Veterans Pension and Aid & Attendance Benefits:
2013 Update and Advanced Planning Strategies
I. INTRODUCTION
II. WHO CARES ABOUT VA PENSION – STOP WASTING MY TIME!
A. Ethical Obligation and Financial Incentive
B. Select Data & Statistics
III. PRE-PLANNING CONSIDERATIONS (WARNINGS AND RED FLAGS)
A. I Can, But Should I?
B. Competency & Compatibility (Playing Nicely With Others )
C. Poor Planning and Unsuitable Commission Based Products
D. Wolves in the Henhouse – Health Care Facility Administrations Beware!
IV. NEW FOR 2012-2013
A. Cost of Living Adjustment
B. Asset Transfers - Rule Changes?
C. Elimination of EVR Reports
D. UME Deductions for Independent Living Facilities
E. New Online Resources for Funeral and Burial Benefits
F. New VA Form - Grave Marker Medallion
V. OTHER ITEMS OF INTEREST
A. What Happens To A “Pending” Claim When a Claimant Dies?
B. Overpayment Demand – Waiver of Debt
C. Gifts & Inheritances
D. Precedential Authority of VA Fast Letters
VI. NET WORTH DETERMINATION
A. Generally
B. Show Me the Net Worth Formula!
C. Asset Transfer Rules
VII. PLANNING OPPORTUNITIES TO REDUCE NET WORTH
A. Spend-Down
B. Outright Gifts
C. Re-title Assets/Add Joint Owners
D. Trusts
E. Annuities
F. Issues relating to the Principal Residence
VIII. PLANNING OPPORTUNITIES - UNREIMBURSED MEDICAL EXPENSES (UMEs) & FAMILY CAREGIVER AGREEMENTS
IX. APPENDIX
Veterans Pension and Aid & Attendance Benefits:
2013 Update and Advanced Planning Strategies[1]
“…to care for him who shall have borne the battle and for his widow and his orphan…”
-Abraham Lincoln[2]
I. INTRODUCTION
VA Pension is a “needs based” program that provides a monthly cash benefit to eligible wartime veterans and surviving dependents. Pension benefits have become particularly valuable because they can help seniors defray the high cost of their long-term care. For this reason, Pension benefits are sometimes referred to as “poor man’s” or “middle class” long-term care insurance.
Because VA Pension is a “needs based” benefit, dependent on qualifying assets and income, estate planning opportunities exist to help clients who would not otherwise be eligible. Advocates must be especially careful however, because actions taken to create entitlement may have a negative impact on entitlement to other benefits (e.g. Supplemental Security Income (SSI), Medical Assistance (Medicaid)). Negative tax consequences may also occur (e.g. personal income tax, realty transfer tax). Accordingly, practitioners must be well versed not only in VA Pension law, but in other areas, including but not limited to Medicaid, trust and estate planning, and personal income tax. Each of these areas of law is complex in its own right; the combination of one or more simply increases the degree of difficulty. For purposes of this article, the author presumes the reader has an intermediate-to-advanced knowledge of aforementioned areas of law.
II. WHO CARES ABOUT VA PENSION – STOP WASTING MY TIME!
A. Ethical Obligation and Financial Incentive
Continuing legal education in the area of trust and estate planning heavily emphasizes federal estate tax issues. Such emphasis may be misplaced however, because statistical analysis indicates more clients are affected by veterans issues that they are federal estate tax matters.
There are approximately 22 million veterans in the United States. Pennsylvania ranks among the top 5 states in the following categories: (a) number of veterans (approx. 1 million); percentage of veterans population over the age of 65 (approx. 45-50%); and total annual expenditures (approx. $4 billion). These statistics do not account for spouses and other qualifying dependents (e.g. parents and children). In comparison, the total number of federal estate tax returns filed in the United States for 2010 was approximately 15,000.[3] Approximately 520 federal estate tax returns were filed for Pennsylvania decedents in 2011.[4]
In short, the data appears to support the proposition that: (1) Pennsylvania attorneys have a greater ethical obligation (e.g. Pa.R.P.C. Rule 1.1 (Competence)) and financial incentive (i.e. larger client base) to understand veterans benefit issues that they do federal estate tax matters; and (2) a reallocation of resources within trust and estate planning subject matters from, for example, federal estate tax to veterans benefits may be prudent.
B. Select Data & Statistics
The following appear in the Appendix as items A – G.
1. Department of Veterans Affairs Statistics at a Glance[5]
2. VA Benefits & Health Care Utilization[6]
3. State Summary – Pennsylvania and the U.S. Department of Veterans Affairs[7]
4. Veteran Population by State: Fiscal Year 2012[8]
5. Percent of Veteran Population 65 Years and Older by State: Fiscal Year 2010[9]
6. Fiscal Year 2011 Geographic Distribution of VA Expenditures (National)[10]
7. Fiscal Year 2011 Geographic Distribution of VA Expenditures (Pennsylvania)[11]
III. PRE-PLANNING CONSIDERATIONS (WARNINGS AND RED FLAGS)
A. I Can, But Should I?
In many instances a client can become eligible for benefits if they implement certain planning techniques. Before proceeding however, consider whether the client should pursue eligibility. Considerations include whether the cost (e.g. time, expense, increased complexity of the estate plan) to undertake the required planning is in the client’s best interest. For example, wholesale changes to a client’s estate plan solely to achieve a modest Pension benefit may not be advisable if he or she wants to preserve future Medicaid eligibility or avoid substantial tax liability. The analysis, of course, will differ on a case-by-case basis. What may be appropriate for a veteran with a potential maximum monthly benefit of $2,054 (2013) may not be appropriate for a surviving spouse with a maximum monthly benefit of $1,113 (2013).
B. Competency Compatibility (Playing Nicely With Others )
The Pennsylvania Rules of Professional Conduct require that lawyers exercise caution, especially when undertaking representation in a specialized area of law.[12] With respect to Pension planning, this requires, at a minimum, a thorough review and understanding of the rules governing the limitation on attorney fees and accreditation requirements (i.e. the ability to represent a client before the Department of Veterans Affairs).[13] Planners should also be aware that actions taken to artificially create eligibility for Pension benefits can have a negative impact on entitlement to other public benefits programs such as Supplemental Security Income (SSI) and Medical Assistance (Medicaid). Negative tax consequences may also occur, particularly where qualified retirement assets (e.g. IRA, 401(k)) and capital assets with basis issues (e.g. stock, real estate) are involved.
C. Poor Planning and Unsuitable Commission Based Products
The increasing awareness of Pension benefits planning has unfortunately given unscrupulous individuals and companies the opportunity to prey on a vulnerable demographic. Such predators often cloak themselves in the banner of patriotism, but in fact, simply use this marketing gimmick to peddle their wares, including abusive annuities, reverse mortgages, and worthless trust kits. The emphasis on commission based products is only part of the problem however, as the purported “planning” itself tends to be of poor quality – narrowly focused on the short-term goal of Pension eligibility and without regard to tax issues, compatibility with other public benefits, and consistency with the client’s desired testamentary intent, to name a few.
D. Wolves in the Henhouse – Health Care Facility Administrations Beware!
A trend among health care facilities, particularly “assisted living facilities", is to (a) refer residents to individuals or organizations for assistance qualifying for Pension benefits, and (b) invite individuals or organizations on-site to offer programs about Pension benefits. [14] These individuals and organizations, largely unaccredited, also target elderly claimants at health care facilities. VA periodically issues warnings concerning unauthorized representation and the unlawful solicitation of fees.[15]
ü Practice Tip: The reader may consider educating administrators at their local facilities concerning these practices. More often than not, administrators are simply looking for programming content which unwittingly creates openings for the unscrupulous to exploit. Administrators should be aware that what might seem like a harmless idea - helping residents access a guaranteed stream of income - could in fact result in unforeseen negative consequences (e.g. can a health care facility be found liable when a resident suffers financial loss as a result of poor Pension planning recommended by the facilities referral?)
IV. NEW FOR 2012-2013
A. Cost of Living Adjustment[16]
Under federal law, the cost-of-living adjustments (COLA) to VA Pension rates are the same percentage as those for Social Security benefits. The COLA for 2013 is 1.7%.
B. Asset Transfers - Rule Changes?
On May 15, 2012, the U.S. Government Accountability Office (GAO’s) published a report entitled “Improvements Needed to Ensure Only Qualified Veterans and Survivors Receive Benefits.”[17] On July 19, 2012, the U.S. Senate Special Committee on Aging held a hearing to address the GAO’s findings on the financial exploitation of veterans. The hearing brought to light, among other things, financial abuse among senior citizens into buying annuities without first informing the senior veterans that such transfers of assets could impact their eligibility for Medicaid.
In response to the GAO Report and Congressional hearing, two identical bills were introduced in Congress, S. 3270 in the Senate (June 6, 2012) and H.R. 6171 (July 24, 2012) in the House, proposing changes to the VA Pension program. The bills called for a three (3) year look-back period and penalty provisions for transfers. The 112th Congress convened without taking any action on either bill. It is anticipated that the bills will be reintroduced and approved in some form because they enjoy strong bi-partisan support.
C. Elimination of EVR Reports
1. Generally
On December 20, 2012, VA announced the elimination of Eligibility Verification Reports (EVR).[18] Under the old rules, many VA Pension beneficiaries were required to submit an annual EVR to ensure continued benefits. Under the new rules, VA, IRS and SSA will pool their databases to verify continued eligibility for Pension benefits. VA estimates it would have sent nearly 150,000 EVRs to beneficiaries in January 2013. Eliminating EVR’s allows VA to redirect more than 100 employees to work on the Compensation benefits backlog.
2. Continued Duty to Report
Pension beneficiaries still have a duty to notify VA of any changes to income or assets (beneficiary or a family member such as a dependent parent, spouse, or child). Changes must be reported on VA Form 21-527 (Income-Net Worth and Employment Statement).
3. Reporting Unreimbursed Medical Expenses (UME)
VA will only consider UME’s reported before the end of the next calendar year. For example, a report of UME’s paid in 2012 must be received by the VA on or before December 31, 2013. UME’s should be reported on VA Form 21-8416 (Medical Expense Report). It is not necessary to submit a new medical expense report every year for expenses that are recurring and will remain unchanged (e.g. nursing home and assisted living residents); provided however, if VA is not paying the highest possible pension rate due to income, beneficiaries can submit additional UME’s in order to reduce income and obtain a higher benefit.
4. Electronic Funds Transfer (EFT)
A reminder that the Treasury mandated all recurring federal benefits must be administered through either Electronic Funds Transfer (EFT) or Direct Express Debit MasterCard. Beneficiaries must select their preferred method of payment before March 1, 2013; otherwise the Treasury will contact beneficiaries directly.
D. UME Deductions for Independent Living Facilities
VA issued a new Fast Letter (12-23) on October 26, 2012. The new clarification tightens the policy regarding the deductibility of room and board expenses at senior and independent living facilities as an unreimbursed medical expense (UME) for VA Pension benefits.
1. Background
Prior to the new Fast Letter, there was inadequate guidance as to whether room and board fees paid to senior and independent living facilities should be treated as UMEs.[19] This created confusion because many applicants claimed that senior and independent living facilities are equivalent to assisted living facilities on the basis that such facilities provide expanded services, including emergency pull cords, 24-hour staffing, and locked exterior doors; therefore the room and board fees paid to such facilities should be deductible as an UME. Fast Letter 12-23 provides new administrative guidance indicating that room and board charges can only be deducted as an UME when the facility provides “custodial care”.
2. “Custodial Care”
The new Fast Letter states that a facility provides “custodial care” if it assists a resident with two or more Activities of Daily Living (ADL). If the facility cannot verify that it provides custodial care, then the applicant’s physician must confirm that he or she has prescribed custodial care services that will be provided to the resident of a senior or independent living facility by a third-party. VA will not consider emergency pull cords, 24-hour staffing, and locked exterior doors as a medical or nursing service.
3. Instrumental Activities of Daily Living (IADL)
VA defines IADLs as “activities other than self-care that are needed for independent living, such as meal preparation, doing housework and other chores, shopping, traveling, doing laundry, being responsible for one's own medications, and using a telephone.”[20] Expenses incurred for assistance with IADLs do not constitute UMEs because such assistance is not a medical or nursing service. VA will only permit deduction for the cost of assistance with IADLs when:
Ø The claimant is rated at the Aid & Attendance (A&A) or Housebound (HB) levels, or a physician certifies the claimant requires a protected environment, and
Ø The facility provides the resident with medical services or assistance with ADLs.
4. Applicability
The new Fast Letter applies to all original claims pending on or filed after October 26, 2012. For running awards, benefits will not be terminated solely based on the elimination of room and board expenses paid to a facility other than a nursing home or assisted living facility, which VA previously counted as a valid UME. That said, if a claimant relocates to a different facility other than a nursing home or assisted living facility, the new procedures will apply. The new guidance does not apply to nursing home or assisted living residents.
E. New Online Resources for Funeral and Burial Benefits[21]
VA created a new website to help funeral directors and family members find the most pertinent information to plan burials and apply for VA memorial benefits quickly. The new website contains links about eligibility, benefits and services plus videos and information regarding services offered with and without military funeral honors. The website is available at http://www.cem.va.gov/cem/funeraldirector.asp (last viewed January 19, 2013).