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Avoid Blowing Up a Veteran's Benefits

Avoid Blowing Up a Veteran's Benefits

Selling trusts and life insurance to war veterans can be tricky. One misstep could disqualify them from important benefits.

The cost of a nursing home, which runs some $80,000 per year, can quickly decimate the assets of even affluent families. When a client runs out of money, he or she typically must apply for Medicaid benefits. But war veterans—who meet very specific criteria—also may qualify for the U.S. Department of Veterans Affairs Enhanced Pensions with Aid and Attendance benefits (A&A), designed to assist wartime veterans and surviving spouses with in-home, nursing home and assisted living care.

A combination of veterans benefits and Medicaid could be your client’s ticket to long-term care coverage. However, dealing with both Medicaid and VA rules is a gut-wrenching experience.

Why? A&A and Medicaid are not granted automatically. The rules are complex and tricky. So a flawed structure of life insurance and/or investments for a wartime veteran can wind up cheating that client out of important benefits.

“You’re (veteran or surviving spouse) likely to end up without the supplemental pension benefits they (financial advisors) promise, disqualified from other government benefits and stuck in a financial investment that’s not in your ­or your family’s ­best interest for the long term,” a Federal Trade Commission report warns.

Qualifications for A&A are very specific: The client must be over 65; be eligible for a military pension; fall under an income threshold; and need help with daily living tasks, such as bathing, feeding, dressing and toileting; be incapacitated physically or mentally; have severely limited eyesight; or be confined to bed or in a nursing home.

Benefits for wartime veterans’ sick spouses also are available.

The Federal Trade Commission notes that someone accredited by the VA can fill out the paperwork for veterans’ benefits and are not permitted to charge for their help. But the VA does not necessarily endorse that person’s products, advice or ethics.

Medicaid rules are equally complex. To qualify for Medicaid, persons needing long-term care typically must “spend down” assets to about $2,000. The “community spouse,” who remains at home, generally is permitted to keep some $100,000 in resources.

Annuities, often used to provide clients with a steady stream of income, can prove problematic when coupled with these two benefits. If a client needs money early to meet expenses, back-end surrender charges may be due.

In addition, a client with a deferred annuity who needs to qualify for Medicaid to obtain long-term care may need to convert the investment into an immediate annuity. But Medicaid rules require that the immediate annuity name the state as the “remainder beneficiary” for when the policyholder dies. This permits the state to get reimbursed for the client’s medical assistance, long-term care and community services. Otherwise, an annuity could be a “countable asset,” toward the $2,000 asset threshold needed to qualify for Medicaid. Only beneficiaries who are a community spouse and/or minor or disabled child may be named to a priority position over the state.

“If you’re subsequently disqualified, you would have to return the (A&A) benefits already paid to you,” says Federal Trade Commission Attorney Carol Kando Pineda. “On top of all that, the advisors are charging fees that range from hundreds to thousands of dollars for their so-called services.”

A veteran cannot receive both A&A and Housebound benefits at the same time.

For a wartime veteran or surviving spouse to qualify for an A&A monthly pension, the he or she must have at least 90 days of active military service, one day of which was during a period of war, and be honorably discharged. Wartime veterans who entered active duty on or after Sept. 7, 1980, must have completed at least 24 continuous months of military service.

If all requirements are met, the VA determines eligibility for the A&A benefit by adjusting for medical expenses from the veteran's or surviving spouse's total household income.

The A&A income threshold for a veteran without dependents is $20,447 annually, according to the VA. The annual A&A threshold for a surviving spouse alone is $13,138. Thresholds may rise for each dependent child.

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