Veteran's Pension Planning for Long Term Care Costs

The Department of Veteran’s Affairs (VA) adopted regulations concerning eligibility for Veteran’s Benefits to help pay for long term care costs.
There are many positive outcomes that come from the regulations. Some of these include:
- an increase in the value of the exempt resources and assets;
- guidance about treatment of a personal residence;
Liberalizing allowable medical expenses for offsetting income for eligibility purposes, including instrumentalities of daily living (IADL’s);
expansion of available care settings in which medical costs will qualify as medical expenses, including independent living communities, so long as the medical need/recommendations are met.
The new regulations impose a 36-month look-back period and sanctions for asset transfers for less than fair market value. They also penalize certain types of annuities that have historically been used to reduce assets.

Purpose of This Blog

This article is designed to help the reader understand the Aid and Attendance regulations which will serve Veterans and their spouses.

Determining Eligibility

Asset Criteria. Because the program is a needs-based benefit, the applicant will be limited in the assets they can have and still be eligible. The new regulations establish a test for asset eligibility.
1. Assets include “the fair market value of all property that an individual owns, including all real and personal property… less the amount of mortgages or other encumbrances specific to the mortgaged or encumbered property.
2. Net worth: The net worth limit effective December 1, 2019, is $128,061. “Net worth means the sum of a claimant’s or beneficiary’s assets and annual income.” Therefore, to make this calculation, it is important to also know how to calculate income.
3. Exempt Resources.
  1. A primary residence with no more than 2 acres of land unless such additional acreage is not marketable, and
  2. the “value of personal effects suitable to and consistent with a reasonable mode of life, including family transportation vehicles.”
Income Criteria: Income for determining eligibility for the pension (mostly) is often referred to as Income for VA Purposes (IVAP). Essentially, you take the client’s income and subtract out allowable medical expenses, less 5 percent of the base pension.If that number is greater than the pension benefit you are seeking (base, housebound aid and attendance, or survivor’s pension), you are not eligible. If the result is lower, you receive the difference up to the Maximum VA Pension (MVAP) amount.
Medical Criteria: To qualify for pension benefits, the amount you will receive is based on your ability to pay your medical expense attendance standards. A medical expense is deductive from income to determine the client’s IVAP. This is where the new regulations made big changes.

The Planning Process: Dealing with Excess Income

To the extent the applicant’s IVAP exceeds zero dollars, it will either decrease or disqualify the pension from pension benefits. It will also decrease the amount of assets the client can have since one year’s projected income is included in the asset limit.

The best way to decrease income is to increase unreimbursed medical expenses (UME’s). The new regulations provide the following categories of eligible medical expenses.

Hospitals, nursing homes, medical foster homes, and inpatient treatment centers: The deductibility of costs associated with these care settings was not changed by the regulations and are still allowable medical expenses, including all services, meals, and lodging.
In-home care: The new regulations provide as follows: Payments for assistance with ADLs and IADLs by an in-home attendant are medical expenses so long as the attendant provides the disabled individual with heal care or custodial care. Payments must be commensurate with the number of hours the provider attends to the disabled person. The attendant must be a health care provider unless:
1. The disabled individual needs A&A or is housebound; or
2. A physician, physician assistant, certified nurse practitioner, or clinical nurse specialist states in writing that, due to a physical, mental, developmental, or cognitive disorder, the individual requires the health care or custodial care that the in-home attendant provides.

This language makes it clear that any in-home attendant who provides health care or custodial care, licensed or not, can be the service provider of all ADL’s and IADL’s (see below) and have the cost thereof be considered a medical expense so long as the above criteria are met. If the attendant is not licensed, the client need only obtain the requisite statement from a healthcare professional or be rated for housebound or aid and attendance. The new rules have also extended the pool of professionals who can provide that statement to include a physician, physician’s assistant, certified nurse practitioner, or clinical nurse specialist.

C. Care facilities other than nursing homes. This category is for all other types of facilities, including assisted living facilities and independent living facilities.

In the past, many independent living facilities believed their residents would not qualify for VA Pension purposes. The new regulations include care facilities “other than a nursing home.”

Care in a facility may be provided by the facility, contracted by the facility, obtained from a third-party provider, or provided by family or friends.
Payments for health care provided by a health care provider are medical expenses.
The provider does not need to be a health care provider, and payments for assistance with ADLs and IADLs are medical expenses, if the disabled individual is receiving health care or custodial care in the facility and –
The disabled individual needs A&A or is housebound; or
A physician, physician assistant, certified nurse practitioner, or clinical nurse specialist states in writing that, due to a physical, mental, developmental, or cognitive disorder, the individual needs to be in a protected environment.

The Planning Process: Pre-Planning with Excess Assets

Transfer Assets and Wait 36 Months: A client can transfer an unlimited amount of resources, and once 36 months have passed, the client is in the clear for VA purposes.

Where possible, an irrevocable trust should be used to hold transferred assets. This protects the assets from abuse or misuse and makes sure they are still there if needed.

When outright transfers make sense (usually because of uncomplicated family dynamics or small gifts that do not justify a trust) it may be wise to create an agreement between two or more children for the management of such funds and put them in a joint account that requires multiple signatures to access them. Such an agreement may also address issues such as 1) what happens if one of the children dies before the account is distributed to the kids; 2) whose social security number will be used for the account and their right to be reimbursed for the tax impact; and 3) whose agreement is required to shut the account down in the end. The agreement should be careful not to connect itself to the welfare and benefit of the gifting parent and should not provide that assets will be distributed upon the death of the parent.

In making transfers, it is important to keep in mind the Medicaid implications. If the claimant needs nursing home care in the future, Medicaid will usually be the better benefit. However, Medicaid has unlimited penalty periods and a give-year look-back. Medicaid will also penalize all transfers whereas the VA will only penalize the transfer of covered assets (those assets that exceed the net worth limit).

To discuss your NJ Veteran’s benefits matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing consultations if you are unable to come to our office.

By Fredrick P. Niemann, Esq., a Freehold Township, Monmouth County, NJ Veteran’s Benefits Attorney