The state of Washington became the first state to enact legislation for long-term care. The WA Cares Fund, signed into law in 2019, created a publicly funded insurance program that will provide working residents of Washington an opportunity to vest into a basic level of long-term care (LTC) benefits. The program will be funded by Washington workers who will pay premium assessments (a tax) through payroll deductions, expected to begin July 2023.
Are you a high-income earner?
Would a long-term care event negatively impact your retirement?
Are you concerned about the legacy you will leave behind?
Our firm, TRC Financial, is helping companies, entrepreneurs, and high-income executives proactively evaluate the potential financial risks and tax impacts of a California state mandated long-term care program. There are currently over 10 states, including California, who are considering LTC legislation. The state of California’s task force submitted 5 proposed plan designs to the Governor, Insurance Commissioner, and Legislature in December of 2022. A final recommendation is expected sometime before or on January 1, 2024.
What is the possible impact of a state mandated long-term care program?
Looking at Washington as an example, the LTC program introduced the following to all wage earners in the state:
A new payroll tax of $0.58 per $100 of wages (the $0.58 could go up in the future)
Maximum lifetime long-term care benefits of only $36,500
Vesting into the program over 10 years
A requirement that you must be living in Washington State to receive the long-term care benefits
No cap on earnings that are taxed
California Long-Term Care Tax: Limited or No Opportunity to Opt-Out
Following Washington, California is aggressively moving to potentially start their own Long-Term Care program. It is important to understand that California may allow a short amount of time for individuals to buy long-term care insurance to avoid a new LTC payroll tax. A California long-term care program may be implemented as soon as 2024.
It can take up to 8 weeks to underwrite and be approved for a private long-term care policy. If California passes a long-term care program with the ability to opt-out with private long-term care insurance, high income earnings should consider acting now. Opt-out language could be drafted with an opt-out date defined as of the date legislation was introduced or the day it was signed into law.
Here are some of the reasons our clients are acquiring long-term care insurance:
Possible opt-out: Proactive ownership of private long-term care insurance if California, like Washington, implements a program and allows people to “opt-out” with private insurance coverage.
Confidence: Having long-term care insurance in place can provide confidence, knowing that you and your loved ones will have financial protection if the need for long-term care arises.
Protecting assets: Long-term care insurance can help protect your savings and assets from being depleted by the high cost of long-term care.
Maintaining independence: By having long-term care insurance, you can ensure that you can receive the care you need in a place of your choice, rather than having to rely on family members or the government.
Relieving burden on loved ones: Long-term care insurance can help relieve the financial and emotional burden on family members who might otherwise have to provide or pay for your care.
Providing dignity: By having long-term care insurance, you can ensure that you will receive the care and support you need to maintain your dignity and quality of life as you age.
Be Proactive, not Reactive
As happened in Washington State, you may have little notice before your state enacts a Long-Term Care Tax. Don’t wait to get protection! To avoid potentially being taxed, you may want to consider owning a tax-qualified Long-Term Care Insurance policy following Section 7702(b) of the U.S. Code.
We recommend that companies and high-income earners evaluate a long-term care insurance plan. Please visit https://www.trcfinancial.com/long-term-care-state-legislation to learn more and schedule a time to talk with our team.
This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. To determine what is appropriate for you, schedule a time to connect.
This is not an offer to sell a security or insurance product. This information is provided for informational purposes only and should not be construed as legal or tax advice. You should discuss your circumstances with a financial professional before making any decisions. This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.