I think I am going to borrow against the cash value for now!
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I do not know what kind of a policy you have, but 1/3 seems a little high. I am assuming that part of the $76,000 is money that you have paid in premiums, and part of it is interest and dividends (earnings) on the policy. Only the earnings would be taxable, and then only at the current income tax rates. I believe that the top rate is about 36%, and with your low income, it is unlikely that you would hit the top rate. Also, if you cash the policy while your husband is in the nursing home, his medical expenses would be treated as an itemized deduction, further reducing the amount of your taxes. You should visit with a tax professional to get an estimate of what your taxes will be. It may be to your advantage to wait until after the first of the year to cash the policy so that the earnings fall in the same year as the majority of your husband's expenses.
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I don't know if taxes will need to be paid, but I do know that if you do pay taxes on it, those taxes will be used to pay for the Medicaid program. So, really you're not be cheated out of one penny, and if you do receive Medicaid it is only there for you because that program is funded by taxpayers.
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