New VA Benefits Rules: Determining Eligibility, Valuation of Assets ...

Presenting a live 90-minute webinar with interactive Q&A

New VA Benefits Rules: Determining Eligibility, Valuation of Assets, Look-Back Periods, Transfer Rules, Penalties

TUESDAY, MARCH 19, 2019 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

Today's faculty features: Jodi E. Murphy, Attorney, Murphy & Berglund, Altamonte Springs, Fla. Valerie Peterson, Chief Executive Officer, ElderCounsel, Evergreen, Colo.

The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 1.

Hot Topics in Veteran's Benefit Planning 2019 By: Jodi Murphy, Esq.

Murphy & Berglund, PLLC jodi@

I. Change in VA Pension rules effective October 18, 2018 A. Net Worth Limit i. Net worth limit is equal to Maximum Community Spouse Resource Allowance (CSRA) for Medicaid Purposes. 1. Currently $127,061. 2. Limit is subject to increase by same percentage as cost-ofliving increase for Social Security ii. Net worth is defined as sum of the claimant's (and spouse if married) assets and annual income. iii. Net worth determinations are made as the date of: 1. The original claim; 2. A new claim made after period of non-entitlement; 3. A request to establish a new dependent; or, 4. Receipt of information by VA that a claimant's net worth has changed B. Assets i. What assets count for VA Pension purposes? 1. Household assets for a married couple includes assets owned by both spouses. 2. Household assets for a surviving spouse include only the assets owned by the surviving spouse. ii. Exempt assets: 1. Homestead property a. Primary residence is exempt even if the applicant is not living in the property b. If the primary residence is being rented out the property is still exempt as an asset but the income will count as income 2. One automobile iii. Decreasing assets: 1. a veteran, surviving spouse or child, or someone acting on their behalf, may decrease assets by spending them on an item or service for which fair market value is received unless the item or items purchased are themselves part of net worth. a. Fair market value is the price at which an asset would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

b. VA will use best available information such as appraisals, public records, and market value of similar property to determine fair market value.

2. The expenses paid for by the claimant's assets must be an expense of the claimant or a relative of the claimant, and the relative must be a member or constructive member of the claimant's household.

C. Income for VA Purposes (IVAP) i. Examples of excluded income are: 1. Income tax returns 2. Veterans benefits from States and municipalities up to $5,000 per year 3. Reimbursement payments for loss such as insurance settlement payments for accidents, theft or loss, or casualty losses 4. Statutory exclusion listed at 38 C.F.R. ? 3.279 ii. Waiver by a claimant of non-excludable income will be counted as countable income. 1. A claimant who withdraws a claim for Social Security retirement benefits in order to maintain eligibility for unreduced benefits at a later age will not be considered as having waived income.

D. 36-month look back period i. Penalty period calculation 1. Under the new rule, the transfer of a covered asset during the 36-month look-back period will trigger a penalty period of up to 5 years. a. Look-back period begins on the date on which VA receives a pension claim and includes the 36-months immediately preceding the date of claim b. This does not include transfer(s) made prior to October 18, 2018. 2. A "covered asset" is an asset that was part of the claimant's net worth, was transferred for less than fair market value and, if not transferred, would have caused or partially caused the claimant's net worth to exceed the net worth limit. a. Transfers for less than fair market value are defined as: i. selling, conveying, exchanging, or gifting an asset for an amount less than fair market value of the asset; or, ii. a voluntary asset transfer to, or purchase of, any financial instrument or investment that reduces net worth by transferring the asset to, or purchasing, the instrument or investment

unless the claimant establishes that he or she has the ability to liquidate the entire balance of the asset for the claimant's own benefit. 3. Pursuant to 38 CFR ? 3.276(e), VA calculates the length of the penalty period by dividing the total covered asset amount by the monthly penalty rate, which is the maximum annual pension rate (MAPR) under 38 U.S.C. 1521(d)(2) for a veteran in need of aid and attendance with one dependent as of the date of the pension claim, divided by 12, and rounded down to the nearest whole dollar. ii. Curing the penalty period 1. If the VA receives evidence that some or all of the claimant's covered assets were returned to the claimant before the date of claim or within 60 days after the date of VA's notice to the claimant of VA's decision concerning the penalty period, then VA will recalculate or eliminate the penalty period. 2. The VA must receive the evidence regarding the return of the covered assets within 90 days from the date of VA's notice to the claimant regarding its decision concerning the penalty period E. Medical Expenses i. Medical expenses must be unreimbursed and include payments for items and services that: 1. Are medically necessary; 2. Improve a disabled individual's functioning; or 3. Prevent, slow, or ease an individual's functional decline. ii. List of items considered deductible medical expenses can be found at 38 C.F.R. ? 3.278 (c)(1) through (7). iii. Payments made to hospitals, nursing homes, medical foster homes, and inpatient treatment centers include the cost of meals and lodging. iv. Payments made for in-home assistance with ADLs and IADLs by an in-home attendant are considered deductible medical expenses as long as attendant provides health or custodial care. 1. ADLs are basic self-care activities and consist of bathing or showering, dressing, eating, toileting, transferring, and ambulating within the living area. 2. IADLs are independent living activities such as shopping, food prep, housekeeping, laundering, managing finances, handling medications, using the telephone, and transportation for non-medical purposes. 3. Custodial care is regular assistance with two or more ADLs; or regular 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.

v. Attendant providing in-home care must be a health care provider unless: 1. the disabled individual requires aid and attendance 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 of custodial care that the in-home attendant provides.

II. Planning techniques for VA accredited attorneys A. IRAs i. There are no known planning strategies for IRAs that will work under the new rules ii. Conversions to income annuities are no longer feasible iii. The only option for IRAs that exceed the allowable limit of $123,600 is to liquidate, pay taxes, and spend down appropriately B. Irrevocable Trusts- the use of irrevocable trusts will be helpful in proactive planning C. Investment in income producing businesses such as EPIC or Coastal Cove- the value of the investment would be considered an asset and the income would count as income so this is not likely going to be a recommended strategy for VA Pension planning. D. Use of Pooled Trusts i. Transfers to a pooled trust will not create a penalty but the assets will count towards the asset limit as it would in a self-settled SNT ii. When to use this technique1. if you have a SINGLE applicant trying to qualify for both Medicaid and VA Pension and their assets are more than $2,000 but less than $123,600 2. If you have an applicant with more than $123,600 that wants to qualify for Medicaid first (ie: someone who comes of the waitinglist for HCBS in an ALF and wants to qualify for Medicaid but have funds available to private pay the difference between a Medicaid shared room and private room rate). Once they spend down to $123,600 they would qualify for VA Pension. If they have a negative IVAP score it is possible to qualify for both Medicaid and full VA Pension. E. Purchase of a life estate in a child's home- the VA rules do not address this but some practitioners think this is a valid spenddown strategy. To date we are not aware of any applications that have been denied under the new rules using this strategy. F. Gifting/adding a non-spouse joint owner to accounts G. Caregiver agreements i. A caregiver providing in-home assistance must be a health care provider unless; 1) the disabled individual requires aid and attendance 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 of custodial care that the in-home attendant provides ii. If using a caregiver agreement to demonstrate a deductible medical expense to lower the IVAP score it is recommended to obtain a letter from the applicant's physician stating that the individual requires the custodial care being provided. iii. Lump sum payment versus hourly payment III. Planning for Medicaid and VA Pension simultaneously A. Assets that are treated differently for Medicaid and VA Pension: i. IRAs

1. Exempt for Medicaid 2. Countable for VA Pension ii. Homestead 1. Equity up to $580,000 exempt for Medicaid 2. No equity limit for VA Pension 3. If property is rented out it will lose homestead status for

Medicaid but will still be exempt as income producing property (however, it could be subject to a recovery lien). For VA Pension the property is still excluded as an asset. iii. Cars 1. Only one car is excluded for VA Pension 2. For Medicaid, one car is exempt plus any car older than 7 years old is exempt iv. Assets jointly owned with someone other than a spouse 1. 100% of asset counts as the applicant's asset for Medicaid 2. For VA Pension, only the percent owned by the applicant counts

The Use of Irrevocable Trusts in VA Pension Planning After October 18, 2018

Valerie L. Peterson, J.D.

CEO ElderCounsel, LLC

The Department of Veterans Administration (VA) has provided new eligibility rules for wartime Veterans and surviving spouses of wartime Veterans who are eligible for VA pension benefits. The rules addressed trusts by first defining them, then setting out how and when transfers to a trust would be penalized. These rules will go into effect on October 18, 2018.

A trust is "a legal instrument by which an individual (the grantor) transfers property to an individual or an entity (the trustee), who manages the property according to the terms of the trust, whether for the grantor's own benefit or for the benefit of another individual."1 For purposes of calculating a penalty period, "uncompensated value" means the difference between the fair market value of an asset and the amount received. With regard to transfers to a trust, annuity or other financial instrument or investment, "uncompensated value" means the amount transferred.2

1 38 CFR ?3.276 (a)(5)(ii)(B) 2 38 CFR ?3.276 (a)(6) This definition was expanded in the final rule to address trusts, annuities and other financial instruments.

The Use of Irrevocable Trusts in VA Pension Planning After October 18, 2018 Page 1

?2018 ElderCounsel, LLC

A transfer to a trust would not be penalized if the claimant/grantor retains control and the ability to liquidate for the claimant/grantor's benefit. 3 Those assets would be counted as part of a claimant's net worth, though.

The new rules also provide an exception to the trust transfer provisions. A Veteran, a Veteran's spouse, or the surviving spouse of a Veteran may transfer assets to a trust established on behalf of a child if the VA has rated the child incapable of self-support pursuant to 38 CFR ?3.36 AND there is no circumstance where the trust assets can benefit the Veteran, the Veteran's spouse or the Veteran's surviving spouse.4

The prior provisions of 38 CFR 3.276 that defined "total relinquishment" of an asset (including the statement that a transfer to a relative residing in the home would not satisfy that definition) have been replaced by the new rules that define net worth and covered assets.5 Net worth now includes the income and assets of the Veteran and any dependents and is subject to a limit that equals the maximum Community Spouse Resource Allowance in effect at the time the application is filed. In 2018, this number is $123,600 and increases each year.

In addition to the net worth limit, beginning 10-18-18, any "covered assets" transferred will be subject to a lookback period of 36 months, and will be subject to a penalty period.6 The effect of the lookback and penalty period is that claimants with substantial assets will now need to plan 36 months in advance, as any transfers of covered assets will be penalized using a divisor

3 See supplementary information provided with the final rules, 4 38 CFR ?3.276(a)(8)(d) 5 38 CFR ?3.274(a)-(b) 6 38 CFR ?3.276

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?2018 ElderCounsel, LLC

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