Business owners routinely engage their advisors for tax-efficient strategies to improve their bottom line, so qualified plans, exit strategies, estate planning, and cash flow management get most of the advisory community's attention.  Unfortunately, Long-Term Care (LTC) Planning—especially for single-member S-Corp clients—is often ignored, even though a simple, powerful funding strategy might be hiding in plain sight.  With tax season in mind, an Executive Bonus can fund a Life Insurance / LTC Hybrid solution, allowing business-owner clients to reduce taxable income while creating a meaningful Long-Term Care plan they own and control.

Why Business Owners Should Consider Executive Bonus Plans for LTC Planning

Business owners want tax efficiency, simplicity, and control, and an Executive Bonus Plan provides all three!   They get tax efficiency by paying premiums through a bonus, which is tax-deductible as a business expense, reducing taxable income on the S-Corp's K-1.  Plus, when properly structured using a "Double Bonus" strategy, the owner can receive the premium payment effectively tax-free.  They get simplicity since there's no need for complicated plan documents or administrative requirements, making it an excellent vehicle for the single-member S-Corps who is both employer and employee.  Finally, there is control, with retention of policy ownership and available LTC benefits, whether the owner (and spouse/partner) needs care or if the policy's death benefit is ultimately paid to beneficiaries.

How To Fund A Long-Term Care Plan with an Executive Bonus Plan

The concept is straightforward: the S-Corp pays a bonus to the owner-employee to fund a Life/LTC Hybrid Policy.  The bonus is treated as ordinary income to the owner, but it's deductible by the S-Corp, reducing taxable income.  Then, to make the premium payment effectively tax-neutral, the entity can also pay an additional bonus to cover the tax liability, thus, the Double Bonus Strategy.  Consider the following example:

• Annual Premium for LTC Policy:  $20,000
• Effective Tax Rate:  30%
• Tax Due on $20,000 Bonus:  $20,000 x 0.30 = $6,000
• Double Bonus Amount:  $20,000 (premium) + $6,000 (taxes) = $26,000
• Net Available for Premium Payment:  $20,000

Using a Double Bonus Strategy, the business deducts the full $26,000 as a business expense, and the owner receives the entire $20,000 net to cover the premium.

What The Advisory Community Should Know

1. Distributions Aren't the Answer:   Some business owners mistakenly believe that taking a distribution from an S-Corp will provide a tax-free solution.  It won't.  The key is creating a legitimate business expense that reduces pass-through income, which only an Executive Bonus Plan can do.

2. Control Matters:  Unlike qualified plans bound by ERISA rules, contribution limits, vesting schedules, and potential plan restrictions, a Bonus Plan provides business owners complete ownership and flexibility over their LTC policy.  They decide the type of policy, the funding structure, and how benefits are ultimately used—whether for long-term care needs or as a death benefit for their heirs.  The policy is theirs, not the company's, meaning it goes with them regardless of business changes or the company's eventual sale.

3. Advisors Are Missing Out:   Many advisors overlook this strategy due to a lack of familiarity with Executive Bonus Plans or assumptions about how S-Corps work.

Now is the time to help your Business Owner clients take advantage of Executive Bonus plans!  For single-member S-Corp clients, this could be the simplest, most effective way to incorporate Long-Term Care Planning into their business strategy.  

There's only one remaining question: When will you bring it to their attention?