Veteran's Aid & Attendance Pensions

     Over the past few months, I have heard from a number of financial professionals whose clients are asking questions regarding eligibility for the Veterans Administration's Aid & Attendance Pension. The Aid & Attendance Pension is a benefit available to veterans with 90 days of active duty service during wartime. Due to the World War II, the Korean War, and the Vietnam War, the vast majority of military veterans potentially eligible for the Aid & Attendance pension served during a qualifying wartime. In addition to the wartime service requirement, veterans seeking the Aid & Attendance Pension must qualify medically and financially.

     The Aid & Attendance Pension provides additional funds to veterans or their surviving spouses to pay for assistance in performing daily tasks. A significant goal of the Aid & Attendance Pension is to provide veterans with the care they need to live a full life without the veteran needing to rely on Medicaid for long-term medical care.

Clients who desire to meet the financial qualifications for the Aid & Attendance pension generally consider one of two actions. Either the client wishes to purchase annuities in order to convert assets into an income stream, or the client wants to give away assets to children or other loved ones. Both of these actions, while potentially allowing the client to meet those financial limits, have potential negative consequences.

     Two issues arise for clients wanting to convert their assets into income. First, it is important to note that the Aid & Attendance Pension has both an income and asset limit, so it is possible that converting assets to an income stream will not achieve the goal the client intends. The second issue, involves the financial advisors desire to maximize their clients return on investment. In many cases, especially with elderly clients, an annuity is not the vehicle that will provide the best return on investment. Alternately, clients seeking to give away assets do not consider the choices that continued access to and control of those assets can provide the client.

     Unlike Medicaid, the Aid & Attendance Pension has no divestment penalty, allowing individuals to give away assets in order to meet the financial qualifications. However, it is important for clients to consider what they are giving up by giving away those assets. When considering long-term care, more assets equals more choices. Also, while clients believe that children will retain assets given to them in case the parent ever needs those assets, even in situations where children have the best of intentions, unexpected expenses, lawsuits, and investment mistakes occur, creating a situation where assets are no longer available to pay for care in the future.

     A significant drawback with the Aid & Attendance Pension is the existing backlog of claims for veteran’s benefits. In many cases, it may take over a year to process a claim for the Aid & Attendance Pension, and while the claim may eventually be approved and pay out retroactively, there is a time during which the client must subsist on their artificially lowered assets.

     The Aid & Attendance Pension has the potential to improve significantly the client’s quality of life. However, qualifying for this benefit is not always in the best interest of the client, especially when the client has significant assets with which to pay for their care. Before taking any action designed to assist in qualifying for a government benefit, clients should speak with an attorney experienced in veteran’s benefits to ensure that such actions will achieve the client's goals.

Matt Ferrara

Additional DOMA Issues

     As we discussed in our last post, the United States Supreme Court issued its decision in the case of US v. Windsor, more commonly known as the Defense of Marriage Act (DOMA) case. The Court struck down a provision in the law that required the Federal Government to treat same-sex spouses as unmarried for purposes of federal law. It is still unclear when the decision goes into effect and whether it only covers same-sex couples married in a state allowing same-sex marriages and residing in that state. While not related to estate planning, which is normally our primary focus here, there are important planning issues affected by this change about which you and your clients should be aware.

     One area with potentially far-reaching consequences is retirement planning. When reviewing the retirement planning for married same-sex clients remember:

1. In general, the required minimum distribution (RMD) rules are more liberal for married plan participants whether the participant is in pay status or not.
2. The spouse of a deceased employee can roll over a distribution attributable to the employee subject to the same rollover rules as if the spouse were the employee
3. In certain situations, a participant must have spousal consent before the participant can leave retirement benefits to someone other than the spouse, before a lump sum can be taken in lieu of a joint and survivor annuity, and before the plan account can be used as security for a loan.
4. In a divorce, a spouse's pension benefits are often part of the property settlement. When there are pension benefits involved, courts often use a qualified domestic relations order (QDRO) to handle those benefits. Without a QDRO, taxes for the benefits fall on the spouse who earned the benefits even though the other spouse receives the benefits.

     This case will also have an effect on employer-provided health plan benefits. The employee can exclude from income any amounts received from his employer as reimbursement for medical care expenses as long as the medical expenses represent care provided to the employee, the employee's spouse, or dependents. This ruling will expand the employee's right to exclude from income expenses paid for care provided to the same-sex spouse. The same is true for spousal entitlement to health plan coverage under the COBRA continuation rules. 

     While many details of the ruling remain unclear, it is important that we as planners understand the consequences of this decision in order to best serve both our business and individual clients. 

Alan Ferrara