Observing the Vietnam Veterans Memorial in Washington, DC
Since the new VA rules went into effect on October 18, 2018, there will be many effects on Medicaid planning. One significant impact will be the effect of transferring property to a disabled child, as many of our transfer examples in Part 1 of this series sets out. The transfer penalties under the new VA rules, or the lack thereof, will be the same if the money is given to a non-disabled adult child, or a non-relative, an organization, or other type of unauthorized conduct. For example, the VA also penalizes the applicant purchasing annuities for themselves after 10/18/2018.
So what’s the story about the disabled child exception? When faced with a healthcare crisis, many people are able to avoid the impact of transferring assets when one of their children is disabled. First, the Medicaid rules permit the parents to transfer not only their home, but potentially all assets to a disabled child without penalty. So those who consult with an attorney earlier in their lives or in the process can avoid the painful process of liquidating all of their assets and spending them on the nursing home. Second, there is no lookback period for this transfer under Medicaid rules as it is an exception to the rules, so there is no 5 year period to wait so, the veteran may choose to wait to see what happens before committing to a plan that would transfer assets until absolutely necessary, which will delay the ill effects of the transfer, notably, capital gains tax implications from the loss of stepped up basis when property is transferred during the life of the parents rather than after death as well as the personal loss of control of the asset. Of the many things that could happen is that the applicant never lives long enough to qualify for Medicaid, so this really does a great service by permitting that decision, with its associated devastating costs, to be kicked down the road until Medicaid qualification is imminent.
So, what’s the problem with VA benefits? The problem is that the VA has a different definition of disabled child, and will penalize the transfer to a disabled child that does not meet the VA’s definition. The VA counts a child as disabled if we can prove that they were disabled for VA purposes or, in other words, were disabled prior to age 18. First, many adult children of our clients become disabled due to work injury or illness later in life, so do not qualify. Many of our older clients had adult disabled children who were disabled prior to age 18, but no evidence exists after 50 years. Significantly, many parents of children who were intellectually disabled simply kept them at home as there were no alternatives or benefits 50 years ago. School systems and physicians do not keep records for 50 years. So, many of our clients cannot prove their child’s disability met VA standards.
If the transfer to the disabled child occurs on or after October 18, 2018, then the result will be that, when the parent must apply for Medicaid, they must first apply for all other benefits to which they are entitled, including VA Aid and Attendance. If the transfer, for example, is a $200,000.00 in cash, and the couple before the transfer had $300,000.00, then the penalty amount would be $172,939 divided by $2230 (see part I of this series below) or 77.55 months, which is greater than 60, reduced to the maximum 5 year penalty For that 5 year period, the applicant is disqualified from receiving the VA benefits due to the transfer. (Keep in mind that, by further contrast, Medicaid has an UNLIMITED PENALTY PERIOD, so it is always better to consult with someone knowledgeable prior to applying for Medicaid to avoid the results of applying too early. If this situation were a Medicaid problem and resulted in a 77.55 month penalty, then the better situation would be to wait 5 years to file the application, rather than filing and waiting 6 years, 7.55 months for the penalty to expire. Were this a Medicaid issue, that 18 month extra penalty would cost in real life up to $180,000 EXTRA).
But, back to the VA. It would be better to wait for 3 years but what if you do not have 3 years worth of money? In this case, it might be better, if you are in a state where Medicaid does not penalize funds into special needs trusts, to set up a special needs trust with the disabled child as the beneficiary, before Medicaid. This way, the transfer would not interfere with VA benefits. Other options may be to pay for care in a different setting, pay off a mortgage or car note, buy prepaid funeral arrangements, or perhaps loan the funds with a proper promissory note and repayment schedule.
If the transfer is done and there is nothing that can be done about it, then when you get a penalty from the VA for those 5 years, there will be a hole that is VA sized each month that Medicaid may act like the VA money is there, depending upon how your local Medicaid office handles it, for example, it is likely that the award will be for the parent to pay the nursing home their income PLUS the $2,230 per month each month for 60 months. This is $133,800.00, so in the end the transferred funds will more than cover it, with more than $67,000 left over, so that might be a better solution then trying to pay private pay for 3 years.
As new information becomes available, we will update this section.
