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VA Program Adds Divestment Rules and More

The so-called “Aid and Attendance” pension has become an important source of income for older adults needing long term care services, and an important source of business for some elder law attorneys. The program is offered through the Veterans Administration.  Eligibility requires military service during a period of conflict, or being the spouse or surviving spouse of a veteran that meets that requirement. In addition, there are asset and income eligibility rules. Those income and asset rules will change dramatically with the implementation of new regulations formally adopted today (but taking effect in 30 days).

There are several changes. Some of the more notable changes are outlined below. Before I get into those, I think it would be helpful to acknowledge the context of these changes and the overriding themes that tie them together.

First, it seems evident that these new rules are a reaction to the role of lawyers and financial planners who, for the past ten years or so, have become increasingly involved in “helping” veterans qualify for these benefits. The VA clearly perceives this development as harmful to the program and perhaps even exploitative towards the veterans.

Second, this VA benefit is often considered by older adults who need help with aging issues, as something available either in addition to, or as an alternative to, applying for long term care benefits through Medicaid. For historical reasons, these two programs have had very different financial (asset and income) eligibility rules.  These changes make the VA benefit rules more like the Medicaid eligibility rules.


Divestment. Divestment means giving away your assets (or taking other steps to artificially reduce their availability) in order to qualify for the benefit. Heretofore, there was no penalty if an applicant gave away resources in order to qualify for this VA benefit.  Now there will be.  Most Medicaid long term care programs have had divestment rules for at least 20 years.

Like the Medicaid long term care programs, penalties for asset transfers will result in periods of ineligibility the duration of which will be a function of the amount sheltered. Whereas the so-called “look back period” for Medicaid is five years, the look-back for this program will be three years.

Use of trusts and annuities in planning can result in divestment analysis under these new rules.

There are exceptions, and interestingly there is an exception for elders who were taken advantage of by an advisor who was marketing services purportedly designed to allow them to qualify for this benefit. Or, in other words, if an attorney told you to put your assets in an irrevocable trust or annuity, and now, as a result, you are ineligible for benefits, you merely have to assert that the lawyer was a charlatan to avoid the penalty (at least that how I read it).

Homestead Exemption. Both this VA benefit and Medicaid have historically exempted the primary residence from consideration as a countable asset.  In recent years, Medicaid has placed a limit on the value of an exempt homestead.  Now VA will limit the exempt homestead by using a different measurement – two acres.

Countable Asset Limit.  The amount of exempt assets that have historically been excluded for this VA benefit has been uncertain.  While some offices used a “rule of thumb” figure at times, the real rule required a calculation taking into account the income shortfall of the applicant, their life expectancy and their available resources.  Medicaid has long had a simple $2,000 rule for single people, and a formula for married persons, with a ceiling.  That Medicaid formula is called the Community Spouse Resource Allowance (or CSRA) (also sometimes called the “protected spousal amount”).  Each year the Medicaid program announces the maximum CSRA. In 2018, the maximum CSRA is $123,600.  VA has adopted, as their new asset limit for all applicants, the Medicaid maximum CSRA.


Conclusion. These are dramatic changes for lawyers who offer advice on this benefit.  There are other changes.  Above are those that I perceive as most notable.  To read more:  click here to read the rule changes as they were originally published in 2015 (yes it has been around that long); and click here to read the VA commentary that accompanied the announcement that the rule changes would finally be implemented today.

New Medicaid Policy on VA Income

Understanding the way Medicaid programs treat income-like benefits paid by the Veterans Administration have always been confusing (at least to me). Until now, Medicaid policy on the subject was sparse.  Good news, as of April 1, we have a lot more detail.  Bad news, I still don’t understand.

It’s important because people who can combine VA benefits (especially Aid and Attendance) with Medicaid Waiver or PACE benefits, have more options. And it comes up a lot.  But it’s dicey because if a client accesses VA benefits and by doing so receives income that puts them even one dollar over the income cap, they lose the ability to obtain benefits through either Waiver or PACE.

At least part of the confusion stems from the fact that the checks a Veteran (or their spouse) receives from the VA typically represent a composite of pensions and supplemental payments (or as Medicaid calls them “allowances”). The challenge is determining how much, if any, of a check they receive is going to be considered income when applying for Medicaid benefits. (Veterans who were injured in service receive “compensation.”  Compensation is clearly income, and is not the subject of this blog post.)

As of April 1, DHHS issued expanded language in BEM 503 (click here to read the bulletin). The BEM now says:

Bridges counts the gross amount of the pension or compensation as unearned income.


  • Bridges excludes any portion of a payment resulting from an Aid and Attendance or Housebound allowance; see VA Aid and Attendance and Housebound Allowances in this item.
  • Bridges may exclude augmented benefits; see Augmented Benefits in this item.

Bridges excludes any portion of a payment resulting from unusual medical expenses; see VA Adjustment for Unusual Medical Expenses in this item.

So it clearly says they will exclude “any portion resulting from unusual medical expenses” and “any portion of the payment resulting from Aid and Attendance or Housebound Allowance.”  (emphasis added).

Then it says:

Payments are made to veterans, spouses of disabled veterans, and surviving spouses who are:

      •  Housebound.

      •  In regular need of the aid and attendance of another individual.The payment is included with the pension or compensation payment.Bridges excludes as income and as an asset the portion of a VA pension or compensation that is the aid and attendance or house-bound allowance.

Again “excluded,” but again, that annoying word “portion.”

And it says:

VA increases some pension and compensation payments due to unusual medical expenses.

Bridges excludes the increase due to unusual medical expenses as income and as an asset.

OK, so we have an “Aid and Attendance benefit” and a “housebound benefits.” Both excluded. Likewise, increases resulting from unusual medical expenses are excluded.  But we are told that these payments may only represent aportion of the payment that Veteran or his/her spouse receives, and that it is only this “portion” that is excluded.  So naively, I ask: What portion? How do we calculate it?  How do we prove what it is?

Well, policy says:

These allowances are not identifiable on a check stub or award letter. Accept the client’s statement that the payment does not include any of these additional allowances.

But I’m not asking about how to prove that the payment does not include an excluded “allowance.” I want to show that it does include an allowance, and I want it to be excluded.  Although the VA will, upon request, provide a written explanation of benefits, the process for obtaining that information is slow, unreliable, and often incomplete; especially with respect to unusual medical expenses.

There’s more – and you can read it yourself. I know I can be dense.  So I asked some of the smartest people I know (Thanks Amy and David), yet I remain uncertain.

I believe the changes were intended to make things better. After all, the State clearly understands that every Federal dollar they capture from the Veterans Administration is one less dollar they have to spend; and that forcing people who would otherwise be getting Waiver or PACE services into nursing homes because they went over the income cap doesn’t help anyone.

I don’t like posting information that doesn’t provide guidance – but thought: (1) some of you might not be aware of the changes, and (2) maybe it will make more sense to you. If so, please feel free to drop me a line.

VA and LTC Planning

I recently responded to a post on a listserv in which the issue of using irrevocable trusts to “protect assets” in order to obtain VA Aid and Attendance pension income was the topic.  It caused me to organize my thoughts on this important issue, which are expressed below.


The Veterans Administration has a program called “Aid and Attendance” which offers additional income to Veterans and their spouses who have high care costs.  The program has income and asset rules.  The asset rules limit the resources the applicant can own.  Unlike Medicaid, VA does not impose a penalty on applicants who give away their resources in order to qualify. [See prior posts for discussion of proposed changes to VA asset transfer rules.]

As a result, it has become popular for some planners to advise clients to transfer their resources (or at least so much as would be necessary to meet the asset rules) into irrevocable trusts, which trusts expressly provide that the older adult applicant retains no right to the property in trust.  These older adults are told that if they trust their children, then the children will no doubt use the money they control in the trust to pay for the parent’s care if needed – notwithstanding the fact that the children would have no legal obligation to do so, and notwithstanding the fact that the children are undoubtedly the beneficiaries of whatever is not used for their parent’s care.

Whether and when attorneys should be advising clients to engage in such planning is a hot topic.

My Thoughts:

The idea of telling a vulnerable adult to divest themselves of assets so that they can get a thousand or two thousand dollars a month of additional income is no small thing.  Further, and most critically, the idea of telling clients that if you give your money away, it can be used for your benefit in the future is the rub in this type of counseling.  The ‘wink and nod’ part of the advice – in which clients are told that they should give their money away by putting it in an irrevocable trust that expressly provides they have no retained rights while suggesting at the same time that the money will be their for their quality of care in the future if they need it, raises serious concerns to me.

Nearly every older person will say that they trust their children (and many of them do), especially when their children are participating in the meeting and/or have suggested that they need to do something to “protect their assets.”  I would suggest, if that is the foundation of the planning strategy, why use an irrevocable trust?  If in fact your children are going to pay for your care in the best place possible in the future, why not just give them the property/money outright?  I would also suggest that the common experiences of attorneys who practice in this area would suggest that many (most?) clients are misplacing their trust – and further that there are very few families that any attorney will counsel in which that attorney would have adequate evidence to make any conclusions about the motives of the parties involved – or how those motives may change over time.  Because I see myself as being asked to offer advice with respect to the best interests of the vulnerable person, I am not comfortable leading those clients down this path.  And to be sure, in this type of planning, it is largely about where their attorney leads the client.  The alternative to such planning is that perhaps their money is used for their care and not preserved for the next generation.  And while I appreciate that the preservation of the product of one’s life’s work for their loved ones is also no small thing; for me, in terms of what I see my role being, asset protection is always a secondary consideration to controlling one’s quality of care options.

Medicaid divestment rules are certainly part of the equation, but it is much more than that.  As we/I like to tell clients “money = options.”  When clients give away money, they paint themselves into a corner – a corner in which they have lost control over their quality of care choices and are left without any options other than what the government will/might pay for.

As with so many things in the practice of law, every lawyer has to decide where their comfort zone ends.

Striking the Balance of Financial Integrity and Quality of Care for the Spouse of an Impaired Adult

Here’s another balance that’s hard to strike – and hard to help clients understand and decide.
Typical example: Husband and wife have been married 50 years.  They are both in their seventies.  They have a nice nest egg, but are hardly rich.  Let’s say their home is paid off, and is worth $150,000.  In addition they have another $250,000 in investments, bank accounts and retirement funds.
Now husband gets dementia. Wife takes care of him at home as long as she can.  Children might help toward the end of the effort, and she may start hiring caregivers for a few hours a day.  But as her husband’s care needs increase she realizes that the costs of the care-giving combined with the usual costs of life are depleting their savings at an alarming rate.
The wife investigates private pay care facilities and learns that the assisted living facility that is closest to her home and that she believes would provide her husband with the highest quality of care would cost $5,000 per month.
The wife seeks advice and learns that if she puts her husband in a Medicaid nursing home, all of the marital funds can be protected for her needs and he can qualify for Medicaid.  It might even be possible to protect most or all of the husband’s income for her expenses.  The decision she faces is when to pull the trigger and place their spouse in a Medicaid nursing home?  How much of the marital pot can the healthy spouse afford to spend before compromising her own long term financial integrity?  If she is in her mid-seventies and relatively healthy, she should consider the real possibility that she may live another twenty or thirty years –and in the long run the amount of money she retains through this process will directly impact her quality of life, and quality of care choices that she will have as she becomes more frail.
Other options, like community based Medicaid services through the MI Choice program or in some parts of the state the PACE program, may provide options that will allow the impaired spouse to remain in the home longer, even indefinitely, by providing additional assistance with care-giving at no cost.  Veterans benefits may also be available.  But in many cases these options may not be available or may be too little. 
The reality is that our current healthcare system commonly puts a spouse of an impaired adult in the position of striking the difficult balance between the quality of care that the ill-spouse will receive and his or her own long term financial integrity-  a difficult and emotional decision to have to make for sure.

Anatomy of a Senior Seminar Scam

When you reach a certain age you begin receiving invitations to “educational seminars.”  Often bright colored postcards in the mail, sometimes formalistic letters, even advertisements in the local paper. Usually they offer a “free meal.” In almost every instance these “educational seminars” are in fact high-pressure scams, designed to sell products that pay high commissions to the sellers, and provide little or no benefit (often a detriment) to the buyer.

The pattern is always the same:

  • You are told that there is a complication in the law, often arising as a result of a recent change in the law.
  • As a result, your assets being exposed to dire risks.
  • You are told that your current advisors are either too stupid to understand the issue or they are part of a conspiracy to keep you in the dark (for their own benefit).
  • The presenter then “educates” you about the risk and offers you the “opportunity” to purchase a product that will protect you.

The Bogey Man

There is always something that you need to be afraid of.  Among the most favored are:

  • The so-called “Death tax” is going to subject your life savings to excessive taxation after your die.
  • Income Taxes. They will tell you “The IRS could be the beneficiary of your IRA.”
  • The laws of intestate succession.  You will be told that if you don’t buy their product “the state will make your will for you.”
  • Nursing home costs and Veterans benefits. You will be told that if you don’t take some protective action, all of your resources could be consumed by care costs.
  • Probate. You will be told that if your assets end up in probate court they will be exposed to exorbitant court costs and legal fees.

All of this “information” will be presented so that true facts are distorted by accompanying falsehoods and incomplete information so as to be way more dramatic than is actually the case.

The Place

These events typically take place at restaurants, hence the label “chicken dinner seminars.”

But don’t be thrown off if the event is hosted at the local senior center or public library.  Many of these facilities have no policy regarding the organizations that request to use their buildings.  Scam artists recognize that these locations may add credibility.

The Set Up

In explaining the “risk,” the presenter will toss out legal terms and offer to define some of them, in order to create the perception that s/he is sophisticated on the topic.

The presenter will insinuate that your attorney or other advisors are unsophisticated or part of a conspiracy to take advantage of you.

Pressure Points

Once the presentation is over, you will be asked if you want to buy in.  If you resist, they will make you feel both ungrateful (for having accepted the free meal) and stupid (for not being able to appreciate the benefits).

The pressure will be intense and directed individually at you.  If you will not sign up immediately, they will ask for personal information so that they can follow up with you in your home.  If you give them personal information, they will use it.  They will come to your door relentlessly.

Target Audience

Only people of certain advanced age are invited.  Some invitations go so far as to say can’t bring your kids or advisors with you.

Once you’re in the room they will begin a process of identifying their targets.  Among the most vulnerable are:

  • Prideful people who don’t want to seem stupid or ungrateful.
  • People overly deferential to persons of authority, especially to males in professional attire.
  • Those with some level of cognitive impairment.

The Products

This whole industry began with the selling of co-called “living trusts” and this continues to be a very popular item.

Annuities are almost always woven in, being the fastest way to a quick commission for someone who is not licensed to sell other financial products.

Irrevocable trusts are offered now as a cure to all sorts of concerns.

Reverse mortgages.

Advice and Conclusion

If you are invited to one of these programs, don’t go. If you go, don’t buy and don’t give out any personal information.  If you think it sounds good, just remember, if in fact what they are selling is the best thing since sliced bread, it will be still be the best thing two weeks from now when you’ve had a chance to bounce it off people you trust.

Estate planning an elder law is complicated. You should get advice and do planning. Mistakes can be costly, but there are no silver bullets, and anyone who says they can sell you one should not be trusted.

Finally, not all educational seminars you may be invited to are bad.  Professionals that you have a history of working with may invite existing clients to programs about the law or investments.  Be wary of presentations put on by people with whom you have had no prior contact, and who use the scare tactics identified above to make the sale.

American Austerity

The boomers are aging in huge numbers.  The ratio between working-age tax payers and retirees is slanting rapidly toward the retirees. The government programs that provide care for the aged are already unsustainable.

The seemingly obvious result of this reality is that boomers can expect significantly less government support than the current generation of elders.  As boomers look at the institutions into which they place their 80+ years-old parents with distaste and, at times, disgust, I wonder what they think will be waiting for them.

Reality check: Today’s care options may well seem luxurious in comparison to what the boomers can expect in another decade or two.

What’s more, the elders of today were savers and have had some resources of their own to supplement what the government provides.  That is not the case for most boomers, who have lived beyond their means, and relied largely on credit to enjoy a lifestyle they never could afford.  Many have almost no savings, some are in debt.  In large part, boomers enter these fragile years relying almost exclusively on what the government will provide.

One might see an ironic twist in the situation: The typical 80+ year-old lived a modest life, took few vacations, eating out was a treat.  One might say they embraced austerity and were comfortable with it.

I recall my mother telling me about getting an orange in her Christmas stocking and thinking that was wonderful.   How quaint that seems, but how remarkable when we compare that to the world the boomers know.

Boomers travel the world, stay in luxurious resorts, eat out often, toss out leftovers, and lavish themselves and those around them with holiday gifts – gifts they often don’t need and never use.  Now they enter their fragile years with the prospect of having austerity forced upon them.