I was recently asked an in-depth question regarding a spouse qualifying for VA benefits. I thought this topic would be of interest to those who read my blog.

Summary of question:  My mother recently placed my father in a nursing home due to his dementia, which has proved to be a huge financial burden. However, my mother is not eligible for Veteran’s Aid since she has a sizable IRA account and, therefore does not qualify for aid.  If she converts her IRA account to an annuity, she could qualify for government aid while not being taxed for early withdrawal of her IRA account. My mother has serious reservations about her money being tied up in an annuity and my questions are as follows: “Could we transfer the IRA into something other than an annuity that would not levy a heavy tax burden? If not, then she would go with an annuity only if she were assured that we would qualify for Veterans Aid. Under the eligibility requirements for VA she could only have $80K in savings and her house, but what would her allowable monthly income be? Would paying off her mortgage from the IRA account be tax exempt?”

Answer:  There are three VA “special pension” programs as follows: 1) Low Income, 2) Housebound and 3) Aid and Attendance.  These programs are only available to Veterans who served during a period of war and their surviving spouses.  These are “means based” programs, meaning that in order to qualify, the VA will make a determination of whether or not the applicant has the ability to support themselves.  For administrative convenience, the VA has set a rule that no application will be approved if the applicant has more than $80,000 of assets without VA headquarters approval.  Rarely is such approval granted. 

For doing the asset calculation, the VA does count the value of assets held in a retirement account (unlike Medi-Cal).

So I understand your question to be how your mother can rearrange her assets so she can qualify for the VA benefit.  There are a variety of ways to do this.  First, if the assets in the annuity have no cash surrender value, the assets are ignored.  However, the annuity will have to meet all of the IRS guidelines including being actuarially sound based upon your mother’s age.  Thus, although the principal amount of the annuity would be ignored, the required distributions will be considered in determining her income.

I understand your concern about taking the money out of the IRA and paying the income taxes on it.  However, you may need to get over that.  If paying the income taxes on the distribution and moving the remaining assets to an exempt form is the only way to qualify her for the VA benefit she needs, then maybe the payment of the income taxes are necessary to incur.  It is a decision to be decided based upon the cost incurred versus the benefit to be received.  You make that same decision every time you buy a hamburger or a glass of milk.

As an aside, I want to point out that the VA has no “look back rules” similar like the Medi-Cal system.  So your mother can cash in her IRA, gift it away, and almost immediately thereafter qualify for the VA special pension benefit.  However, you have to be careful with how you do this and to whom such gifts are made.  For instance, a gift of assets to a family member living in the same household will result in the assets being considered as still owned by your mother.  Further, making a gift which doesn’t violate the VA rules will often result in violating the Medi-Cal rules. So if a person qualifies for the VA benefit, but their illness progresses to the point that anything short of skilled nursing home care is inadequate, the gifting they made to qualify for the VA benefit may now prevent them from qualifying for Medi-Cal benefits.

Obviously, you need to speak to an attorney very skilled in both VA benefits planning as well as Medi-Cal benefits planning in order to carefully coordinate any action you take.

For more information on Veteran’s Health and Benefits Administration, read my blog on that topic at:  http://californiaestateplanningattorneyoffice.com/2010/09/17/veteran%e2%80%99s-health-and-benefits-administration/

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.

Veteran’s Health Administration — The Veteran’s Health Administration provides benefits for a variety of health and long-term care needs. These services are available to anyone with prior service (excluding anyone with a dishonorable discharge).

In order to receive these benefits, a veteran is required to get a physical and it generally takes one year to enter the VA health care system. Priority is given to Veterans with a service-related disability, former POWs, and retired military personnel. Income verification is required each year to maintain these benefits and qualification is based upon need without set income standards.

Health and long-term care benefits include access to:

• VA Hospitals
• VA Nursing Homes – to qualify for VA nursing home benefits, a veteran must have either 1) a service-connected disability rated at 70% or more; or 2) a service-connected disability that is clinically determined to require nursing home care. The VA may provide benefits to other veterans not falling into one of the above categories, depending on the space available (for more detailed information on VA Long Term Care Benefits and Adult Day Care Benefits, please see our previous Elder Law Today entitled “Veteran’s Administration Long Term Care Benefits”).
• Prescription Benefits
• Outpatient Dental Services
• Services for Blind and Vision Impaired Veterans
• Prosthetic Services
• Alcohol and Drug-Dependence Treatment

Veterans Benefits Administration — The Veteran’s Benefits Administration provides the following benefits to Veterans:

• Compensation for Service-Related Disabilities – if 100% disabled and in need of assistance with activities of daily living (ADL), special monthly compensation is available
• Vocational Rehabilitation and Employment
• Education and Training
• Home Loan Guarantees
• Specially Adapted Housing
• Life Insurance Benefits
• Burial Benefits
• Disability and Indemnity Compensation for Surviving Spouses and Dependents
• Special Monthly Pension: House Bound and Aid and Attendance (A&A)

Special Monthly Pensions Threshold Requirements - The threshold requirements for all Special Monthly Pension programs are:

• Veterans who served prior to June of 1984 must have served 90 days of service and at least one day during one of the following war time periods:
- World War I
- World War II: December 7, 1941 thorugh December 31, 1946
- Korean War: June 27, 1950 through January 31, 1955
- Were “in country” between February 28, 1961 and August 5, 1964
- Vietnam War: August 5, 1964 through May 7, 1975
- Veterans who served after June of 1984, must have been on active duty for at least two years.
- Gulf War: Aug. 2, 1990 through date to be set by law by Presidential Proclamation
• Discharge other than dishonorable
• Limited income (arbitrary needs test)
• Over age 65 OR permanent and total disability
- Disability must have been caused without willful misconduct of the claimant
• Applicant (Veteran or Veteran’s widow) must sign application

Low Income Pension - The Special Monthly Pension Low Income Pension reduces actual income by deducting medical and long term care expenses. The limits for 2009 are:

• Veteran with no dependents: $11,830/year
• Veteran with one dependent: $15,493/year
• Widow(er) with no dependents: $7,933/year

Household Benefits - Special Monthly Pension Housebound Benefits are available to those who meet the threshold requirements and a100% permanent disability and housebound; or (2) a 100% disability plus another 60% disability. If over age 65, you are considered disabled. But you still must be “housebound” meaning you don’t drive, and don’t leave home without assistance. The limits for 2009 are:

• Veteran with no dependents: $14,457/year
• Veteran with one dependent: $18,120/year
• Widow(er) with no dependents: $9,696/year

Aid and Attendance - Special Monthly Pension Aid and Attendance benefits are available if the Claimant is (1) blind; (2) in a nursing home; OR (3) unable to dress or undress or keep self clean and presentable; unable to attend the wants of nature; OR has a physical or mental incapacity that requires assistance on a regular basis to protect Claimant from daily environmental hazards. The limits for 2009 are:

• Veteran with no dependents: $18,654/year
• Veteran with one dependent: $22,113/year
• Widow(er) with no dependents: $11,985/year

If you or your loved one is eligible, the Special Monthly Pension Benefit could provide thousands of dollars each year to help you meet medical expenses and provide necessary care. However, the application process is complicated and time-consuming. For some people, reallocating assets and shifting income may be necessary – and those reallocations could have a significant impact on Medi-Cal eligibility, whether now or in the future and we recommend you consult with a knowledgeable elder law attorney.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.