These changes will take effect October 18, 2018.
NET WORTH LIMITThe new net worth limit will be the maximum Community Spouse Resource Allowance (CSRA) that is used by the Medicaid program. Currently, this is $123,600.
The old rule considered life expectancy, negative monthly cash flow, and other similar factors. Often an $80,000 limit was referred to even though this was never supported by the rules.
Now that there is a set net worth limit, there will be less confusion concerning who is eligible. Hopefully this will help make the application process quicker. All claimants will need to have $123,600 or less in order to qualify. If they have more than this limit, they will need to decrease their net worth to be eligible for pension.
LOOK-BACK AND PENALTY PERIODSThere will now be a period of ineligibility imposed if a claimant makes an uncompensated transfer during the 3-year lookback period. An uncompensated transfer might be moving money into an irrevocable trust or an immediate annuity.
If a claimant made an uncompensated transfer during the 36-month lookback period, the penalty period will begin the month after the last transfer occurred. The maximum penalty period will be 5 years (60 months).
The penalty period will be determined by taking the total of the uncompensated transfers during the lookback period and dividing it by the Maximum Allowable Pension Rate (MAPR) in effect on the date of the pension claim at the aid and attendance level for a veteran with one dependent. This MAPR is currently $2,169.
For example, if a claimant had gifted his son $32,550* two years before filing the “Aid and Attendance” claim, he would be ineligible for pension for the next 15 months ($32,550/$2,169=15 months).
*Only transfers above the net worth limit will be penalized.
PURCHASING AN ANNUITY
A quick way to gain eligibility for VA pension used to be purchasing an immediate annuity. However, now assets moved into an annuity to spend down net worth will be penalized if the annuity cannot be liquidated. Also, the monthly income from the annuity will be considered income.
Therefore, purchasing an immediate annuity is no longer an attractive option.
IRREVOCABLE TRUSTSIrrevocable trusts have been used to reduce net worth as well, but now those transfers will be penalized if made within 36 months of filing a claim.
While the new rules make irrevocable trusts less immediately effective, they will still be an effective planning tool. A claimant can create a trust, transfer assets to it, and then wait 36 months to file a claim. As long as their assets are below the limit at the time of the claim, they should be approved.
SPENDING DOWN NET WORTHIf a claimant has more than $123,600, but does not have enough excess assets to justify creating an irrevocable trust, they should focus on spending their assets down.
Unfortunately, “in the absence of clear and convincing evidence showing otherwise, an asset transfer made during the look-back period was for the purpose of decreasing net worth to establish pension entitlement.” This means that any transfer not made for fair market value will be penalized, if the amount is over the CSRA limit.
The good news is that purchases for fair market value for the veteran or surviving spouse are allowed. This means that purchases of home repairs, vehicles, medical equipment, clothing, electronics, vacations, etc. are all permissible as long as they are used for the claimant (you can’t buy a cruise ticket for your son).
- Net worth limit is $123,600 (2018).Claimants that transferred assets within the last three years (36 months) will now be subject to a period of ineligibility (“penalty period”)
- Immediate annuities will be penalized if purchased within the three-year lookback period
- Transfers to irrevocable trusts will be penalized if within the three-year lookback period
- Allowable ways to spend down assets are to spend them on items or services that are purchased at fair market value for the veteran or surviving spouse
This is a very significant change in the VA rules that will affect many veterans and surviving spouses that are in need of in-home, assisted living, or nursing home care.
Now more than ever, it is important to consider long-term care insurance and work with an elder law attorney to design an appropriate plan before the need for long-term care arises.
If you need assistance, please contact Golowin Legal to schedule a one-hour meeting to discuss your goals.
These rules were published in the Federal Register as "Net Worth, Asset Transfers, and Income Exclusions for Needs-Based Benefits" on on September 18, 2018.