The Changes in VA Planning with Annuities: Part 1

DE PERE, Wis. - Oct. 24, 2013 - PRLog -- As an elder law attorney, you are probably familiar with the Veterans Aid & Attendance (“VA”) pension program, even if your practice doesn’t offer those planning services.  You may also be aware that the use of annuities in VA planning has been in the limelight lately.  The added attention follows a U.S. Government Accountability Office (“GAO”) report and hearing held in 2012, and the ensuing bills introduced in the House and Senate as part of the “Veterans Pension Protection Act.”  It’s without a doubt that changes are on the horizon.

The key findings of the report are (1) the VA relies on incomplete, self-reported information and the verification process is incomplete, (2) internal coordination is not maximized and the VA has unclear guidance on assessing financial eligibility leading to inconsistent decisions, (3) over 200 organizations market services to help qualify veterans and surviving spouses for pension benefits and some of their advertised products and services may adversely affect claimants, (4) costs for services varied, with some organizations charging prohibited fees and (5) the program allows claimants to transfer assets prior to applying, unlike other means-tested programs.

As a result of the report, various House and Senate bills have been drafted.  The current bills to watch are S. 944 on the Senate side (S. 748 was merged into this bill) and H.R. 2189 on the House side.  Both bills addressed several key points, to-wit:

   •A look-back period of 36 months, beginning the date of application.
   •A period of ineligibility for assets transferred prior to application, including transfers to trusts, annuities, or other financial products – penalties will be consecutive, not concurrent when multiple transfers are made.
   •The period of ineligibility (not to exceed 36 months) will be calculated by taking the amount transferred and dividing it by the monthly pension amount the applicant would have received.
   •The ability to cure a gift – total returns only.
  • Provides that if a surviving spouse makes a transfer during the veteran’s lifetime and a period of ineligibility results, any remaining ineligibility period is transferred to the surviving spouse upon their application for benefits – hardship provisions do exist.
   •Provides for an effective date one year after date of enactment.

This uncertainty regarding future program rules and limitations only adds o the confusion in VA planning.  This is where an insurance planning product with added flexibility is beneficial, and why I developed an immediate annuity product with increased flexibility, commonly referred to as the “VA Annuity.”

The VA Annuity is assignable, revocable as to the beneficiary designations, and offers zero cash value, making it only a countable income stream for VA planning purposes.  To take into account a potential future Medicaid application, the annuity owner has the ability to add a “restrictions endorsement” to the VA Annuity.  This results in the opportunity to add the state Medicaid agency as a beneficiary, and the annuity is then made non-assignable, and the beneficiary designations are made irrevocable.  These changes equate to an annuity that is compliant with the Deficit Reduction Act of 2005, more commonly referred to as a “Medicaid Compliant Annuity.”  Or, if it was in the insured’s interest to get rid of the VA Annuity in exchange for a lump sum of cash, rather than adding the restrictions endorsement he or she could simply sell it on the secondary market in light of its assignability provision (assuming the investment consists of non-IRA funds).