Q. Has the Veterans Administration announced new rules about qualifying for an Aid & Attendance Pension to help Vets with long term care expenses? I recall that they were in the planning.

A.  Yes! The VA just announced final rules for those Veterans and their surviving spouses who seek to qualify for a pension to help with long term care expenses. One of the new rules adds clarity to the asset limit question, while another imposes severe penalties for Vets who transfer away assets in an effort to meet the threshold asset test. These rules were three years in the making and were initiated, in substantial part, to protect Veterans from aggressive marketers selling annuities and other financial products to Veterans, which promoted the divestment of assets just to qualify for pension.

But the new rules will also make it much more difficult for veterans’ advocates to legitimately assist them accelerate eligibility for pension, often known as an Aid and Attendance Pension, which can pay a benefit of up to $2,169 for a married Vet (in 2018). Here are some highlights of the new rules:

1) Net Worth: Under the old rules, a Vet could only qualify for pension if his Net Worth met VA regulations, which were vague and uncertain, resulting in inconsistent awards and denials by VA adjudicators. By contrast, the new rules adopt a “bright line” test to improve consistency.  A qualifying Net Worth will now be the same as for a married couple under the Medi-Cal program, currently $123,600 (in 2018), and this will be the rule whether the Vet is married or single. The Medi-Cal program refers to this amount as the Community Spouse Resource Allowance (“CSRA”), and it will adjust annually by an inflation factor. However, unlike the Medi-Cal program, the VA will include in this number both non-exempt assets as well as the Vet’s annual income (after adjusting out qualifying medical expenses).  This bright line test is considered a vast improvement over the previous vague standard.

2) Transfer Penalties: Under the old rules, a Vet could transfer away assets to adult children, or purchase an irrevocable immediate annuity, and immediately bring down his Net Worth to qualifying levels. There was no transfer penalty.  This planning option has now been gutted. Now, any excess Net Worth transferred away within three years of application will trigger a penalty period of as much as five years, depending upon the value of the transferred assets, during which time the Vet or Surviving Spouse will be ineligible for Pension. The penalty period will only start running in the month of the last such transfer, heavily penalizing serial transfers. The penalty divisor will be the Maximum Pension Rate for a Married Vet, currently $2,169 /month (in 2018).   The transfer penalty provisions are a major development and will all but eliminate crisis planning.

3) Purchase of Annuities Now Eliminated: Once the new rules become effective, a Vet will no longer be able to purchase an irrevocable annuity to convert excess net worth into a stream of income.  Such a purchase will be considered a transfer of assets and will trigger a transfer penalty.

4) Medical Expense Deduction More Liberal: Some good news: the new rules expand the definition of medical expenses that will be allowed as a deduction from the Vet’s income, for purposes of both reducing his Net Worth and increasing his Pension Award. It should now be easier to qualify expenses incurred for home care, even if provided by an adult child, as well as care in assisted living facilities.

Alert: The new rules become effective on October 18, 2018. Until then, the old rules apply.  If a Veteran is considering applying for a VA Pension down the road, and believes he may need to divest himself of assets in order to qualify, he should consider doing so before October 18, because there will then be no transfer penalty even if the application is made long after that date.  Many advocates are therefore urging Veterans in this situation to become proactive about transfers, and to consider making them before the new rules and their transfer penalties become effective.

References:  Federal Register of September 18, 2018, announcing the new rules.