An Estate Shrinkage Solution for the High Net Worth Individual: Trust Owned LTCi


Here is a very interesting wealth shifting strategy that is best suited for the high net worth client who cannot establish a need for additional life insurance coverage, yet wants to reduce his taxable estate. In this example, the individual purchases a long term care insurance policy which is owned by a Trust. Let’s say for example, the premiums are $20,000 per year. Each year, he (the insured) pays the insurance premiums to the Trust. The Trust, in turn, pays the premiums to the insurance company. It is important to note that this policy has a Full Return of Premium provision upon the death of the insured.


Should the client go on claim, the insurance company then pays the claim reimbursements directly to the Trust. Let’s say, for example, the claim reimbursement payments to the Trust total $150,000 per year. These payments are left there to accumulate, causing the value within the Trust to grow. As for the actual $150,000 payments to the care providers or nursing home, the individual himself pays for these out of pocket, thereby further reducing his taxable estate. Finally, upon the death of the insured, the insurance company reimburses to the Trust, the full amount of the premiums paid, regardless of the claims paid.


In this example, if the insured paid premiums for 20 years and was on claim for 3 years, he would have reduced the size of his estate by $400,000 ($20,000 X 20 years) plus $450,000 ($150,000 in out of pocket expenses X 3 years) for a total estate reduction of $850,000. At the same time, the Trust would have grown by the same amount. He has effectively shifted 850,000 which will now pass on both income tax and estate tax free!


Please contact me so that we can discuss how these strategies can benefit your clients and your practice.