Veterans Aid & Attendance Pension Benefits

The Department of Veterans Affairs offers two disability income benefits for veterans who served on active duty.

The first of these benefits -- Pension -- provides supplemental income to disabled or older veterans who have a low income. Pension is for war veterans who have disabilities that are not connected to their active-duty service. If the veteran’s income exceeds the Pension amount, then there is no award. However, income can be adjusted for future and recurring unreimbursed medical expenses, and this allows veterans with household incomes larger than the Pension amount to qualify for a monthly benefit. There is also an asset test to qualify for Pension.

The second disability income benefit is called "Compensation" and it is designed to award the veteran a certain amount of monthly income to compensate for potential loss of income in the private sector due to a disability or injury or illness incurred while in the service. In order to receive Compensation, a veteran has to have evidence of a service connected disability. Most veterans who are receiving this benefit were awarded an amount based on a percentage of disability shortly after they left the service. There is generally no income or asset test for most forms of Compensation, and the benefit is nontaxable.

Most elderly veterans who never applied for Compensation, may not realize they can apply many years after leaving the service. Other veterans may be receiving Compensation but their condition has worsened. They can reapply and get a larger amount based on a higher disability rating.

Compensation and Pension claims are submitted on the same form and VA will consider paying either benefit. If a claimant is awarded both benefits, the claimant can only receive one of them. Generally, for applications associated with the cost of home care, assisted living or nursing home care, the Pension benefit results in more income. Consequently, Pension is the subject focused on here.

VA Pension vs. VA Pension with Aid and Attendance:

VA "aid and attendance" is a commonly used term for the veterans' disability income benefit which pays out the most money. The official title of this benefit is "Pension” though. The reason for using "aid and attendance" to refer to Pension is that many veterans or their single surviving spouses can become eligible if they have a regular need for the aid and attendance of a caregiver or if they are housebound. Evidence of this need for care must be certified by the VA as a "rating." With a rating, certain veterans or their surviving spouses can qualify for Pension. Pension is also available to low income veteran households without a rating, but it is a lesser dollar amount.

Pension for Veterans with Low Income, Little Savings and Few Investments

Although the Veterans Administration does not differentiate between various Pension applicants, there are, in practice, two kinds of Pension applications. The first type of application or claim, as it's called by the VA, deals with veteran households that do not generally require the rating mentioned above in order to receive a benefit or as VA calls it, an award.

As mentioned before, with no rating, the size of a Pension “award” will be much smaller than Pension with a rating. It is our opinion that most veterans or their surviving spouses, receiving Pension, are in this category. In other words, they are receiving Pension with no rating. Again, this is the lesser “award” and not the award we are focused on getting our clients.

Unfortunately, we believe there are several reasons most people are focused on Pension without a rating:

  1. One reason is Veterans Service Representatives (VSRs) in the local regional office, who deal with the public, will tell callers that Pension is only available to veteran households with low income. VSR's turn away a lot of potential applicants. This is probably because these employees are not trained sufficiently to understand the special case of veterans with higher income and expensive long term care costs.
  2. A second reason is that callers will be told -- if they have significant savings or investments – that they will not qualify as well. But, this is not really accurate, as it is possible to rearrange assets in order to qualify for Pension. Naturally, Veterans Service Representatives will not mention this as an option.
  3. A third reason is that veterans with higher income and significant assets generally don't know they can qualify for Pension under certain conditions: Simply put, no one has ever told them. As a result, they never apply.
  4. A compelling fourth reason is that most people don't know the aid and attendance Pension benefit can help cover home care costs paid to any person or professional provider. If they knew a family member who is providing care could be paid, for example, they would probably apply. Most people don't attempt to apply though, until they have become single and enter a nursing home where VA will only pay a $90 per month benefit if the single claimant is eligible for Medicaid, or Medi-Cal in California.

Pension for Veterans Who Require a Rating for "Aid And Attendance"
or "Housebound" in Order to Receive an Award

This second type of VA application called “aid and attendance” or “housebound” which requires a rating is the “award” that we are focused on getting our clients. Claimants in this category often have income above the maximum Pension rate and they may also have significant savings or investments. Typically, this category of application requires a potential beneficiary to be paying for ongoing and expensive long term care or other medical costs.

For veteran households receiving expensive long term care services and whose incomes exceed maximum Pension rates, a rating is almost always necessary in order to receive a benefit. Thus, in most cases, without a rating, there is no benefit. In other words, getting a rating from the VA is critical for “Aid and Attendance” or “Housebound” benefits.

How does a Veteran or Veteran's Surviving Spouse Qualify for Pension with Aid & Attendance?

First, the veteran had to have served on active duty at least 90 days with one of those days occurring during a period of war. Service in combat is not required, only that the veteran was in the service during wartime and second, was discharged honorably. Charts showing the available amount of income and the dates for wartime service are included below.

Period of War Beginning and Ending Dates
World War II December 7, 1941 through December 31, 1946
Korean Conflict June 27, 1950 through January 31, 1955
Vietnam Era August 5, 1964 through May 7, 1975;
Or, for veterans who served “in country”
before August 5, 1964-February 28, 1961 through May 7, 1975
Gulf War August 2, 1990 through a date to be set by law
or Presidential Proclamation.

Second-The Medical Needs Test: If the veteran is younger than age 65, he or she must be totally disabled to receive Pension. Medical evidence must be submitted for these types of applications. At age 65 and older there is no requirement for disability.

For a single surviving spouse applying for a Death Pension benefit, the deceased veteran did not have to meet any disability or age requirements nor does the surviving spouse need to meet any disability requirements, regardless of his or her age. But, the surviving spouse had to have been married to the veteran (they did not need to be living together) at the veteran’s death and must be single at the time of application.

The VA will also provide additional income in the form of an allowance to the basic benefit if the veteran or the surviving spouse has a regular medical need for assistance or supervision due to disability. If the nonveteran spouse of a living veteran has a regular medical need for assistance or supervision, under certain conditions, a benefit (not an allowance) may be available for the veteran that otherwise would not have been available. Allowances are granted for regular need for "aid and attendance" or if the beneficiary is "housebound."

A medical need for assistance or supervision due to disability is in most cases crucial to getting the Pension benefit or not getting it. A medical rating or a medical need for disability care allows certain medical expenses and ancillary non-medical expenses to be annualized and subtracted from future annual income in order to meet the income test. With few exceptions, most veteran households could not get the Pension benefit without this special provision allowing the deduction of annualized medical and non-medical related expenses.

The high cost of medical and non-medical expenses associated with long term care such as home care, assisted living or nursing home care are usually the trigger that allows medical deductions to qualify a veteran household for Pension.

Third-The Income Test: The household income of the veteran or the surviving spouse cannot exceed the Maximum Allowable Pension Rate (MAPR) for that category of application. (We list 9 categories of pension income amounts below, when we look at how pension is calculated.) As an example, using rates for 2014, a husband and spouse with no medical rating cannot have a combined income of more than $1,381 a month or $16,569 a year from all sources. As another example, a single surviving spouse with an "aid and attendance" medical rating cannot make more than $1,130 a month or $13,562 a year from all sources.

BUT, household income can be reduced to meet the income test under certain special conditions. Households earning $2,000 to $6,000 a month or more might still qualify for VA Pension benefits, even though their income does not meet the income test! For more details, keep reading...

Fourth-The Asset Test: As a general rule household assets cannot exceed $80,000. But in actuality, there is no specific test in the regulations. Veterans Service Representatives in the regional office are required to file paperwork justifying their decision if they allow assets greater than $80,000. Thus this amount has become a traditional ceiling. Concerning the asset test, the service representative is encouraged to analyze the veteran's household needs for maintenance and weigh those needs against assets that can be readily converted to cash and whether the income from that cash will cover the difference in the household income and the cost of medical care over the care recipients remaining life span.

In the end, the decision as to allowable assets is a subjective decision made by a service representative. In certain cases a benefit award could be denied unless assets are below $20,000, or even $10,000.

Very Importantly: A personal residence, a reasonable amount of land on which it sits, personal property and automobiles for personal use are exempted from the asset test, under federal law.

How is pension calculated? Pension offers 9 different maximum benefit amounts based on whether the award is for a veteran with a spouse or dependent child, a single veteran or the single surviving spouse of a deceased veteran. For each of these three categories of benefits there are three levels of MAPR income depending on whether there is no rating, there is a rating for "housebound" or there is a rating for "aid and attendance." There are also rates associated with additional dependent children. Typically, an older veteran household will have dependent children if they have one or more totally disabled or special needs adult children living in the home. Or an older male veteran may be married to a very young woman. If the household has such a situation, the additional dependent rates are listed in the Table below.

Pension -- Maximum Annual Pension Rates (MAPR) 2014

These amounts increased by 1.5% on 12 / 01 / 2013

Veteran Yearly Monthly
Without Spouse or Child $12,652 $1,054
Medical Deduction $632 $53
With One Dependent $16,569 $1,381
Medical Deduction $828 $69
Housebound Without Dependents $15,461 $1,288
Medical Deduction $632 $53
Housebound With One Dependent $19,379 $1,615
Medical Deduction $828 $69
Aid and Attendance Without Dependents $21,107 $1,759
Medical Deduction $632 $53
Aid and Attendance With One Dependent $25,022 $2,085
Medical Deduction $828 $69
Two Vets Married to Each Other $16,569 $1,381
Add for Each Additional Child $2,161 $180

Death Pension -- Maximum Annual Pension Rates (MAPR) 2014

Veteran's Spouse: Yearly Monthly
Without Spouse or Child $8,484 $707
Medical Deduction $423.00 $35
With One Dependent Child $11,106 $926
Medical Deduction $555 $146
Housebound Without Dependents $10,370 $864
Medical Deduction $423 $35
Housebound With One Dependent $12,988 $1,082
Medical Deduction $555 $46
Aid and Attendance Without Dependents $13,562 $1,130
Medical Deduction $423 $35
Aid and Attendance With One Dependent $16,179 $1,348
Medical Deduction $555 $46
Add for Each Additional Child $2,161
MAPR FOR CHILD ALONE $2,161

The calculation of each of these different categories of Pension income will allow for a benefit from zero dollars all the way up to the Maximum Allowable Pension Rate or MAPR for that category. These rates cover the period from December 1, 2013 through November 30, 2014. Rates are generally adjusted each year for inflation.

Here are some examples of calculating the Pension award based on three different application categories.

Example #1 -- Surviving spouse receiving paid home care with aid and attendance allowance. Annual income is $11,000. Unreimbursed medical expenses include prescription drugs, Medicare premiums, Medicare supplement premiums, and 12 months of prospective home health aid monthly costs. Surviving spouse meets the asset test.

Single Surviving Spouse of a Deceased Qualifying Veteran

Total 12-month, future income from all sources

$11,000

5% of MAPR

$678.00

Less 12 months future unreimbursed medical expenses adjusted for 5% of MAPR

$12,322

Total countable income or IVAP

-$1,122.00

Single Death Pension MAPR with aid and attendance allowance

$13,562

Less countable income or IVAP

$0

Yearly Pension award

$13,562


Monthly Pension award
(yearly divided by 12-Rounded Down)

$1,130.00

Example #2 -- Veteran is in assisted living with aid and attendance allowance. Annual family income is $48,000. Spouse is living at home. Unreimbursed medical expenses include prescription drugs, Medicare premiums, Medicare supplement premiums, and 12 months of prospective assisted living monthly costs. Family meets the asset test.

Veteran & Spouse with Veteran Paying the Medical Costs

Total 12-month, future income from all sources

$48,000

5% of MAPR

$1,251.00

Less 12 months future unreimbursed medical expenses adjusted for 5% of MAPR

$38,722

Total countable income or IVAP

$9,278

Couples Pension MAPR with aid and attendance allowance

$25,022

Less countable income or IVAP

$9,278

Yearly Pension award

$15,744


Monthly Pension award
(yearly divided by 12-Rounded Down)

$1,312

Example #3 -- Non-veteran spouse of a living veteran receiving paid home care. Under VA rules she does not qualify for a rating but she does meet the special medical needs test. Annual family income is $32,000. Unreimbursed medical expenses include prescription drugs, Medicare premiums, Medicare supplement premiums, and 12 months of prospective home health aide monthly costs. Family meets the asset test.

Veteran Couple with Non-Veteran Spouse Paying the Medical Costs

Total 12-month, future income from all sources

$32,000

5% of MAPR

$828

Less 12 months future unreimbursed medical expenses adjusted for 5% of MAPR

$31,259

Total countable income or IVAP

$741

Couples Pension MAPR with aid and attendance allowance

$16,569

Less countable income or IVAP

$741

Yearly Pension award

$15,828


Monthly Pension award
(yearly divided by 12-Rounded Down)

$1,319

Using Aid & Attendance to Pay any Person for Home Care:

Most people who have heard about Pension know that it will cover the costs of assisted living and, in some cases, cover nursing come costs as well. But the majority of those receiving long term care in this country are in their homes. Estimates are that approximately 70% to 80% of all long term care is being provided in the home. Most of the information available about Pension overlooks the fact that this benefit could be used to pay for home care. Maybe if more people knew this fact, more people would be applying for the benefit.

It also comes as a surprise to most people that VA will allow veterans’ households to deduct the annual cost of paying any person such as family members, friends or hired help for care when calculating the Pension benefit. This annual cost is then used to calculate the benefit based on a new "countable income" and allows families earning more than the pension benefit to receive a disability income from VA.

This extra income can be a welcome benefit for families struggling to provide eldercare for loved ones at home. Under the right circumstances, this annualized medical expense for the cost of family members, friends or any other person providing care, could create an additional household income of up to $1,130 a month for a singe surviving spouse of a veteran, up to $1,759 a month for a single veteran or up to $2,085 a month for a couple.

If the disabled care recipient has been rated "housebound" or in need of "aid and attendance" by VA, all fees paid to an in-home attendant will be allowed as long as the attendant provides some medical or nursing services for the disabled person. The attendant does not have to be a licensed health care professional. Services of licensed home care providers can be deducted without any need for a rating but the pension award is a lesser amount.

A non-licensed in-home attendant could be just about anyone receiving pay for providing services. This might be members of the family, friends, or someone hired to live in the home. Examples of medical or nursing services would be help with activities of daily living such as dressing, bathing, toileting, ambulating, feeding, diapering and so on. Other services might include medication reminders or supervision necessary to provide a protective environment for the care recipient -- in the case of dementia or Alzheimer's.

All reasonable fees paid to the individual for personal care of the disabled person and maintenance of the disabled person's immediate environment may be allowed. This includes such services as cooking and housecleaning. It is not necessary to distinguish between "medical" and "non-medical" services. Services which are beyond the scope of personal care of the disabled person and maintenance of the disabled person's immediate environment may not be allowed. This might include paying the bills, providing transportation for other family members, cooking and cleaning for other family members, providing entertainment, providing transportation for personal needs other than medical and so on.

For a disabled person who has been rated, a family member may be considered an in-home attendant, but that family member has to be paid for services duly rendered. There is potential for fraud here where a family member may move into the home and ostensibly receive payment as a caregiver but not actually provide the level of care paid for. Documentation for this care must be provided to the VA, and it is reasonable for the VA to question whether the services being purchased from a family member living in the household are legitimate. Such arrangements should be extensively documented and completely arm's-length.

The care arrangements and payment must be made prior to application and there must be evidence that this care is needed on an ongoing and regular basis. We recommend a formal care contract and weekly invoice billing for services. Money must exchange hands and there must be evidence of this. All of this documentation must be provided as proof to the VA when making an application for the pension benefit. Costs for these services must be unreimbursed; meaning these costs are not paid by insurance, by contributions from the family or from other sources.

Let's look at the following example:

Michelle, who is a divorced mother of two teenagers, moves in with her mother. Michelle's mother, Carla, has recently had a stroke and needs supervision and help. In order to take care of her mother, Michelle cannot maintain full employment outside of the home. She has found a company that will let her work at home on her computer but it is not full time employment and it does not pay well. Michelle has expenses she needs to cover for existing debts and to support her two teenage children. She does not have housing costs but does consume additional food and utilities, due to her presence and her children being in the home. She also incurs transportation costs for her car, running errands, shopping for the household, taking Carla to doctor’s appointments and transporting her children. Carla’s household income is $1,400 a month which consists of Social Security and a small Pension. She has about $20,000 in savings in the bank. She owns her home and a car. Michelle's and Carla’s combined income is just not enough to make ends meet for both families.

Carla is the single surviving widow of a Korean veteran. Michelle has heard of a veterans benefit attorney who helps families in this predicament obtain the Pension benefit. Michelle meets with the attorney and he suggests that Michelle and her mother establish a contract for care and that Carla pay her daughter $1,300 a month to provide care. He then suggests submitting a claim for a Death Pension for Carla. The attorney makes sure a legitimate arm's-length agreement is written up and that the care services and payments to Michelle are accurately documented.

In order for these payments to Michelle to count towards a Pension award, Carla must have a rating from the VA for "aid and attendance" or "housebound." The attorney provides forms and advice to guide Michelle and her mother through the application process. He makes sure that all of the required documentation is in place before the application is submitted. He reviews all documentation and the completed form, which Michelle and her mother have filled out, before final submission.

If VA allows annualization of the cost of the care contract in calculating the Pension benefit, Michelle's mother should receive an award. In calculating Pension, Michelle's $1,300 a month contract payment should be annualized and subtracted from her annual income. An additional medical deduction is included for Carla's $200 a month payments for Medicare Part B, Medicare Part D and a Medicare supplement policy. This additional amount should be annualized and also subtracted from Carla's income. Both the contract payments and the insurance premiums are adjusted for 5% of MAPR before being subtracted from Carla's income. Her new "countable" income will be negative and subtracting that new income from the MAPR will allow Carla to receive the maximum Pension benefit for her rating category.

After five months, VA awards Carla $1,130 a month in additional Pension income. Her total income is now $2,530 a month. VA also awards a total of four months of benefit, payable retroactively to the first day of the month following the month in which the application was received in the regional office.

Conclusion:

Depending on household income and the amount of the care contract and the amount of VA Pension income, these types of care arrangements could be a welcome addition for families struggling to provide care for their loved ones at home. Family care providers, on contract with their loved ones, do not have to be residing in the home. Caution should be exercised that these are indeed legitimate contracts and care provider arrangements and there are no behind-the-scenes transfers of monies.

Using Aid and Attendance to Pay for Assisted Living, Residential Care,
Adult Day Care or Other Similar Arrangements:

These facilities are not categorized by the VA as (skilled) nursing homes. As such, annualization of costs and a rating are not automatic. If the beneficiary is not rated, the service representative will only allow recurring unreimbursed medical expenses for specific medical care provided by licensed health professionals. Costs for room and board or custodial care cannot be applied.

On the other hand, if a beneficiary residing in one of these living arrangements has been rated as in need of "aid and attendance" or "housebound" benefits, the VA will allow all reasonable costs to be counted as prospective, annualized medical expenses as long as some of those costs are paid for medical care. The providers do not have to be licensed. In the case of Alzheimer's, a physician's statement used for a rating must indicate the person needing care must be in a protective environment; otherwise, only medical costs are covered. All reasonable costs would include room and board as well as other unreimbursed billable services.

The director of the facility must sign a statement verifying the type of care being given and the fact that the person receiving the care is expected to remain a resident in the facility. A copy of the contract for services as well as invoices and statements from the facility should also be included to provide evidence of recurring medical expenses.

There may be a possibility of a non-veteran spouse of a living veteran receiving annualized credit for recurring costs of non-nursing home facility care. The VA will allow deduction of non-medical costs in a facility if the resident's doctor produces a letter that says the person needing care must be in a "protected environment."

The VA will not allow a Pension rating for a non-veteran spouse of a living veteran, so the benefit will be a lesser amount. If the VA allows annualization of facility costs for a spouse of a living veteran, there will be no Pension allowance for “aid and attendance” or “housebound,” and the Pension award will be much smaller.

On the other hand, a death claim is different because the surviving spouse can receive a rating in that case.

Using Aid and Attendance to Pay for a Skilled-Nursing Facility:

For a potential beneficiary in a skilled-nursing facility, the application for Pension is very straightforward. The claimant simply has to check the box on VA 21-526 or VA 21-534 that he or she is a patient in a skilled-nursing facility and provide evidence for that. An award, including an aid and attendance allowance from VA, is almost always forthcoming without any additional requirements relating to a rating. Skilled-nursing facility costs are also automatically annualized.

Unfortunately, in most cases, Pension does not work well for paying the costs of a skilled-nursing facility. This is because the amount of Pension income is rarely enough to cover the difference between the cost of the skilled-nursing facility and the beneficiary's income. On the other hand, Medi-Cal will cover this difference in cost and in most cases Medi-Cal is a better alternative to Pension.

Eligibility for Medi-Cal causes difficulty for those beneficiaries who also want to receive Pension income in a skilled-nursing facility. For a single person, VA refuses to pay the full Pension benefit if that person is eligible for Medi-Cal and will only pay $90 a month towards skilled-nursing facility costs. For a beneficiary with a spouse at home, the combination of Pension and Medi-Cal may not work due to the Medi-Cal rules.

There are, however, circumstances where Pension might fit very well for a beneficiary in a skilled-nursing facility. One case would be where the nursing home patient has to go through a spend down in order to be eligible for Medi-Cal, as that which is required under the DRA (which will soon be in effect in California). Pension would also be beneficial where the nursing home patient is strictly private-pay or is private-pay awaiting an available Medi-Cal bed. And in some cases, Pension and Medi-Cal together might be a better alternative where there is a spouse at home. But each of these instances is specific to the individual circumstances.

As easy and simple as the Pension application for a skilled-nursing facility patient is, claimants should always seek the advice of an elder law attorney who understands both Medi-Cal and VA benefits. There are strategies that can be pursued to make Pension for skilled-nursing facility patients work out in certain cases. But most people can't solve it on their own and it requires an expert to make the combination of Medi-Cal and Pension successful.

Dovetailing Medi-Cal with the Aid & Attendance Benefit:

If the person receiving pension is also receiving home care, adult day care, assisted living care or nursing home care there is a high likelihood that Medi-Cal may become part of the planning strategy for receiving care. The application for aid and attendance becomes a great opportunity to examine the consequences of Medi-Cal on income and assets prior to the need for applying for Medi-Cal. Most people only deal with Medi-Cal when they reach a debt crisis moment or their assets and/or income are insufficient to pay for existing care. Doing some planning in advance may allow individuals or households to save some assets or to provide more income for a healthy spouse. This planning may also allow the opportunity to preserve the home from Medi-Cal estate recovery.

ASSET PROTECTION TRUSTS AND LONG TERM CARE PLANNING

At this point, you are probably wondering how you or a loved one can obtain Aid & Attendance and/or Medi-Cal benefits in the most efficient manner? Here, at Kaiden Elder Law Group, PC, we offer two basic types of trusts for long term care planning. One is a Medi-Cal Asset Protection Trust (MAPT) and the other is a Veterans Asset Protection Trust (VAPT). They differ in a few significant ways. With the MAPT, the person setting up the trust can continue to receive the income from that trust. With the VAPT, the person setting up the trust does not receive the income directly. Rather, a trusted love one receives the income, and is able to use that income in the most efficient manner. With both trusts, the Settlor (person setting up the trust) keeps a limited power of appointment to change who can receive what is in the MAPT or VAPT upon their passing. This is an extremely important point to internalize: Even though the person setting up the irrevocable trust loses some direct control over their assets inside that trust, he or she can always change the ultimate beneficiary(ies) of that trust. In a round about way, the ability to control ultimate disposition of the assets inside that trust, usually provides great comfort to a person putting assets inside said trust.

Another difference between the MAPT and VAPT is how a home is held in the trust. With a VAPT, the home can never be rented and is held in an “intentionally defective grantor sub-trust” to preserve positive tax results. Still, the house can be sold and the proceeds can be used. With a MAPT, the trust is slightly less complicated because there is no need to worry about renting the house and thus, the sub-trust in the VAPT is not needed.

Otherwise the basic structure of these trusts are the same. Both are considered irrevocable grantor trusts ready to receive a “gift” from the grantor. In the case of a MAPT, the trust can provide the grantor/settlor a stream of income over their lifetime; however, any assets transferred to this Asset Protection Trust are no longer available to the grantor/settlor. In practice, the future Medi-Cal applicant makes a gift of these assets to the trust in return for an expected income stream. In the case of a VAPT, the Trustee of this trust can make lifetime distributions from the trust to certain beneficiaries. These beneficiaries can then turn around and use that money for whatever they want, including paying for items or services for the Veteran.

Other key aspects of a MAPT & VAPT are:

MAPT/VAPT Trustees – This individual is selected by the person setting up the trust (i.e. the grantor). The trustee has the responsibility to manage the assets of the MAPT/VAPT for the benefit of all the beneficiaries. Typically, the MAPT/VAPT trustee is a family member but it can also be a professional. It should not be the grantor.

Lifetime Beneficiaries – These beneficiaries can receive distributions of principal and/or income from the trustee during the lifetime of the grantor. Often lifetime beneficiaries are the children of the trust grantor. Once a distribution is received by the lifetime beneficiaries they can use it as they choose. If the trustee is also a lifetime beneficiary, then there are safeguards that we put into the trust so the trustee cannot just empty out the trust to him or herself.

Residuary Beneficiaries – These are the beneficiaries that will receive whatever is left in the trust on the death of the grantor. Very importantly, the grantor retains the right to change these beneficiaries at any time.

MAPTS AND VAPTs are used as proactive planning to “gift” assets into a trust. These assets provide an income stream (in the case of a MAPT) and will no longer be an available resource for the future Medi-Cal applicant. The assets in a VAPT are available to beneficiaries in a slightly different way. Asset protection trusts are drafted in such a way that the principal cannot be distributed to the grantor—thus lies the protection. Under current law, protection is virtually immediate. Not true under new law. However, under new law, soon to be in effect in California under the DRA, if an individual is able to combine their long term care insurance, gifts from family members or other available assets to bridge the five year look back window, then this removes resources allowing the individual to protect assets from increasing long term care costs. At the end of the five year window, the grantor applies for Medi-Cal. This can create an effective, proactive Medi-Cal asset protection planning strategy and MAPT resources will not then be recoverable by the State.

TAX ADVANTAGES:

The MAPT provides some significant tax advantages over outright gifting. First, because the grantor continues to receive the “income”, that income is taxed at the grantor’s income tax rate—usually a lower rate than the trust. Also by keeping the income, the grantor retains some significant control and peace of mind.

Second, the grantor retains some significant powers. The main power (discussed before) includes what is called a limited testamentary right of appointment. It provides that the grantor can change the beneficiaries among the grantor’s children, grandchildren, and other lineal descendants. But remember that the grantor cannot change the trust so as to benefit the grantor’s estate or creditors.

Not only does this give the grantor significant power, it also allows the grantor to retain enough power over the assets so that the assets can stay in the grantor’s estate for estate tax purposes. This allows for a “step up” in tax basis on the property. Thus assets that have appreciated since being acquired by the grantor will receive a step up in basis at the time of the grantor’s death — a very significant tax benefit to the beneficiaries.

Compare this to an outright gift: if you give appreciated assets to a beneficiary, that beneficiary receives your basis (what you paid for the property) and when the beneficiary sells the property they are going to pay capital gains on all the profits. Plus, those assets are available to the beneficiaries creditors-including ex-spouses, defunct businesses, car accidents, etc. Thus, asset protection trusts are superior both from a tax planning as well as an asset protection standpoint.

VAPT PLANNING:

The VAPT offers the same benefits as that of the MAPT with one significant exception: In the VAPT, the grantor does not get the trust income. At least not directly. But all the same income tax as well as an asset protection benefits are available, in addition to qualifying a person for VA Pension Benefits.

WHY USE A VAPT VERSUS MAPT?

A VAPT is used for those trying to qualify for VA benefits. The VA currently has a rule that allows it to look into the trust. Though the trust may provide that a grantor is not entitled to the principal, the VA still considers it an available resource. So a Medi-Cal Asset Protection Trust will not work in the case of a veteran trying to apply for benefits. However, in the case of a VAPT (where the veteran does not receive any income or principal) the trust will be effective and may allow for the veteran to qualify for benefits. Otherwise, the VAPT has many of the same features as the MAPT: for example, a step up in basis and the ability to adjust beneficiaries. Plus, if necessary, it will allow the Veteran to qualify for Medi-Cal benefits as well.

SUMMARY

VAPTs and MAPTs are great tools for long term care planning. VAPTs are a valuable tool for those that are trying to pay for assisted living costs or at home care, while obtaining tax benefits and asset protection. MAPTs allow for the same benefits while enabling the grantor to hold onto income. These trusts can literally make the difference between a family getting the care they need while preserving assets for the family, rather than the family spending all of their money, just to get the care they need. For more information about the MAPTs and VAPTs, please call us for a consultation.

PLEASE BEWARE OF RECENT LAW CHANGES

ON JANUARY 23, 2015, THE DEPARTMENT OF VETERANS AFFAIRS PROPOSED NEW REGULATIONS THAT DRAMATICALY ALTER CALCULATIONS FOR NET WORTH PURPOSES, DEDUCTIBILITY OF MEDICAL EXPENSES IN DETERMINING COUNTABLE INCOME, AND THE TREATMENT OF PRE-APPLICATION ASSET TRANSFERS.
THE BAD NEWS-THE RULE CHANGES ARE MOSTLY DRACONIAN AND WILL SEVERELY TRIP UP THE UNINFORMED.
THE GOOD NEWS-AS ALWAYS, IF YOU PERFORM ADVANCED PLANNING WITH AN ELDER LAW ATTORNEY WHO IS VA ACCREDITED TO REPRESENT CLAIMAINTS BEFORE THE DEPARTMENT OF VETERANS AFFAIRS, YOU WILL STILL BE ABLE TO QUALIFY FOR VA BENEFITS.

BUT, NOW MORE THAN EVER, IT IS EXTREMELY IMPORTANT THAT YOU DO NOTHING UNLESS YOU
HAVE MAPPED OUT YOUR ALTERNATIVES WITH AN EXPERIENCED VETERANS ELDER LAW ATTORNEY.