A Planning Primer For Members Of Los Angeles County Bar Association, Senior Lawyers Division

2. Today’s Course Outline What does long-term care truly mean The retirement liability paradigm Government solutions and myths The Deficit Reduction Act of 2005 Understanding long-term care insurance Using insurance to transfer risk The California Partnership program Tax issues Questions & Answers

7. Why Is America Aging?

9. The Retirement Liability Paradigm Retirement planning is really a risk management process when the goal is properly stated as lifestyle security Managing liabilities is equally or more important than managing assets Lifestyle security is the one goal that unites all individuals Six key risks that we all face The Six Ls

10. The Six Ls: Retirement Liabilities Lack of capital Loss of income Losses on investments…at an inopportune time Long-term care Longevity Litigation

11. Long Term Care Why can it impact lifestyle security? Dignity and independence Emotional impact Economic impact An open-ended potential liability Don’t know when, how long or how much

14. The Future Costs in California 2009 2019 2029 Nursing Home $91,250 $148,640 $242,100 Home Care $36,500 $ 59,500 $ 96,850 Assumes 5% growth in costs; 5 hours/day for Home Health care. Nursing Home Costs – CA Average Private Room $250/day Source: Mature Market Institute, 2008 Survey

15. How The Government Plays A Role…Or Doesn’t Play A Role Medicare Medi-Cal State Partnership programs Deficit Reduction Act of 2005

17. Medicare = Short-term Care

18. Medicaid (Medi-Cal) Social Program

22. Demographic Tax Base

23. The Government’s Share: Key Questions Moving Forward Will they be able to pay their share as the tax base drops and the expense load gets higher and higher? Is more legislation like DRA 2005 on the horizon to tighten access and costs? These are the questions that we all need to think about as it relates to transferring this risk to insurance companies by way of long term care insurance So, what is the current risk level?

24. RISK: LONG-TERM CARE

25. Comparative Risks For every 1,000 people: 5 will have a house fire (average loss, $3,428*) 70 will have an auto accident (average loss $3,000*) 600 will need long-term care…significant larger loss and asset exposure Sources: *Society of Actuaries, 1995, **HIAA, 2005

26. What Is At Risk? Home Savings CD’s Money Market Accounts Real Estate Stocks/Bonds 401(k)’s/IRA’s Trust Assets*

27. Risk Transfer Strategy When does it make sense to adopt a risk-transfer strategy What are the tax incentives? What are the costs? Structuring the plan to fit budget, needs and retirement plan Can transfer all of the risk; share the risk; or transfer only “catastrophic” risk

28. Why Consider A Risk Transfer Strategy Not poor enough or rich enough Asset and lifestyle protection Catastrophic expense strategy Frees up retirement capital for other needs…sunny day money waiting for rain Tax advantageous Future Government legislation may limit your flexibility…after your health has changed!

29. Tax Incentives For Risk Transfer

30. Tax Deductibility: A Closer Look Itemizing Individuals / Self-Employed Individuals: deductible based on the IRS age based limits and 7.5% AGI threshold; taken as a medical expense on Schedule A Self-employed: follows the rules for deducting health insurance and IRS age-based limits

31. Tax Deductibility: A Closer Look 2009 Age-Based Limits Age 40 & Under $ 320 41-50 $ 600 51-60 $1,190 61-70 $3,180 71 & Older $3,980

32. Tax Deductibility: A Closer Look C Corporations Premiums paid by company for employees, spouses and dependents are 100% deductible as a business expense Deduction is NOT limited to the age-based deductions (see IRC 162(a)) Premiums paid by the company are NOT included in the employee’s income even if the premium exceeds the eligible premium amount [see IRC 106, 7702B and 0104(a)(3)] Do not need to follow non-discrimination tests or guidelines…find / win / keep strategy for companies

33. Tax Deductibility: A Closer Look Partnerships, LLCs, S Corps Partners, members, and shareholder members of S Corps owning more than 2% are taxed as self-employed individuals If the entity pays the premium, the premium is picked up as income Limited deductions are available under IRC 162(l) NOT necessary to meet a 7.5% threshold 100% deduction for premiums paid for employees (spouses)

34. Tax Deductibility: A Closer Look Even Larger Deductions May Be Available Pay for the policy on a 10-pay or single pay basis to lock-in an even larger deduction* Protect against “use it or lose it” concern by adding a “refund of premium” option; higher premium delivers higher tax deduction * Currently, no single pay plans are available in CA but are available in some other states

44. California Partnership Policies California is one of the 4 states with a grandfathered “Partnership” program Designed to help residents buy insurance and provide lifetime asset protection Partnership between the state and select insurance companies for the benefit of residents

45. California Partnership Policies Allows residents to choose coverage levels to match the assets they wish to protect for life Eliminates the “spend down” rules under Medi-Cal for the assets that are protected Can apply for Medi-Cal once policy benefits run out…while keeping the protected assets for life… Income may need to be spent for long-term care before Medi-Cal will pay, but protected assets are safe

46. California Partnership Policies Partnership policies have to have specific minimum benefits in order to qualify Automatic inflation protection A deductible that is met just once Waiver of premiums while care is provided in a facility Care coordination Policies can be “facility only” or “comprehensive”

47. California Partnership Policies Only a handful of companies are approved for partnership policies MetLife, John Hancock, Bankers Life, Genworth, New York Life CalPERS (only for public employees, retirees and their spouses, parents, in-laws and siblings)

48. Design Strategies 100% Risk Transfer - Short waiting period - High daily benefit amount - Comprehensive coverage for life - Maximum inflation benefit - Complete financial peace of mind - Highest annual premium

49. Design Strategies Co-Share Risk - Middle of the road waiting period - Smaller daily benefit amount (50-75% of daily cost; $150 - $200 per day) - Compound or Simple inflation protection - Comprehensive coverage for 3-5 years - Peace of mind for portion of risk

50. Design Strategies Catastrophic Risk Transfer - Longest possible waiting period (self-insure for 6 months to a year or more) - Large daily benefit amount (75% of daily cost; $150 - $200 per day) - Compound or simple inflation protection - Comprehensive coverage for 5+ years - Peace of mind for catastrophic risk - Smaller annual premium

51. The Qualification Process

56. LTC Industry Milestone - 2008 $8.5 Billion paid in LTC insurance claims $1.2 Million – amount of largest claim still open 8.25 Million Americans have LTC insurance Source: 2009 AALTCI Sourcebook,

57. Questions & Answers We will be taking questions for the next 10 minutes.

58. More Information More information on LTC is available online at: www.CounselAssure.com or www.myretirementstrategy.com A copy of this presentation will be available to view for 90 days Follow-up questions? Please call Toll Free at 800-423-4891 Thank you!