This week’s post is my third in a three part series regarding the new changes to the VA Aid and Attendance program. As I stated last week, the biggest focus will be on a new 3 year look back and penalty for transfer of assets. That does in many cases take away the ability to qualify immediately after transferring assets, however, not in all cases. Strategies similar to ones we use in crisis Medicaid planning cases will still be available. Converting countable assets to noncountable ones can help qualify an applicant without waiting out the penalty. These include buying a bigger home or purchasing a car.
Something called “half a loaf planning” can also sometimes be an option. Provided the amount to be transferred results in a penalty that is less than 3 years it is possible to calculate an optimum transfer amount such that the excess amount of assets over the net worth limit that remain in the Veteran’s name will be used to cover the time frame of the penalty. This will maximize the amount that can be transferred by determining the earliest possible month that the Veteran (or widowed spouse) can qualify for the VA benefit. (An elder law attorney familiar with the rules can determine if this is possible.)
The new VA penalty works similarly to the way the Medicaid penalty was calculated before 2006, which is better than the way the current Medicaid penalty works. What I mean is that the VA penalty starts the month after the transfer of assets. It does not require the filing of the actual VA application to start the penalty clock. This makes it critical to consider proactive planning while the senior does not yet need long term care. The use of asset protection planning trusts remains an important planning opportunity to preserve eligibility for both the VA and Medicaid programs to help pay for long term care as well as to coordinate the transition from one program to the other.
Estate planning for the first spouse to die is also critical under the new rules. The VA defines a transfer as “selling, conveying, gifting or exchanging an asset”. It is not clear whether a transfer at death, such as by way of a will, counts as a transfer for less than fair value. If, however, we consider that these VA changes are modeled after Medicaid, then the transfer at death should not be subject to a VA penalty. In that case, it is important for married seniors to consider changing their wills to leave asset to an asset protection trust if they are the first to die.
Finally, the increased net worth number of $123,600 is higher than the previous asset limit of about $80,000. The new number also is a “hard” number and is not as vague as the old one. Although annual income does count towards this new number in most of our cases our client’s unreimbursed medical expenses will exceed the income, reducing it to zero for purposes of calculating the net worth. Essentially then, the net worth number will in most cases consist totally of assets, resulting in a higher number of protected assets.
To summarize the new VA changes, there will obviously be a negative impact for some people but on the whole, with proper planning, the negatives can be minimized and in many cases completely neutralized. As I have reiterated in many of these posts, the best results can be achieved by working with a knowledgeable elder law attorney before extensive care is needed and that is now more important than ever.