Last week we were talking about Melissa’s call to our office. Her parents had been receiving VA benefits for 2 years while living in an assisted living facility and everything had been great. The reason she called us, however, is that Dad now needs nursing home care. Her parents have $70,000 in assets so she figured she would have to spend down half for Dad’s care and then she could apply for Medicaid. Except for one thing. Remember the assets transferred out of their name to qualify for VA? That caused a potential Medicaid penalty of up to 5 years. Now she had a real problem.
I explained to Melissa what I call the Medicaid “time bomb”. She was totally unprepared for it. The advisor who helped her with the VA application never told her about it and she said she never really thought about what she would do if either of her parents needed nursing home care. I told her not to worry. We’d have to transfer back assets to her parents and spend down some of that money before we apply for Medicaid.
That’s when she told me about the annuities she purchased. The stream of income they provided was a great help to pay for the assisted living care but now that Dad needed $10,000 of care each month the VA pension plus the annuity wasn’t nearly enough to meet the monthly nut. I told Melissa that she would need to cash in the annuity, transfer it back and then spend down at least part of it. “One small problem”, she said. They have surrender charges if she liquidates them now. The penalty is about 7% of the total value.
“But the advisor never prepared me for this”, Melissa exclaimed. That’s because he didn’t understand how Medicaid works – really doesn’t work – in conjunction with the VA benefits. Melissa started to regret her decision to pursue the VA benefit. I quickly corrected her. It wasn’t a mistake. It’s just that getting the VA pension was only a small part of what her parents needed. They should have also, at that time, prepared for the next stop in their elder care journey – before they reached it. Locking up their money with early withdrawal penalties severely restricted their flexibility, something they absolutely need when their health is declining.
It wasn’t wrong to restructure their assets to get the VA pension. It can help them stretch their money out and hopefully have enough to provide for both Mom and Dad’s care needs. The problem is that they were completely unaware of how it affected their Medicaid eligibility. The advisor couldn’t provide Melissa with any help at all. His response was to contact an elder law attorney.
Great advice, only he should have given it to her 2 years ago.