Tuesday, September 14, 2010

Beware the Boondogglers selling Trusts for VA Pension Benefits

By Jeff Marshall

Recently, another lawyer asked me about a company that was recommending that an assisted living resident set up an irrevocable trust in order to qualify for VA benefits. I have noticed that a number of this type of “VA benefits planning” companies have been advertising lately. Some Assisted Living Facilities are even referring their residents to them. Seniors should be careful in dealing with these outfits.

In the right circumstances VA Pension benefits can be a valuable financial support for a Veteran or the widow of a Veteran. Many veterans who are over age 65 can qualify for benefits if their income is below the maximum annual pension rate (MAPR), and the veteran has limited net worth. Current pension rates are available online at http://tinyurl.com/kj2bxc8. The amount of benefits available can be significant.
The veteran’s net countable annual income for VA purposes (IVAP) is deducted from the MAPR to determine if the Vet is eligible for a pension payment. If the veteran’s IVAP is below the MAPR, and the veteran has limited net worth on which to draw for support, the veteran may be financially eligible for a monthly pension allowance. VA awards monthly compensation in an amount necessary to bring the veteran’s income up to the monthly pension allowance. Higher pension allowances are available if the Veteran is housebound or in need of “aid and attendance.

Pension eligibility is often overlooked because people are not aware of it at all or do not know that IVAP is reduced by your out of pocket medical expenses. For a resident of an assisted living facility, the entire cost can be deductible. Thus, a Veteran who is paying for long term care expenses for himself or his spouse may have a much reduced IVAP and thus qualify for Pension.

Veterans who are over the VA net worth limits sometimes seek to reduce their resources to “jump start” eligibility. Reduction of assets to qualify for VA and other benefit programs is fraught with potential pitfalls involving complicated legal and ethical issues. The ethical issues are particularly problematic if the elder lacks capacity or may be subject to “undue influence” from a family member, or if the effect of transfers would alter an established estate plan.    

A contemplated transfer to obtain VA Pension must be also evaluated for its impact on eligibility for Medicaid. VA and Medicaid rules differ markedly in their treatment of transfers of assets.  Unlike Medicaid, no transfer penalty is applied to the transfer of assets that occurs prior to filing a claim for VA pension. On the other hand, VA does not recognize some transfers that would be deemed complete for Medicaid purposes. 38 CFR § 3.276(b) specifies that certain transfers or waivers are disregarded.
(b) Transfer of assets. For pension purposes, a gift of property made by an individual to a relative residing in the same household shall not be recognized as reducing the corpus of the grantor’s estate. A sale of property to such a relative shall not be recognized as reducing the corpus of the seller’s estate if the purchase price, or other consideration for the sale, is so low as to be tantamount to a gift. A gift of property to someone other than a relative residing in the grantor’s household will not be recognized as reducing the corpus of the grantor’s estate unless it is clear that the grantor has relinquished all rights of ownership, including the right of control of the property.

Also, of note: Federal law places limitations on who can represent a veteran in regard to a VA claim. Only certain persons can represent a veteran in regard to a claim for benefits:
1. The Claimant can represent himself directly.
2. A Veteran Service Organization (VSO) that is accredited through the VA.[1]  A listing of approved organizations is available online at http://www.va.gov/ogc/recognizedvsos.asp
3. An individual Agent who has been accredited by the VA.  
4. A “one-time” power of attorney person (for example, a child or relative of the claimant).
5. Employees of Banks or Trust Companies or other corporate entities acting as guardians for claimants.
6. Lawyers who are accredited by the VA “to represent a claimant before the Department on a claim for VA benefits.” The lawyer must be a member in good standing with a State Bar AND be accredited by the VA.
Accreditation means the authority granted by the VA to representatives, agents, and attorneys to assist claimants in the preparation, presentation, and prosecution of claims for VA benefits. Without accreditation, a lawyer may not independently assist claimants in the preparation, presentation, and prosecution of claims for VA benefits. 

I am a VA accredited attorney. But you should know that accreditation alone doesn’t mean that a lawyer or agent is all that knowledgeable about VA benefits. It is relatively easy for a lawyer to get accredited by merely filing a form and taking a few hours of education.  However, lack of accreditation can be taken as a “warning flag” suggesting that the veteran be wary of an “advisor” who has not even taken this basic step. Veterans should therefore ask if the person providing the advice is “accredited by the VA.”  You can check on whether an advisor has been accredited by the VA on the VA website at  http://www4.va.gov/ogc/apps/accreditation/index.asp

VA accreditation does not appear to be required to “discuss VA benefits” with an individual or group of individuals.  An attorney’s or agent’s consultation with a client or prospective clients concerning the Pension benefits that might be available are beyond the scope of VA  regulations until the individual becomes a “claimant” as defined in the regulations.

One interesting aspect of VA benefit law is that it is illegal to charge a Veteran for the helping the Veteran file any application for benefits.  If accredited, an attorney or agent may assist with filing applications but in most cases may not charge for doing so. Even though the attorney or agent does not charge, VA accreditation is still required to assist claimants in the preparation, presentation, and prosecution of claims for benefits before VA. (For more on accreditation, click here.)

With this complicated background – I tried to answer the inquiry from my lawyer colleague: what is it these VA Pension consulting firms are doing?  The answer varies depending on the consulting firm.  But here are a couple of possibilities:
1. Some are operating in a manner similar to a living trust mill – for a couple of thousand dollars they will set up a trust for you (whether you need one or not).  As noted, trusts for Pension benefits can be problematic because of the ethical implications and the disconnection between VA Pension rules and Medicaid rules.
2. As with many living trust mills, these outfits may sell high commission and inappropriate financial products (such as high commission annuities) in conjunction with the trust “planning.
3. They may serve as a “feeder” for lawyer on non-lawyer agents. If they are doing trusts they are probably practicing law and thus may seek to protect themselves by establishing some connection with a lawyer.
In Pennsylvania there are a number of companies offering to do Pension planning for residents of assisted living facilities.  In some cases, the facilities refer the residents to the planning firm and may even pay the outfit to file an application for the resident (although this is of questionable legality due to the prohibition on charging for assisting a Veteran file an application). And seniors and their family members should always be concerned if the planning firm wants to sell financial products as part of the planning.

If you are approached by a VA benefits planning company, you might want to get a “second opinion” from a certified elder law attorney before acting on the company’s advice.  A list of all the certified elder law attorneys in Pennsylvania is available at www.nelf.org.

June 8, 2012 updateAt the request of Congress, the Government Accountability Office (GAO) conducted a study of veteran’s benefit planning companies and issued a report on June 6, 2012 recommending substantial changes in the rules and procedures governing eligibility for VA Pension benefits.  See my blog post on the GAO Report here

January 26, 2011 Update: Apparently at least one insurance company has advised its agents to steer clear of using VA benefits as a lure to sell annuities.  As reported by Michigan elder law attorney Christopher J. Berry in a January 25th posting All American Equity has advised its agents that:

using VA Benefits as a prospecting tool may be viewed as a pretext interview and/or an unauthorized practice of law. Any advice given regarding VA Benefits should only be provided by qualified advisors.

There is the potential for these programs to not provide adequate disclosure to prospects. Without proper advice, there is the possibility of adverse tax consequences and situations that could affect future Medicaid eligibility or qualification for other benefits.
Good for you All American Equity - for acting in an appropriate manner.  

Related resources:
See the article on this subject in the October 2010 AARP Bulletin, "Scam Alert: Taking Aim at Old Soldiers - Seminars target vets with unwise investments." 

Read my blog post of June 8, 2012: GAO Recommends Changes to VA Pension Eligibility Rules

1 comment:

Jen Antonini said...

Thank you for this thorough and very accurate warning of the risks associated with "VA Trusts" and/or "Medicaid Trusts" Your comments on the ethical concerns are especially appreciated.