As most of you know by now, the Veterans Administration (VA) released new regulations that makes it more difficult to qualify for the VA Aid and Attendance Pension.  These new regulations provide new rules regarding an applicant’s net worth and provide new Medicaid-like transfer penalties.

To start out, the new VA regulations are not all bad.  At the very least, they bring some clarity to the qualification process for an applicant.  Prior to these new regulations, applicants and their advisors were left to guess how much a married couple could have in assets verses how much a single person could have in assets based on their age and medical health.  Whether good, bad, or in between, here are the new rules we are all stuck with:

COUNTABLE ASSETS

Old Rule:  Under the old rules, there was no asset limit specified; however, $80,000 was the amount usually used to determine asset eligibility.  That amount did not include their house or their car.  Many times, the VA caseworkers would use $80,000 only as a guideline and on a case by case basis, try to determine if they felt someone was going to run out of money before the end of their life.  They looked at age, marital status, assets and medical health.  This meant that if a married couple was allowed to have somewhere around $80,000 in assets, a single person should probably be down around$40,000 in assets to qualify.  Very ambiguous, and many times unfair, to say the least.

New Rule:  VA will now be setting their asset limit to that of the Medicaid Community Spouse Resource Allowance (CSRA) that is set by the Centers for Medicare and Medicaid Services.  This is the allowance that is used to determine the amount of countable assets that a community spouse is allowed to keep while qualifying a nursing home resident for Medicaid.  This amount is set on an annual basis, which usually goes up for a cost of living increase each year.  In 2019, this amount is set at $126,420.

The benefit of this new rule is that we now have a clear net worth amount that will go up each year.  Additionally, VA has decided that this new asset amount will apply to all applicants, regardless of their marital status.  This means even a surviving spouse that is allowed to have up to $126,420 in assets in 2019 and still qualify for the benefit.

Example:  Mike and Sue are married.  They have $110,000 in assets, not including their house and car.  Under the old VA rules, Mike would not qualify for benefits because he was over $80,000.  Under the new VA Rules, he does.

Example:  Mike dies.  Now, Sue needs to apply for VA benefits as a surviving spouse.  Under the old VA rules, Sue would probably need to be down somewhere around $40,000 (because that is half of $80,000) to qualify.  Under the new rules, Sue is allowed to inherit all of the $110,000 from Mike and still qualify for VA benefits, just as Mike was able to do while he was alive.

THE PRINCIPAL RESIDENCE

The good news is that the Principal Residence is still considered a non-countable asset for VA purposes.  However, the new VA rules impose a 2-acre limit on the size of the property.   So, if an applicant’s home sits on a farm or plot of land larger than 2 acres, the extra land would be included in the asset calculation “unless the additional acreage is not marketable.”   Examples that could cause the additional acreage to be unmarketable are properties that are only slightly more than 2 acres, properties that are surrounded by other owners and therefore inaccessible, or properties that are subject to zoning limits that could frustrate a sale.

ASSET TRANSFERS AND THE 3 YEAR LOOK-BACK!

Old Rule:  Under the old VA rules, there was no look-back period.  This meant that clients could move assets into an Irrevocable Trust, in which they pick their child or trusted friend to be the trustee and in charge of the money, and become asset qualified for VA benefits the next day with no penalty.

New Rule:  The new VA rules impose a 3 year look-back and transfer penalties.  Applicants will have to disclose all financial transactions in which an asset was transferred and the applicant did not receive fair market value in return within the 3 years prior to the application. Any asset transfers made prior to October 18, 2018 will not be penalized.  Any asset transfers made after October 18, 2018, will be assessed a transfer penalty, meaning a period of ineligibility, based on the amount of assets transferred. Now, this penalty will only apply to assets that are transferred in excess of the asset limit.

Example:  Joe transferred $15,000 to his son.  Joe then applied for VA benefits with $50,000 in his name.  Joe will not be penalized by the VA for this transfer because he was below the asset limit prior to the transfer.

Example:  Joe transferred $50,000 to his son.  Joe then applied for VA benefits with $100,000 in his name.  Prior to the transfer, he had $150,000 in assets and was over the asset limit.  Because the transfer brought him under the asset limit, he will be penalized.  In calculating the penalty amount, VA will take $150,000 (Joe’s asset amount prior to the transfer) – $126,400 (VA asset limit) = $23,600 will be subject to penalty.  This number is also called the “covered asset” amount.

HOW WILL THE VA CALCULATE THE PENALTY?

VA will divide the value of the covered asset (the amount subject to penalty) by a divisor that will always be the “Maximum Annual Pension Rate” (MAPR) for a veteran with one dependent.  The MAPR for a veteran qualifying for Aid and Attendance with one dependent is $26,765 annually.  You divide this number by 12 and drop the cents, which is $26,765/12 = $2,230.42.

Even when you have a single veteran or a surviving spouse applying for benefits, you will always use the MAPR for a veteran with one dependent divided by 12 to calculate the transfer penalty divisor.

After calculating the divisor, take the amount gifted or the “covered asset” amount, which in Joe’s case is $23,600, and divide it by the penalty divisor of $2,230.42 in 2019.  $23,600/$2,230.42 equals a 10.6-month penalty.

NOW THAT I HAVE A PENALTY, WHEN DOES IT BEGIN AND WHEN DOES IT END?

The penalty begins to run on the first day of the month following the month of transfer.  The penalty ends on the last day of the month in which it is set to end.  The applicant is eligible for benefits on the first day of the following month.

Example:  Joe transferred the $50,000 to his son January 2, 2019.  His 10.6-month penalty will begin on February 1, 2019.  His penalty will end sometime in November 2019 and he will be eligible for benefits staring December 1, 2019.

WHAT DO THE NEW RULES MEAN FOR IRREVOCABLE TRUSTS?

For years advisors have been doing VA planning with trusts to help people qualify for benefits.  Clients were able to create an Irrevocable Trust and move assets into it.  The difference now is that you must do this trust 3 years prior to needing the VA benefit.  For so long, applicants were able to wait until the need arose, create the trust, move money, and apply.  Those days are gone.  The new regulations will require you to create the trust, move the money, let it sit there for 3 years, and then apply for benefits.  Therefore, planning with Irrevocable Trusts still exist; however, applicants that want to take advantage of the VA benefits will need to do it sooner than later.

OTHER CHANGES – MEDICAL EXPENSES

In order to qualify for the Aid and Attendance pension, in addition to meeting the asset limits spelled out above, an applicant must show that they need help with at least two activities of daily living (ADLs), which the VA previously defined as “bathing/showering, dressing, eating, transferring from bed or chair, and toileting.”  Assistance with two or more ADLs constitutes needing custodial care in the VA’s eyes.  Another positive change is that in the new regulations, VA has added assistance with “ambulating within the home or living area” as an approved ADL.

Additionally, VA has expanded the definition of custodial care to include “supervision because an individual with a physical, mental, developmental, or cognitive disorder requires care or assistance on a regular basis to protect the individual from hazards or dangers incident to his or her daily environment.”  This means that an applicant that has dementia but can perform all but one of their ADLs but requires constant supervision can now qualify for the benefits when they could not before.  For example, so many times we have a client that needs to be in the protected environment, but within that protected environment is still able to shower, dress, eat, and walk down to meals, but because of their dementia cannot live at home.  Now they too are able to qualify for the benefits.

The VA defines Instrumental Activities of Daily Living (IADLs) as tasks that a person must be able to complete without assistance in order to live independently.  Examples of these are shopping, managing finances, meal preparation, handling medications, housekeeping, laundering, making telephone calls, and transportation.  These tasks are not considered medically necessary to the VA and are generally not considered deductible medical expenses.  However, many times the line between ADLs and IADLs can be very blurry.  Under the new VA rules, if an applicant is received custodial care from a provider or facility, IADLs can be added as a deductible medical expense.