What Led to an Overhaul of VA A&A Rules for Eligibility?

Because former rules establishing financial eligibility for A&A did not expressly prohibit gifts out of an estate for less than fair market value, it led many veterans to be coached mainly by lawyers and estate planners into conveying assets to irrevocable trusts or to make purchases of immediate annuities to become poor enough to qualify for benefits almost overnight. The legal loophole led to the VA paying benefits to non-needy veterans which caused a financial squeeze to the pension program, prompting the agency to reform its rules to promote a more equitable and fair eligibility system. The new rules do in fact achieve fairness and should lead to more needy veterans being awarded the important benefit and less non-needy veterans from getting A&A. 

What are the New Rules for VA A&A Financial Eligibility?

The most impactful change to eligibility for A&A is the new net-worth requirements.  The VA has instituted a bright-line rule for how much in combined assets and income a veteran and spouse may have and still qualify for A&A. Combined income limits are as follows:

2019 Basic A&A Income Limits

Veteran with no dependents: $22,577

Veteran with spouse: $26,765

Surviving Spouse: $14,529

The income limits set out above are the same as the MAPR limits.  As such, when a veteran shows income to be greater than the MAPR the veteran is ineligible for A&A benefits and when the applicant earns less than the MAPR, the veteran is eligible to receive a monthly check for the difference between their income and the MAPR as determined by the VA. While at first glance the income limits appear to be quite low, applicants are allowed to deduct from their income all unreimbursed medical expenses subject to a deductible including the cost of assisted living, co-pays and other expenses discussed below. 

The new net-worth limit in contrast to the old rules allows an asset shelter (same as the Medicaid Community Spouse Resource Allowance) that is, an amount a veteran may keep and still be eligible for A&A. The asset shelter in 2019 is $127,061 (it will be indexed for inflation the same way social security is recalculated). However, the VA in its net-worth calculation adds excess income (single or combined income less  medical expenses) to the value of the veteran’s assets except that certain assets, most notably, a primary home on two acres or less, a car, and personal effects, are exempt and not countable. Thus, for example, if a veteran has assets of $125,000 and countable income (income less unreimbursed medical expenses) of &7,000, the veteran has a net-worth which exceeds the shelter amount by $4,939. Spend-down the excess and the veteran will become eligible for A&A.

Under current rules, applicants who have gifted assets for less than fair market value within the previous 36 months, must disclose the transfer and If the value of the transfer exceeds the shelter allowance, the VA denies the application subject to a penalty which can last for up to five years.  (Other exempt transfers are not covered in this article) To ascertain the penalty, divide the MAPR by the value of the assets conveyed for less than fair market value. 

The New Rules Clarify What is an Unreimbursed LTC Medical Expense.

Many veterans enjoyed healthy retirement incomes until long-term care, LTC, costs began to impoverish them and fast. The VA has allowed veterans to deduct LTC costs from their income subject to the deductible but the rules did not clearly set out which services could be deducted. Pursuant to 38 USC 1503 (a) (8) certain unreimbursed medical expenses paid by the veteran or spouse in excess of 5% of the MAPR are deductible from income to derive “countable income” and the MAPR if any for purposes of determining eligibility. 

2019 medical expense deductible (5% of MAPR) 

Veteran with no dependents: $1,128.85

Veteran with spouse: $1,338.25

Surviving Spouse: $726.45

Currently, The VA will allow the calculation to include amounts reasonably predicted to be paid by a veteran in the future such as the costs of assisted living care. If the veteran has been paying long-term care expenses chances are, countable income will be less than zero, meaning that the veteran would be eligible for the entirety of the MAPR less the 5% deductible. The new rules make clear that an applicant may deduct from income “payments for items and services that are medically necessary, that improve a disabled individual’s functioning or that prevent, slow or ease an individual’s functional decline”. The expansive definition set out in the amended rules as to which services a veteran can deduct as a medical expense is a real positive for assisted living communities.   

The amended definition of “medical expense” added to personal care assistance which included such things as bathing or dressing, help “ambulating within the home or living area”; and,  all forms of “custodial care”, that is, regular supervision to protect the veteran from dangers they themselves are not able to self-regulate due to a dementia and related services including  instrumental activities of daily living, IADL’s such as housekeeping, laundry, dining, room charges, or medication assistance, if necessary, are now deductible from incomes when determining financial eligibility for A&A. Moreover, to simplify the approval process, the VA now accepts from applicants a certification by their physician, physician’s assistant or advanced nurse practitioner, indicating they need a protective environment due to a physical, mental, developmental, or cognitive disorder. The implication for many veterans with dementia who need custodial care but remain independent in self-care, the cost of what many communities characterize as an “independent” residency may still be regarded as a medical expense under new VA rules.  Other deductible medical expenses include unreimbursed prescription drug costs as well as certain medically necessary over-the-counter drugs if prescribed by a medical provider: animals used for adaptive purposes may qualify as deductible medical expenses as well as transportation for medical purposes, co-pays, co-insurance obligations, and payments for smoking cessation costs. 

The New Rules Improve Planning Options for Veterans Needing Assisted Living. 

Let’s look at a case example to amplify planning opportunities centered on qualifying a veteran for A&A benefits. Jim age 87 and a veteran of the Korean war receives a diagnosis of dementia at a time he remains able to self-manage activities such as driving. Jim uses a cane for balance but performs ADL’s without assistance. However, upon receiving the news, Jim expects to need assistance with self-care and safety oversight within 3-5 years. Jim has already been struggling to remain independent at home. 

Jim reviews his financial status with his financial planner who understands VA A&A rules.  Jim reveals that he earns $3,500 per month in retirement income including social security, lives alone in his mortgage-free home worth about $200,000, and has $125,000 in savings. Jim wants advice as to whether his money would run out if he sold his home and moved into assisted living as an independent resident with a plan to transition onto assisted living. The financial planner looks at Jim’s income, assets and the availability of VA A&A and recommends as follows: 

“Convey all but the asset shelter amount (which at the time was $132,000) out of your estate in a manner recommended by your attorney who has familiarity with trust rules so as not to  trigger the look-back penalty, and use the excess funds held in trust to supplement the gap between your residency fees and your income. After three years, you will be eligible for Aid & Attendance irrespective of the value of the assets you transferred to the trust if you execute the money transfers correctly.” 

Jim sold his home for a net of $175,000 and moved into a senior living community as an independent resident where the total rent is $4900 per month. Jim spends 90% of his income ($3,150) on residency fees and taps into the trust through his son who is essentially gifting the amount $1,750 each month to augment his rental fees. Jim’s decision to move into a senior retirement community proved to be a good one as he made new friends and eliminated the burdens of home maintenance, preparing food and cleaning the house. Yet, after 2 years and three months, Jim’s condition having worsened necessitated that he be transferred to the dementia care unit within the facility. Jim’s son reviewed the finances and determined that Jim would not be able to apply for A&A for 9 months even though his residency fees were $7,600 a month due to the transfer of assets for less than fair market value. Jim’s son needed to supplement his residency fees by $4,450 to maintain the residency. Jim’s son pays this amount from the trust as a gift to Jim. 

At the end of Jim’s third year in senior living, Jim’s son and financial planner determined that Jim had personal savings remining of $132,000 and $80,700 in the irrevocable trust, but now earned $3,600 a month in retirement income. The shelter allowance had increased to $140,000, so the trust transferred $8,000 back to Jim’s personal savings account leaving at the end of Jim’s third year in the community a trust his son controlled valued at $72,700 but with residency fees of $7,800. Jim applied for A&A. 

Jim was eligible to receive VA A&A benefits which were by then $29,000 after the end of his third year living in the community despite possessing $72,700 over the asset shelter if his income less unreimbursed medical expenses was less than zero. Since Jim made $43,200 in income, he earned too much to qualify for A&A, except that by paying $7,800 in assisted living fees, even with a deductible of  5%, Jim qualified for an MAPR of  $2,295 per month ($29,000- $1,450 /12) Jim’s monthly income of $3,300 would be used to pay residency fees along with $2,295 VA A&A benefits. The trust would commence paying the gap funding amount of $2,205 monthly until it ran out. 

Jim’s son calculated the length of stay Jim could expect moving forward. As residency fees were calculated to increase 3%, Jim’s son estimated that he would exhaust funds from the trust in 30 months. At that time, Jim’s son as his POA would begin tapping into Jim’s savings to pay the gap funding amount. By the time Jim began using savings to pay the gap funding amount, Jim’s care cost had increased to $9,000 a month, while his income went to $3,400 (monthly VA A&A had increased to $2,450). Thus, Jim’s personal savings were expected to exhaust after another 22 months. Jim, with the VA A&A benefit was able to stay in a senior assisted living community despite very expensive care costs but excellent planning for a total of 88 months or 7 and 1/3 years. The above example shows how important it is to plan long-term care around a veteran’s eligibility for A&A. 

For veterans applying for VA A&A, use VA form 21P -527 EZ, and collect for filing, your military discharge papers, marriage certificate if applicable, proof of ID, proof of unreimbursed medical expenses along with a list of assets and income. Submit applications and supporting documentation to the Veteran’s Pension Management Center of the state by mail or delivery it to a VA regional benefit office.

This article is published courtesy of sister communities Stonebrook Village, Colebrook Village, Elmbrook Village and Cedarbrook Village, all part of the Everbrook Senior Living portfolio.