life insurance policy converted to LTC policy

[nytcpa2012]

Assets of a life ins policy owned by a Trust was moved into a new policy (same co., and directly moved) to purchase a Long Term Care policy.  Will all of that be taxable?

Also, since the annual deductible amount for LTC insurance is much less than the amount used to purchase the LTC policy (apparently paid in full for life since the assets are well over $100K, how does the taxpayer get to deduct the rest on Schedule A....over a number of years???

[qbteachmt]

"to purchase a Long Term Care policy. Will all of that be taxable?"

Which part? Is this what you are asking:

The cash value in the life insurance, for funds already tax before being paid in, were used to buy LTC. There is no tax on the life insurance funds, since they are likely less than what's been paid in all these years.

Or, are you asking:

The LTC will be paid out against qualifying costs. There is no tax on the payouts, and besides, they offset expense, anyway.

"since the annual deductible amount for LTC insurance"

Deductible? Or "Premium?"

"apparently paid in full"

In other words, there is no further premium for ongoing coverage? In general, a paid-in-full policy will generate interest that is used to cover the premiums. And if they don't cover that cost, you get a bill to pay. You'd have to know what this policy includes.

"how does the taxpayer get to deduct the rest on Schedule A....over a number of years?"

The rest of what? Deduct the Premium (they are not paying)? Or, the "rest" is the balance of their costs for care?

There are qualified and nonqualfied policies. Google:

what are qualified long-term care premiums

Remember that there are limits by age for LTC premium deductions. Remember that these products rely on basis, and at the end, nearly every participant has lost, not made, anything. The fees alone are ridiculous.

[BobKamman]

LTC insurance is a good idea for some people.  Buying it through a shell game combining life insurance or an annuity, is usually a bad idea.  I wonder if what happened here is that the life insurance cash value was converted to an annuity (taxable, to extent that proceeds exceed basis, which often happens with older policies) and then the annuity pays the annual premiums on the LTC policy (deductible each year, subject to limits based on age).  

Some people can't afford LTC insurance.  Others have so much money they are self-insured.  For those not in those two categories, shopping can be difficult. Insurers will tell them, "we can't raise your premium unless we raise the premium for everyone with this policy."  Then a few years later, they tell everyone with the policy, "we have a newer and better policy, that costs less, if you qualify."  Those who are still healthy of course sign up.  Those who can't remember what they had for breakfast, must keep the old policy, on which the premium has been raised for everyone.  

[nytcpa2012]

thanks for your input.  makes sene to me.  client is wealthy so not worried about him, and both he and his wife eat healthy breakfasts!

[nytcpa2012]

just the cash value was used to purchase the LTC policy, which is paid in full now.  Just wanted to get the client a loss since box 5 exceeded box 1, but someone else said no loss allowable on a rollover. thx for your help

[qbteachmt]

No loss for Personal policies. If this was owned by their corporation, that falls under investment rules.

[nytcpa2012]

yes I did.  see responses to other emails. basically since losses on rollovers are not deductible, this question becomes moot for the current year.