Transfer Penalty with 3 Year Lookback Imposed on VA Aid and Attendance

 By Attorney Tammy A. Weber, CELA*

  

In a final rule issued on September 18, 2018, the Department of Veterans Affairs (“VA”) amended its regulations governing VA pension benefits effective October 18, 2018.  This rule has been over three years in the making as the VA first proposed these changes in January 2015.  There is now a three-year lookback period with penalties for asset transfers, and there are new requirements for calculating net worth and deductible medical expenses.

Wartime veterans and their spouses can qualify for financial help in paying for the cost of care in their home, a personal care home or a nursing facility.  The benefit is an Improved Pension that is commonly called “Aid & Attendance.” 

Aid & Attendance

Aid & Attendance is an additional monthly cash payment of up to $2,169.00 (2018 amount) available to a veteran or the spouse of a deceased veteran, if it is shown that the claimant meets one of the following conditions:  1) requires the aid of another person to perform certain activities of daily living (ADLs) like bathing, feeding, dressing and toileting; 2) is bedridden because of a disability; 3) is a patient in a nursing home due to a mental or physical incapacity or 4) has eyesight limited to a corrected 5/200 visual acuity or less in both eyes or concentric contraction of the visual field to 5 degrees or less.  For more detail, go to the Veterans Affairs website.  The ADL of “ambulating within the home or living area” has been added and confirmation that assistance with two ADLs is required. 

Service During a Wartime Period

The Veteran must have served at least one day during a wartime period.  The dates that meet this wartime period are found on the Veterans Affairs website:  World War II (December 7, 1941 - December 31, 1946); Korean conflict (June 27, 1950 – January 31, 1955); Vietnam era (February 28, 1961 - May 7, 1975 for Veterans who served in the Republic of Vietnam during that period; otherwise August 5, 1964 - May 7, 1975) and Gulf War (August 2, 1990 - through a future date to be set by law or Presidential Proclamation).

The veteran must have been discharged from the military other than dishonorably and served at least 90 days, with one day during active wartime.  There is no requirement that the veteran was on the battlefield; he or she could have been doing paperwork at a desk.  The veteran will need his or her discharge papers, the DD-214, to prove dates of service and type of discharge. 

Net worth limitation

Prior to October 18, 2018, there was a vague $80,000.00 countable asset limitation.  Under the new law, the veteran has a $123,600.00 net worth limit; said sum including annual household income that is in excess of projected unreimbursed medical expenses when the medical expenses are reasonably predictable.  Assets that are not counted include a residence and the lot on which it sits that is similar in size to the other residential lots in the vicinity up to two acres (unless the additional acreage is not marketable), “personal effects suitable to and consistent with a reasonable mode of life, such as appliances and family transportation vehicles.” 

The new net worth limit is tied to the Medical Assistance (“Medicaid”) Community Spouse Resource Allowance (“CSRA”) and will increase with future Medicaid increases.  Although Medicaid is a different program than the VA pension, Congress adopted that number to prevent impoverishment of the non-institutionalized spouse of an individual receiving Medicaid.  VA drew a parallel that they did not wish any net worth limitation that would subject wartime veterans and their survivors to impoverishment.

Net worth or countable asset determinations will no longer take into account life expectancy, rate of depletion of assets and other factors.  The reasoning behind this change is that those factors have resulted in inconsistent, and sometimes unfair, decisions. 

Income

The Aid & Attendance benefit is reduced by the countable income received by the veteran and his or her household. But the veteran’s income is calculated after deducting unreimbursed medical expenses. This means a veteran with high unreimbursed medical expenses may qualify for the maximum Aid & Attendance benefit. In addition, some types of payments (some compensation or reimbursement payments) are not counted.    

Deductible medical expenses

VA defines medical expenses as those that are “medically necessary; that improve a disabled individual’s functioning; or that prevent, slow, or ease an individual’s functional decline.”  Included are health care provider payments, medications, adaptive equipment, health insurance premiums, transportation expenses and institutional forms of care and in-home care.  Medical expenses do not include meals, general health maintenance, cosmetic procedures, lodging or assistance with IADLs (instrumental activities of daily living).

Lookback period, penalty and cure

The new rules impose a 36 month (three-year) lookback for gifts and transfers for less than fair market value.  Any transfers after October 18, 2018 will be subject to a penalty period not to exceed 5 years.  The penalty begins on the first day of the month that follows the last asset transfer.  The divisor is the “MAPR [Maximum Annual Pension Rate] in effect on the date of the pension claim at the aid and attendance level for a veteran with one dependent” which is currently $2,169.00.  It appears that if the claimant made a $100,000.00 gift or uncompensated transfer within the three years prior to the claim for the pension, the penalty would be calculated by dividing $50,000.00 by $2,169.00 resulting in a period of ineligibility of approximately 23 months.

Some transfers to trusts and purchases of annuities that would not be in the claimant’s best interest were it not for the attempt to qualify for the Aid & Attendance benefit are treated as gifts subject to a period of ineligibility.  There is a presumption that an asset transfer within the lookback period was for the purpose to decrease net worth to entitle the claimant to the pension. Claimant has the burden of proof to rebut this presumption by clear and convincing evidence, a high standard.

There are some exceptions.  If, for example, upon retirement a claimant was mandated to make a transfer to an immediate annuity, the amount transferred to the annuity will not count as a covered asset; however the annuity distributions will count as income.

If a penalty period decision notice is issued, the claimant has 60 days following the decision notice to cure or partially cure a transfer and has 90 days following the decision notice to notify VA of the cure.

There are many nuances and questions from this new rule that will need to be figured out.  At the time of the writing of this article, local county Veteran’s Affairs Coordinators have not received implementation guidelines, so it remains to be seen how certain things will be interpreted.   

*Tammy A. Weber is a Certified Elder Law Attorney and the Managing Principal of the law firm of Marshall, Parker & Weber, LLC with offices in Williamsport, Wilkes-Barre, Jersey Shore and Scranton. For more information visit www.paelderlaw.com or call 1-800-401-4552.

Who to Choose as your Financial Pinch-Hitter – a Family Member or a Trust Company?

One of the most crucial estate planning questions is this: Who should you designate to step-in and manage your financial affairs if the day comes when you no longer want to, or are no longer able to, continue to do it yourself?

In my experience, most people don’t give much thought to this question, even though they will be trusting this person with their life savings and financial security.  People typically choose a family member, perhaps the oldest child or the one with whom they feel closest. This person may or may not be the best choice. They may not have the time and ability to effectively deal with the burdens of managing another person’s financial life.

Another option for many people is to hire a professional company to manage their finances if and when the appropriate time arrives. There are trust companies in most communities that specialize in this kind of work.

Many people who could benefit from the services of a trust company never even consider this option. They may think, incorrectly, that you need to be a millionaire to set up a professionally managed trust. But this is not the case.

In this article I want to try to clear up some misunderstandings about trust company services. I want to try to help you answer the question: who should I choose as my financial surrogate – a family member or a trust company. It is written from the perspective of an elder law attorney who is not an employee of a trust company. However, while I have no financial interests in any trust company, my wife and I have set up a revocable trust with a   trust company. This means I have both professional and personal experience with using trust companies.  

What is a Trust Company?

When I use the term “trust company” in this article I mean a corporation that is authorized to handle assets for the benefit of others. Although trust companies are often associated with banks they have different functions. A trust company serves as custodian of and provides investment and financial management services for funds that remain owned by the person setting up the trust or agency or by the trust beneficiaries.  This means that customer’s trust funds are not subject to the creditors of the trust company or any associated bank. It also means that trust companies do not have commercial banking powers and are not insured by the FDIC.

Some trust companies operate in only one state while others are national. Trust companies vary greatly in terms of the size of accounts they require and the fees they charge. So, it is important for the consumer to shop carefully to find a trust company that makes a good fit with the consumer’s particular circumstances and needs.

Powers of Attorney and Trusts

Two primary methods of authorizing another person to manage your financial matters are the power of attorney and the trust.

In my experience, most people who choose to name a family member as their financial surrogate use the power of attorney approach. With a power of attorney one person (the “principal”) gives another person (the “agent”) the authority to make decisions for and manage the financial and other assets of the principal to the extent authorized in the document. With a power of attorney, the legal title to assets remains with the principal.

The typical way to authorize a trust company to act as your financial surrogate is through creation of a revocable trust.  The person setting up the trust (the “settlor”) signs a trust agreement which gives the settlor’s directions for the trust. With the assistance of the trust company any assets the settlor wants managed are then re-titled in the name of the trust.  The trustee then manages the trust assets in accordance with the directions of the settlor. Everything is revocable, which means the trust can be modified and even cancelled by the settlor in the future.

These are the typical arrangements. However, there is nothing that prevents a family member from serving as a trustee or a trust company from serving as an agent. Trustees and agents may be an individual, more than one individual, or other entities if the entity is authorized to act as a fiduciary.

For more information on powers of attorney and trusts see my article, Financial Power of Attorney and Trust – Understanding the Differences.  

Agents and Trustees as Fiduciaries

Agents and trustees are normally going to be consider to be “fiduciaries” which means they owe a high duty of loyalty, responsibility, and prudence towards the other parties to the relationship. These fiduciary duties are typically not stated in the trust or power of attorney document but are specified by laws and court decisions. Trustees and agents may be required to account for their actions and can be held financially liable for any violations of their fiduciary duties.  

For more information on the duty of agents to account for their actions see my article Accounting for your Actions as Power of Attorney.

Family Member or Trust Company - Weighing the Advantages

At some point you may need some help in managing your financial life. Should you hand this responsibility over to a family member? Or should you choose a trust company to serve this role? Give this question some serious thought. The choice you make may be crucial to your future financial security and to the well-being of your family.  

There are some advantages of choosing a family member as your financial surrogate and some of using a trust company. I’m going to discuss some of the perceived advantages of each approach in the hopes of helping the reader make the best decision.

First, I want to discuss some of the perceived advantages of choosing a family member.:

Discussion of Possible Advantages of Choosing a Family Member as your Financial Surrogate

1.    No Financial Threshold.  A family member will serve even if you have very limited assets. Even if you are living month to month with no savings, a family member can step in to manage your checking account and pay your bills, taxes, and insurance premiums, and sign contracts for services you need.   

If you have no savings a trust company will be unlikely to accept you as a client. Trustees typically charge for their services based on a percentage of the funds being managed, with a minimum annual fee. If you have no funds to manage you will still have to pay the minimum fee.

Percentage rates and minimum fees vary widely among trust companies. You need to shop around.

 Smaller trust companies are likely to have the lowest minimum fees and percentage rates. There are small trust companies who charge a minimum annual fee of $1,500 or less. I am aware of one whose current minimum fee is only $500. This makes a small trust company a viable financial management option for individuals and couples with as little as $50,000 to manage.

But for individuals who truly have no savings a family member may be the only option.   

2.    Initial Simplicity. Although some trust companies are willing to serve as agents under power of attorney, most prefer that their clients create and fund a trust. Family members are generally more willing to serve as agents which requires no re-titling of assets. (Re-titling means changing the legal title on assets from you individually to your trust).  Because re-titling is not involved with a plan based on a power of attorney, it may be simpler to implement, at least initially.  However, third parties (e.g. stock brokers, banks) are less likely to readily accept the authority of a family member acting under power of attorney than of a trust company especially where a trust has been funded. So, the simplicity advantage of the family member-power of attorney approach may be short-lived.

3.    Family Members may Decline to Charge for their Services. Although generally entitled to a fee, a family member who serves as your agent or trustee may decide not to charge for their services. A trust company will charge.  But, see the further discussion of fees below under the topic “Experience.”

4.    Desire to have Family Members involved in certain Financial Decisions. The Principal may want to have a family member in charge of some types of financially-related decisions. For example, the principal/settlor may want a family member to review and sign contracts for services (e.g. home health aides), or to make decisions regarding gifts to children and grandchildren. However, the family member can be given this authority as part of a trust company-based plan. A trust company can handle the investments and pay the bills while the family member makes the more personal financial decisions. The family member and trust company can even be named as co-trustees.  So, this perceived advantage may not really exist at all

Discussion of Possible Advantages of Choosing a Trust Company as your Financial Surrogate

1.  Experience. If you need heart surgery you are probably better off seeing a doctor who has performed your surgery hundreds of times before rather than never. It is similar with managing financial matters like investing. Experience helps. A lot. It increases the likelihood that you will get higher investment returns with more safety. This experience factor offsets the perceived advantage of choosing a family member who doesn’t charge for services. For example, you are going to be better off with a trust company that earns you a 4% return and charges a 1% fee (3% net return) than with an inexperienced family member who earns only 1% and does not charge a fee (1% net return).

2. Prudence. Consistent with your goals and directions, a trust company is more likely to try to provide you with a diversified, safe investment portfolio. An inexperienced family member is more likely to choose investments that are either too conservative or too speculative. A trust company’s emphasis on prudence may help protect you from the poor investment returns or even losses that may be incurred by a well-meaning but inexperienced family member.

3. Oversight. In addition to having fiduciary responsibilities, trust companies are subject to government regulatory oversight and audit similar to that imposed on banks. This provides you with an extra measure of protection against improper actions.  

4. Stability. Your family member may get sick or die. A trust company will survive the illness or death of any individual.

5. Conflict Avoidance. A family member who is serving as your agent is often also a potential beneficiary of gifts and other financial rewards from you during lifetime or at your death. This can create a potential conflict of interest for your family member-agent. Even if the agent tries hard to be fair and impartial, other family members may perceive differently. This can create suspicion and emotional strain in your family. These concerns are avoided with a trust company. 

6. Systems. A trust company is going to have systems already in place to ensure that taxes and other bills get paid and other actions are taken in a timely manner. A family member may have to create such systems from scratch and is more likely to make mistakes, like failing to make timely payment of a bill.

7. Reporting. A trust company will provide you with a regular written accounting of all of the actions it takes on your behalf including all investments and payments. Such reporting is unlikely if a family member is administering your finances.

8. Burden Avoidance. Acting as someone’s financial manager is difficult and time consuming. A trust company can relieve family members from these burdens.

9. Impartiality. A trust company can serve as a financially and emotionally neutral third party. It can help limit and resolve family disputes and avoid discord.

10. Confidentiality. A trust company will provide confidentiality for your financial information. Maintaining confidentiality is much more difficult when a family member is handling your finances.  

11. Avoiding Legal Jeopardy for your Family Member. There is a constant flow of cases in the courts involving family members being sued civilly and even criminally for their actions as dad or mom’s agent under powers of attorney. Cases are brought by other family members and by governmental entities. A family member who has failed to keep detailed records of all actions, or made mistakes out of ignorance can be in very real legal jeopardy.  

12. Better Acceptance. Family members who are serving as agents often run into problems having a power of attorney accepted by a bank, brokerage, or other third party. Acceptance of your financial surrogate’s authority is typically improved if the surrogate is a trust company. This allows your transactions to take place more quickly and smoothly.   

Who should you Choose as your Financial Pinch-Hitter: A Family Member or a Trust Company?

As you can see, there are numerous advantages to having a trust company serve as your financial surrogate. Or perhaps a trust company and a family member should be named to serve together. If you have a modest amount of savings and investments (e.g. $50,000 or more) a funded and professionally managed trust may be a good planning solution for you. If you live in Pennsylvania you can talk about it with an elder law attorney at Marshall, Parker and Weber.

Who Decides for me if I don't have an advance directive?

Recently I made a late-night visit to a hospital Emergency Room. Fortunately, it wasn’t anything too serious. Upon discharge I was given a lot of paperwork to take home with me. Included was a booklet titled “Advance Directives and Planning.”

I appreciate that my local Emergency Department is giving out information on advance directives, which the booklet defined as “a way for you to tell your health care providers about the care you want to receive – or not receive – should you ever become incompetent.” The booklet then went on to describe different forms of advance directive, including the “living will and the health care power of attorney. 

The booklet contained good information. But as I read it I thought one important question was not discussed: What happens if I don’t have an advance directive or it cannot be found? I’m writing this article to answer that question.

If you are not competent to make medical decisions but do not have an advance directive, or it is unavailable when needed, decisions will nevertheless have to be made. In that event, who will be authorized to make decisions for you and what decisions can they make? Pennsylvania has a law that answers those important questions.

Pennsylvania’s Act 169

In Pennsylvania our law creates a hierarchy of substitute medical decision makers for you.  Act 169 (2006) provides for the passing of decision-making authority to your a “health care representative.” Your representative is authorized to make medical decisions for you if you lack decision making ability and have not appointed a surrogate yourself. This authority arises without court appointment or involvement.

Act 169 conforms with long prevailing medical practice.  If a patient cannot make decisions and has created no advance directive, health care providers traditionally have turned to family members for treatment decisions. A close family member is allowed to exercise “substituted judgment” on behalf of the patient. 

Family members are considered to be in the best position to know what treatment decisions the patient himself would make if competent.  And resort to family decision making for incapacitated patients usually does provide decision makers who are concerned and available.

However, default decision making by family members is not without some problems and risks. Conflicts among family members are possible.  The most knowledgeable surrogate decision maker may not even be a member of the family. And family members may make decisions based upon ignorance, a desire to end family distress, or downright bad faith and ill motive.

Act 169 gives your representative very broad decision-making process authority. He or she (or they) can make virtually any health care decision that you could make yourself if you were competent.  However, a representative may not decline health-care necessary to preserve life unless the patient is in an end-stage medical condition or is permanently unconscious.

Here is the substitute decision-making hierarchy established by Act 169.

(1) Designation by the Principal. An individual of sound mind may, by a signed writing or by personally informing the attending physician or the health care provider, designate one or more individuals to act as health care representative.

(2) Designation by Default. 

 If a higher priority decision maker is not reasonably available, the Act specifies that any member of the following classes, in descending order of priority, who is reasonably available, may act as health care representative:

            (i) The spouse, unless an action for divorce is pending, and the adult children of the principal who are not the children of the spouse.

            (ii) An adult child.

            (iii) A parent.

            (iv) An adult brother or sister.

            (v) An adult grandchild.

            (vi) An adult who has knowledge of the principal’s preferences and values, including, but not 

limited to, religious and moral beliefs, to assess how the principal would make health care decisions

The provisions of Act 169 are, in effect, a default advance directive for those persons who have not created their own. So, in most cases, there should be someone who will have the authority to make medical decisions for you even if you never signed an advance directive, or if the person you named is unavailable. But your Act 169 representative may not be the person you would want. And they may have no idea what kinds of decisions to make for you.

Conversations are Key

It is much better for everyone, patients, providers, and families, if advance directives are in place.  That way you get to choose your substitute decision maker. But even signing a legal advance directive document is not enough. Your treatment is much more likely to be consistent with your wishes if you have talked with your substitute decision maker about your choices for care.  

When you can no longer speak for yourself, the care you will receive will be to a large degree dependent upon the conversations you have had with your family and the people who will be caring for you. Conversations are the key to getting the medical care you want and limiting burdensome and unwanted treatments. You need to have those conversations whether or not you have an advance directive. Do this for your family and not just yourself. Let them know what you want them to do if the time comes that they must speak for you.