When a loved one is affected by a long term care issue, every member of the family is affected by that long term care issue. Unfortunately for a business owner, that means his or her employees are affected when one of their employees’ family members has a long term care issue. Recent studies have shown that any given individual has a 50% likelihood of being affected by long term care in their lifetime. And 75% will be affected by a loved one’s long term care issues.
An informal poll of our firm’s clients reflects that the average costs for skilled nursing care in the St. Louis, Missouri area is $7,000.00 per month. That amounts to $84,000.00 per year. It is much higher than that in other areas of the country.
Given these costs, it’s no wonder why an employee would devote more time to finding a solution to these issues than the job they have been hired to do. In fact, if they are also the ones providing care to their aging loved one, this is like your employee having another full time job. The ensuing decline in productivity will cost a business owner money. That being the case, it only makes sense to provide some solutions to employees in advance. But what can be done?
What is Long Term Care?
When someone has a long term care issue it means that they have issues with at least two activities of daily living or a cognitive impairment (such as dementia or Alzheimer’s disease.) The activities of daily living are bathing, eating, dressing, toileting, continence, and transferring (getting in and out of bed or a chair.) It is considered “long term” as the need is expected to continue for at least 90 days.
What Can a Business Owner Do?
Providing long term care insurance to the business owner, executives and key employees is one piece of the puzzle. If long term care were to prevent a small business owner or key employee from being able to work, the business would go under quickly. Providing long term care insurance to a select group of employees is a great way to hedge your exposure to the risks of long term care. There are also tax incentives associated with providing this insurance.
Premium payments made by an individual are included as a personal medical expense if you itemize on your taxes. Medical expenses exceeding 10% of your adjusted gross income (AGI) are deductible. However, self-employed individuals (including those in sole proprietorships, partnerships, LLCs, and S-Corporations) can write off 100% of the individual limit regardless of the 10% AGI limit, as a reasonable and necessary business expense.
This treatment is similar to traditional health insurance premiums. Likewise, for C-corporations, premium payments are also fully deductible as a reasonable and necessary business expense. This can apply to owners, their spouses, their dependents, and all employees. Tax treatment for benefits received from the policy for employees is very favorable as well. Employer paid long term care insurance is excluded from an employee’s gross income and the benefits received are tax free.
But what about the indirect consequences of an employee’s loved one needing long term care that a business owner can’t insure against? Start by providing education to your employees about the risks of long term care and give them resources to seek out professional guidance. Long term care solutions are one of the most misunderstood set of legal and financial rules that exist, and without proper education, can take years to figure out. Inviting a local elder law attorney or a qualified financial professional to speak to employees about these issues can avoid hours of lost productivity.
Long term care issues are something that can be planned for in advance. A business owner should encourage his or her employees to seek guidance from a legal professional to pre-plan for any issues that may arise with their loved ones. Like most legal and financial issues, advance planning leads to the best (and least stressful) solution when those issues arise.
Written by Brian G. Quinn, Attorney with Quinn Estate & Elder Law
About the Author
Brian G. Quinn is an Attorney with the law firm of Quinn Estate & Elder Law in St. Louis, Missouri. If you are interested in learning more about long term care or protecting yourself, your family, or your business using legal strategies, please feel free to contact Brian at 636-686-6790 to schedule a consultation.