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.

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Divestment Rules for Medicaid Waiver Clarified – Maybe

A policy bulletin has been issued by the Michigan Department of Health and Human Services which provides additional direction on when and how a divestment penalty period runs for persons otherwise eligible of Medicaid Home and Community Based Waiver services (aka the ”MIChoice” program).

Click here to read the policy bulletin, which takes effect October 1, 2018.

The point of the policy seems to be that under federal law there was uncertainty about how to start a divestment penalty period running for persons in waiver programs, like MIChoice. The source of this clarification is a federal directive to state Medicaid directors that explains why there is perceived confusion about this issue.  In fact, I think the federal letter does a better job of explaining the issue than the State Policy Bulletin.  Click here to read that letter.

In any event, the powers that be have decided that the penalty period begins to run when the person applying for MIChoice services is deemed otherwise eligible for the program, which is a four part test:

  • determined that the applicant meets financial and non-financial requirements for Medicaid;
  • determined that the applicant meets the level of care criteria for the 1915(c) waivers;
  • determined that the applicant has an individual person-centered service plan in place; and
  • confirmed there is an available waiver slot for the applicant’s placement.

Well, BEM 405, page 14, already says:

The penalty period starts on the date which the individual is eligible for Medicaid and would otherwise be receiving institutional level care (LTC, MIChoice waiver, or home help or home health services), and is not already part of a penalty period.

As far as I can tell, this current Michigan policy seems to be in line with the new proposed policy. It certainly seems consistent with the federal directive, which simply says:

the penalty period start date for a 217 applicant is no later than the point at which a 217 applicant would otherwise be receiving HCBS waiver coverage based on an approved application for such care but for a penalty

If you want to worry about something, you might look to the State’s decision to include the requirement that there be an open slot to start the penalty running. That might prove challenging for planners in the future.

So, in the end, I’m not sure how things change with this new policy, or if they really do. Nonetheless BEM 405 will presumably be rewritten to conform with the bulletin and those who practice in this area may run into snags, or avoid snags, as a result.

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An Inconvenient Obstacle to Community Based LTC

Summary

Because asset protection strategies commonly used in the context of nursing home Medicaid are problematic in the context of MI Choice Waiver and PACE programs, a significant number of potential beneficiaries are disincentivized from pursuing these services.

Background

PACE is the Program for All Inclusive Care that is operating in several parts of the State.  It is a unique and growing concept for long term care (“LTC”) that combines Medicare and Medicaid dollars for individuals who meet the Medicaid Level of Care requirements for long term care services.  In that combines Medicare and Medicaid money, PACE is especially interesting as it may anticipate something like what will come (if anything) from the current push for “integrated care” services.

Waiver or “MI Choice” is the home and community based Medicaid long term care benefit that provides benefits to Medicaid beneficiaries who meet the Medicaid Level of Care requirements for LTC services.  Services may be provided in the home or in those Assisted Living Facilities that participate in the program.

Both PACE and Waiver use the traditional Medicaid financial eligibility rules for nursing home Medicaid, but with an income cap.

Currently most PACE programs are looking to fill slots, whereas most Waiver programs are backlogged (but catching up).

Lawyers have long worked to qualify Medicaid beneficiaries in nursing homes while preserving assets for the spouse or other family members.  This practice area has grown dramatically in the past decade so that whereas a decade ago only a hand full of attorneys provided this type of advice and only a small percentage of nursing home residents took advantage of these asset protection strategies, today there are hundreds of lawyers in Michigan offering advice in this practice area and the majority of nursing home Medicaid beneficiaries receive advice on these strategies.

The Issue

Because the rules that allow for asset protection strategies for residents of Medicaid nursing homes are unclear in terms of how they apply to beneficiaries seeking PACE and Waiver services, a significant number of people seeking Medicaid funded LTC services are being, and will continue to be. disincentivized from pursuing PACE and Waiver services until these issues are resolved.  There are two specific areas of concern: (1) Spousal Protections and (2) Divestment.

Spousal Protections

LTC Medicaid policy provides for a so-called “protected spousal amount;” that is an amount of “countable assets” that the so-called “community spouse” (spouse not in the nursing home) gets to keep in addition to the $2,000 that the nursing home resident can keep.  The protected spousal amount is established by looking at the couple’s assets on the “snapshot date” (another term of art) and applying a formula provided by policy.  In PACE and Waiver programs it becomes difficult to establish a snapshot date, and therefore to take steps necessary to exercise strategies available to maximize the protection of assets for the community spouse.  For married couples these protections can be quite generous.  Although Medicaid policy provides a process for establishing a snapshot date in community based programs, most PACE providers and Waiver agents are unfamiliar with the importance of this process and the result is insecurity for the community spouse when pursuing these benefits.

Divestment

“Divestment” is the policy that penalizes asset transfers for people who give away assets before applying for Medicaid benefits in LTC during the five years prior to applying for benefits (the so-called “lookback period”).  Notwithstanding the policy people do give away assets, either because they do not know the consequences, because they think they should notwithstanding the consequences, or because they have been provided advice on how to do so and preserve assets by using the policy to their advantage.  A key component to fixing inadvertent or ill-advised conduct and for using strategies that allow for transfers notwithstanding divestment policy is the ability to trigger the running of the penalty period of ineligibility that arises as a result of the transfer, and further to provide income to pay for care while the penalty period of ineligibility is running.  Policy for PACE and Waiver services provides no clear direction as to how these two important features of divestment rules apply in this context.  Again, for individuals seeking benefits where divestment is an issue, the lack of ability to fix divestment problems and use the rules to protect assets serves as a disincentive to pursuing these benefits.

Conclusion

These obstacles are fixable if PACE and Waiver providers are willing to work with planners, and apply the rules in a manner that allows families to exercise the same options that are now commonly exercised in the nursing home situation.  Until then, these issues will remain disincentives to those who seek these services.

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Plan to be 100

These days, living to be 100 years-old is not unusual.  But most people (at least most of my clients) don’t necessarily want to think about what that means from a planning perspective.  As their advisor, I share these thoughts:

Hang On To Your Assets

As people age they often become more generous and more concerned about “protecting their assets.”  Both of these concerns can give rise to an impulse to transfer some of their resources to subsequent generations.  I discourage this impulse.

As people age, they also often need assistance with their care.  That care is expensive.  If you want to have choices about the quality of care you receive in your declining years, hold on to what you have.  Unless you have substantial wealth (multi-millions of dollars in reserve), anything you do now that reduces your resources is likely to have significant implications on your quality of care when you get older.

Further, the government safety net programs that currently provide older Americans with a base income (Social Security) and health care coverage (Medicare and Medicaid) are all unsustainable.  Whether we even have these programs in 20 years is purely speculative, let alone what they will pay for.  Today’s Medicaid funded nursing homes, as undesirable as they may be, will likely be castles compared to what the government will provide in the future.  Don’t rely on those benefits for your quality of life.

In the end, my advice on this point can be summarized as follows:  your resources are for your needs first.  The future is uncertain.  The kids can have what’s, if anything, left when you’re gone.

Plan for Incapacity

Although not everyone who lives to a ripe old age will become incompetent, many will.  The Alzheimer’s Association estimates that half of people aged 80 have some level of cognitive impairment.

When clients talk about estate planning, they focus first on what happens to their property when they die.  At least as important is the question of: who will make decisions for me if I am alive, but unable to make decisions for myself?

Having well-drafted power of attorneys (medical and financial) is a key to good planning.  That means that the documents not only express your wishes and sufficiently enable your agents to act, but that the people you select to make these decisions for you are the right people to handle these matters.  There is as much litigation these days over control of people and their assets while they are alive and demented, as is there is about their estates after they have passed.  Many of these cases arise because the planning that was done was inadequate or the people selected to make decisions were not well considered.

Watch Out for Greedy Kids

A related concern is that while many older people have saved and accumulated some assets, their children have not necessarily been so prudent.  The dynamic of children having an expectancy in their parents’ estates drives a lot of what we now call “financial exploitation of vulnerable adults.”  As harsh as it sounds, I encourage clients to recognize that children, especially children who, for whatever reason, have failed to establish a sound financial base, may become overly and/or inappropriately concerned that if their parents live a long life, their expectancy in the estate of those parents may be at risk.

Create estate plans where people who are financially stable and/or who have no expectation in a distribution from your estate are in control of decisions about how to spend your assets in the event you do live a long life, but lose the ability to manage those affairs on your own.

Imagine Your Children in Old Age

We all picture our children as youthful.  But one of the quirky realities of living to be 100 is that you have children who are in their 70’s when you die.  Leaving estates to 70 year-olds has implications that most people simply don’t contemplate.  Estate plans should consider this possibility.  It may mean that as one generation reaches a set age, that generation is skipped, and assets instead pass to grandchildren or great-grandchildren.  Or it may mean that the Trustee or executor of your estate has the ability to decide whether or not to make distributions to people of an advanced age based on their health and financial need.

Expect Another Relationship (or two)

Living to an advanced age may mean you outlive your spouse, perhaps by decades.  Loneliness is not required or even healthy.  This means that a subsequent important relationship may develop in your later years.

Pre-nuptial agreements are critical for second marriages, especially second marriages for people of advanced years who enter into marriages with established separate estates.  Not only because they protect against invasion in the event of divorce (which is more common in second marriages than first), but more importantly they limit the rights of a “surviving spouse” to the assets that pass at death by will or trust.  That doesn’t mean you can’t provide for a second spouse if you choose to, it just means that the decision about what and how much to provide can be defined by you in your documents and not by laws that were written without contemplating this situation.

Have A Death Wish

Finally, an edgy topic to consider:

Today, assisted suicide is illegal is most States.  However, the trend appears to be toward allowing people who get to the point where their quality of life is such that they would rather not be alive, to have the ability to opt out.

If that trend continues, assisted suicide may be broadly accepted within the next twenty years.  Accordingly, in anticipating a long life, it is probably worth thinking about (and perhaps even providing a written expression) what degrees of indignities you would choose to suffer before having your life artificially terminated.

Conclusion

The good news is that we are living longer, and that if you have reached the age of 70 or 80 in relatively good health, there is a reasonable possibility that you may see your 100th birthday.  The bad news is that living to 100 involves legal and financial considerations that are not always obvious or comfortable to think about.

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The King Lear Complex

King Lear is a fictional king of ancient times.  William Shakespeare wrote one of his darkest plays about this character.

The King was a good man.  He was getting up in years.  He had three daughters (same as me).

He decided that he wanted to retire.  The plan was to split his kingdom into three equal shares, and for him to travel from one castle to another (staying with his daughters).  He would keep a handful of his favorite knights with him.

When he explained his plan to his daughters, his youngest and best child reacted with astonishment and disgust.  This annoyed the King who abruptly cut her out of his plan and divided the kingdom between the two other children.

Predictably, the two greedy daughters soon tired of the King and his rowdy knights, and he was put out in the forest with nothing.  His pride was crushed.  Ultimately the good daughter came back and saved the kingdom, but died in the process, which in turn caused the King to die of heartbreak. (Sorry if I ruined the ending.)

In my practice I see King Lear wannabes all the time.  Older clients who think it might be a good idea to re-title all their assets into the names of their children.  They have all sorts of reasons for believing this makes sense.  I tell them about King Lear and some of the lessons his story offers for today’s elders.  These include:

Children who would endorse such a plan may not be the kind of kids you can trust.

Understandings that are not legally enforceable predictably go south.

What you have accumulated is what you need to provide for your own quality of life as you age.  Give it away at your own peril.

Sometimes the advice takes, and sometimes it doesn’t.  Sometimes I am hired by the good child who was cut out because they stood in the way of their parent’s and their folly.

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