Aging in Alabama

Observing the Vietnam Veterans Memorial in Washington, DC

Since the new VA rules went into effect on October 18, 2018, there will be many effects on Medicaid planning.  One significant impact will be the effect of transferring property to a disabled child, as many of our transfer examples in Part 1 of this series sets out.  The transfer penalties under the new VA rules, or the lack thereof, will be the same if the money is given to a non-disabled adult child, or a non-relative, an organization, or other type of unauthorized conduct.  For example, the VA also penalizes the applicant purchasing annuities for themselves after 10/18/2018.

So what’s the story about the disabled child exception? When faced with a healthcare crisis, many people are able to avoid the impact of transferring assets when one of their children is disabled.  First, the Medicaid rules permit the parents to transfer not only their home, but potentially all assets to a disabled child without penalty.  So those who consult with an attorney earlier in their lives or in the process can avoid the painful process of liquidating all of their assets and spending them on the nursing home.  Second, there is no lookback period for this transfer under Medicaid rules as it is an exception to the rules, so there is no 5 year period to wait so,  the veteran may choose to wait to see what happens before committing to a plan that would transfer assets until absolutely necessary, which will delay the ill effects of the transfer, notably, capital gains tax implications from the loss of stepped up basis when property is transferred during the life of the parents rather than after death as well as the personal loss of control of the asset.  Of the many things that could happen is that the applicant never lives long enough to qualify for Medicaid, so this really does a great service by permitting that decision, with its associated devastating costs, to be kicked down the road until Medicaid qualification is imminent.

So, what’s the problem with VA benefits?  The problem is that the VA has a different definition of disabled child, and will penalize the transfer to a disabled child that does not meet the VA’s definition.  The VA counts a child as disabled if we can prove that they were disabled for VA purposes or, in other words, were disabled prior to age 18.  First, many adult children of our clients become disabled due to work injury or illness later in life, so do not qualify.  Many of our older clients had adult disabled children who were disabled prior to age 18, but no evidence exists after 50 years.  Significantly, many parents of children who were intellectually disabled simply kept them at home as there were no alternatives or benefits 50 years ago.   School systems and physicians do not keep records for 50 years.  So, many of our clients cannot prove their child’s disability met VA standards.

If the transfer to the disabled child occurs on or after October 18, 2018, then the result will be that, when the parent must apply for Medicaid, they must first apply for all other benefits to which they are entitled, including VA Aid and Attendance.  If the transfer, for example, is a $200,000.00 in cash, and the couple before the transfer had $300,000.00, then the penalty amount would be $172,939 divided by $2230 (see part I of this series below) or 77.55 months, which is greater than 60, reduced to the maximum 5 year penalty   For that 5 year period, the applicant is disqualified from receiving the VA benefits due to the transfer.  (Keep in mind that, by further contrast, Medicaid has an UNLIMITED PENALTY PERIOD, so it is always better to consult with someone knowledgeable prior to applying for Medicaid to avoid the results of applying too early.  If this situation were a Medicaid problem and resulted in a 77.55 month penalty, then the better situation would be to wait 5 years to file the application, rather than filing and waiting 6 years, 7.55 months for the penalty to expire.  Were this a Medicaid issue, that 18 month extra penalty would cost in real life up to $180,000 EXTRA).

But, back to the VA.  It would be better to wait for 3 years but what if you do not have 3 years worth of money?  In this case, it might be better, if you are in a state where Medicaid does not penalize funds into special needs trusts, to set up a special needs trust with the disabled child as the beneficiary, before Medicaid.  This way, the transfer would not interfere with VA benefits.  Other options may be to pay for care in a different setting, pay off a mortgage or car note, buy prepaid funeral arrangements, or perhaps loan the funds with a proper promissory note and repayment schedule.

If the transfer is done and there is nothing that can be done about it, then when you get a penalty from the VA for those 5 years, there will be a hole that is VA sized each month that Medicaid may act like the VA money is there,  depending upon how your local Medicaid office handles it, for example, it is likely that the award will be for the parent to pay the nursing home their income PLUS the $2,230 per month each month for 60 months.   This is $133,800.00, so in the end the transferred funds will more than cover it, with more than $67,000 left over, so that might be a better solution then trying to pay private pay for 3 years.

As new information becomes available, we will update this section.

New VA rules went into effect on October 18, 2018 for all applications for Aid and Attendance on or after that date.  While some of those rules appear to correlate with Medicaid rules, they really do not resemble those rules at all.

First, a veteran in 2018 may have up to $127,061 in “net worth” and still maintain eligibility for Aid and Attendance purposes.  But, the annual income is included in that $127,061 number, which is not the case for Medicaid, which speaks in “countable assets” not “net worth”.

World War II veteran Zane Grimm at the Memorial Day Ceremony on May 27th, 2013, at the San Francisco National Cemetery. Attribution to Frank Schulenburg, source: https://commons.wikimedia.org/wiki/File:Memorial_ Day_2013_%E2%80%93_San_Francisco_National_ Cemetery_%E2%80%93_06.jpg

So, a couple with $100,000 and a $36,000 annual income will not qualify for Aid and Attendance without something else.  That something else may be the cost of care that the Veteran pays, that may be deducted from the income for eligibility purposes.  So, if a veteran is paying $3,000.00 per month for care, then the income is 0.00.

Next, there are exceptions to net worth and how they are counted.  As we discuss in more detail in another post, your home may or may not be countable.   Typically your vehicle, your funeral benefits, household contents and personal effects are not countable.

The other aspect of the new rules is how the amount for penalty is calculated, which differs from Medicaid as well.  For Medicaid purposes, if you transfer $100,000, for example, and there are no exceptions to the transfer rule, then Medicaid will penalize $100,000.

First, for the VA only the amount that affects VA eligibility is impacted, so the amount transferred is added back to your “net worth”, and only to the extent that the transferred funds impacted your eligibility are you penalized.  So in these two examples, you can see how the “penalty” is calculated for both medicaid and the VA:

1.  Veteran transfers $40,000 to adult disabled child who does not meet VA criteria for disabled child.  Veteran has net worth, after transfer, of 71,000.  The VA does NOT penalize at all, since $71,000 plus $40,000 is $111,000, so the transferred funds were not for the purpose of having the Veteran qualify for benefits, as he qualified prior to the transfer.  Medicaid will not penalize so long as disabled child meets criteria for disability under Social Security regulations.

2.  Veteran transfers $ 40,000 to adult disabled child who does not meet VA criteria for disabled child.  Veteran has net worth, after transfer, of 111,000.  The VA will penalize the difference between $151,000 and $127,061, the net worth limit, since the amount prior to the transfer kept the Veteran from qualifying for Aid and Attendance.  So, the VA will divide the difference of $22,939 by the MAPR or Maximum Annual Pension Rate of $2,230 and the penalty period will be 10 months that the Veteran will not receive Aid and Attendance. Medicaid will not penalize so long as disabled child meets criteria for disability under Social Security regulations.

3.  Veteran transfers 120,000 to non disabled adult child who is out of work and Veteran has, after transfer, no assets, but does have $31,000 income.   In this case, the VA will treat the penalty the same as in example 2, but Medicaid will penalize the $100,000.   Because the Medicaid penalty will be longer than 10 months, there shouldn’t be any other fallout.  But, if the Medicaid penalty was shorter, there could be. Again, stay tuned.

So a question may arise about how to handle these penalties, particularly if the client goes into the nursing home.  If you do not apply for Aid and Attendance, then you do not qualify for Medicaid, period.  If you do apply for Aid and Attendance, it will be subject to a 10 month penalty.  Medicaid will still award but it is unclear how Medicaid will treat the VA’s imposition of a penalty, since in the situation set out in the second scenario, Medicaid would not have penalized under the same circumstance and in the third scenario, it will.  I think its going to be a great debate for some time.  In these circumstance, the client has done absolutely nothing wrong and is simply trying to care for a child that is not self sufficient.   Would Medicaid require that the client pay back the funds or face a penalty for Medicaid purposes?  Not without a great overhaul of their rules in the second scenario but could be for the third?  Or in the case that the Medicaid penalty ends before the VA penalty?  I don’t think that Medicaid can simply act like you received the benefits either, as some transfer situations may dictate in those most draconian of jurisdictions.   The requirement that you apply for benefits for which you are entitled has been met, so Medicaid should simply award without reference to VA benefits.  But, you should be prepared for the 10 month penalty period to be over and for the additional income to be awarded to ensure that it does not affect eligibility at that point for Medicaid and notify Medicaid of the new income.

MORE IMPORTANT THAN EVER TO FIND OUT HOW THE NEW RULES WILL AFFECT YOU

On October 18, 2018, the VA regulations governing Aid and Attendance were radically changed.  It is more important than ever to get advice to avoid a 5 year penalty when you can least afford it.  The important changes that will impact you are:

• NEW 3 YEAR LOOKBACK PERIOD
• TRANSFERS PRIOR TO 10/18/2018 WILL NOT BE PENALIZED
• UP TO A 5 YEAR PENALTY IN PLACE FOR TRANSFERS ON OR AFTER 10/18/2018
• TRANSFERS TO DISABLED CHILDREN WILL NOT AVOID PENALTY UNLESS CHILD RATED DISABLED BY VA (DISABLED PRIOR TO AGE 18)
• AMOUNT THAT A VETERAN CAN HAVE AND APPLY RAISED TO $123,600 AND ADJUSTED EACH YEAR, THIS WILL INCLUDE INCOME AS WELL AS ASSETS
• HOME WILL NOT COUNT AS AN ASSET UNLESS IT IS MORE THAN 2 ACRES