To cover the risk and potentially high cost of a health care or long-term care need.
A 55-year-old couple retiring in 10 years will pay an average of about $464,000 in lifetime retirement
health care costs, according to a 2015 report from HealthView Services. That, coupled with the
growing likelihood of needing care as life expectancies continue to lengthen, puts a premium on
protecting an estate from a potentially massive drawdown to cover a health care or long-term care
(LTC) event, says Lovell. “You need some kind of pool of money to cover those costs, and insurance
is an efficient vehicle for providing it. It’s the least expensive way to cover that risk.”
A new breed of hybrid life insurance and annuity products are designed to do just that. These asset-based or linked-
benefit products afford the contract-holder access to funds to cover health care or long-term care expenses. Some are
also more accessible from a medical underwriting perspective. And some are configured so if the policyholder ultimately
doesn’t exercise the policy’s long-term care benefit, that money stays inside the policy to eventually pass to beneficiaries
on a tax-favored basis.
While LI+LTC products are proving especially popular, new products are also hitting the market on the annuity side,
including Genworth’s IncomeAssurance Immediate Need Annuity, a medically underwritten single-premium immediate
contract unveiled in February that provides guaranteed lifetime monthly payments to people age 70 or older with adverse
health conditions. It just so happens the lead edge of the boomer generation turns 70 this year.
To manage inherited IRAs. The rules around IRAs that pass by inheritance from
one generation to another can be convoluted, particularly with regard to taxation,
Lovell says. To avoid unnecessary taxation of inherited IRAs, it’s vital to take pains
to preserve the so-called “stretch” option, whereby assets in certain retirement
accounts can pass on a tax-deferred basis to children and grandchildren.
To scratch the charitable itch.
A couple of maneuvers are worth
considering for boomers who want
to leave a charitable legacy. One is to
establish a trust, such as a charitable
remainder trust that, if properly
designed, can provide income to a
beneficiary, along with an income tax
deduction to the person putting assets in the trust, and
later leaving assets to a charity, Barzideh explains. Highly
appreciated assets such as stock positions are good
candidates to transfer to a CRT, as neither the donor nor
the charity will be on the hook to pay capital gains taxes
on those assets when they’re eventually sold.
Another way to reduce the tax exposure of an estate,
according to Barzideh, is by taking advantage of IRS rules
(made permanent last year) that allow distributions to be
made directly from a qualified retirement account, such as
an IRA, to a charity. Instead of taking a required minimum
distribution once they hit age 70.5, the owner of the qualified
retirement account can specify that the distribution be
made to a charity, thus avoiding income tax on the RMD
Ben Barzideh, wealth advisor
Piershale Financial Group
Crystal Lake, Illinois
In certain cases, it makes sense to
set up such a credit shelter trust for
each spouse to house certain assets.
An ILIT provides very powerful estate-protection benefits, and also can protect
assets from legal challenge.