Nursing home and assisted living care are getting expensive these days. As we live longer, and particularly as the largest demographic–the Baby Boomers–retire and become eligible for Medicare and Social Security, it’s apt to get more expensive as demand peaks. High-end assisted living units locally average better than $3500/month for a stripper facility, and that’s before you get into a dizzying menu of extras adding to that total. Here in Colorado, average monthly nursing home care is between $5,000 and $7,500. So, even if you’re a retired O-6, having just one of you in a nursing home is going to eat your retired pay–and then some.
Most of us hope to leave something to our children. Not unreasonably, we expect that after a lifetime of work, saving, and prudence, there should be something left when we go. Horror stories abound about the state taking our homes after we die to reimburse for Medicaid assistance. Suddenly, the Aid and Attendance VA pension benefits I wrote about in the January Eagle can seem quite attractive. So attractive, in fact, that there are self-styled veterans benefits advocates who pitch to new assisted living/nursing home residents the idea of receiving A&A benefits of up to $2,000/month for a veteran over 65 who requires nursing home or assisted living care. This has superficial appeal to the veteran and to the facility itself, as it can boost available resources to pay in the near term.
To review, for A&A the veteran’s disability need not be service connected, and for purposes of qualifying medically for the benefit just being over age 65 or requiring full-time nursing home assistance can suffice.
So far, so good. But pay close attention. Recall that A&A is a needs-based benefit. That means that your income less your unreimbursed medical expenses will reduce your benefit dollar-for dollar. Also, nearly every asset you possess except your home counts against a notional $80,000 net worth standard. If you sell your home, the proceeds count too. To qualify financially you and your spouse have to be living hand-to-mouth and have next to nothing in savings.
If you’re “over-resourced” some “veterans’ advocates” suggest the creation of an irrevocable trust to transfer your assets outside of your control. They may then try to sell you an annuity with the proceeds from the transfer. There are varying mechanisms and schemes for doing this, but the bottom line is that there is an argument to be made (about which I have considerable skepticism) that an irrevocable living trust is okay under VA regulations and certain VA general counsel opinions. But here’s the kicker. Any transfer of your assets for less than fair market value, including into an irrevocable living trust, will disqualify you for any Medicaid assistance for five years after the transfer. Worse, the period of disqualification does not even begin until you first apply for Medicaid.
Any application within that five year window disqualifies the applicant from assistance for the period of time equal to the value of the transfer divided by the Medicaid monthly long-term care benefit. For example, if you give away $100,000 today to your children (or anybody else for that matter), whether in an irrevocable trust or outright, and you apply for Medicaid assistance in the ensuing five years, at the rate of $5,000/month, you will have to wait twenty months from the time of Medicaid eligibility before you can begin receiving Medicaid assistance for long-term care. In practical terms, it means that if you do a transfer, you must be absolutely certain that you will be able to pay for nursing home/assisted living care, for you and for your spouse, for an absolute minimum of 61 months from the time of transfer. This is a dangerous assumption where the retired spouse dies within that period leaving the surviving spouse no savings (it’s all in the irrevocable trust, remember?) with little more than social security to live on.
Don’t get me wrong. The VA A&A benefit is real, and can be quite valuable–provided that you qualify for it outright without having to give away any of your assets. There’s also the question as to how long it will be that this device will be accepted by the VA. Given the crunch on entitlement programs and the federal budget, I foresee that the VA will soon also crack down on gratuitous transfers and will adopt its own look-back provisions, probably very similar to Medicaid. In the interim, they may very well decide to scrutinize any transfer of assets to qualify for VA pension assistance, particularly where that transfer is to adult children. It is entirely reasonable to suspect that such transfers are not really irrevocable, but are tainted by an informal agreement among the family to use them to care for the donor-parents.
Anytime you are encouraged to fiddle with your assets and resources to qualify for a needs-based benefit, BEWARE. Before making an irrevocable commitment you might later regret, or that might have the effect of turning your surviving spouse out on the street, please take the time to consult with competent counsel before you take the plunge.