VA Aid & Attendance

By Justin Elrod, Esq.

James Ryan was a Private First Class in the Armed Forces during World War II. Ryan lost three brothers in the war, but he survived despite being in the middle of violent combat in Germany. Upon returning to the U.S., Ryan eventually married his high school sweetheart, Mary. They had three children, two boys and a girl. Ryan lived a long, healthy life, but recently his health was failing him. Physically, he just could not do the things he used to do, and his vision and hearing were getting worse every day. Mary was showing signs of dementia and her doctors started discussing with her family the possibility of a diagnosis of Alzheimer’s. She did all right at home as long as her husband was able to care for her and keep up the house, but as Ryan’s health deteriorated, it was obvious that something would need to change soon.

Ryan’s children worried about their parents living at home by themselves, but they could not convince them to seriously look into other living arrangements. Ryan’s daughter brought them brochures on all the local assisted living facilities and offered to take them to visit. Ryan had to admit that the facilities looked nice, but he was stubborn. Although he would not admit it to the family, his biggest fear was the thought of spending every dime of his life savings on a facility and leaving nothing for his children.

Ryan determined that assisted living would cost him and his wife around $6,000 per month. Ryan received about $2,500 each month from social security and pension. His wife received about $1,000 from social security. They lived at home comfortably, but their $3,500 monthly income would not cut it if they had a $6,000 facility charge each month. They had some savings that could make up the difference, about $100,000, but that would only last a couple years if Ryan had to dip in each month to make up a $2,500 shortfall. He just was not willing to “blow” his children’s inheritance like that. Ryan would rather die at home than live in a facility that he could not afford.

Eventually, out of desperation, Ryan’s daughter set up an appointment with an elder law attorney. She really did not think there was anything anyone could do, but she had to try. To her surprise, the attorney explained that there was a little known Veteran’s Administration (VA) benefit that seemed to fit Ryan’s situation perfectly—Aid and Attendance.

VA Aid and Attendance is a pension benefit veterans may qualify for under certain circumstances. Whether the veteran was injured in the line of duty or currently receives any type of VA benefit is irrelevant. This benefit is available to any and all veterans who served at least 90 days, any one day of which corresponded with a period of war. The veteran need not have served in combat. The veteran must have received any discharge other than dishonorable. This benefit is also available to the surviving spouses of qualifying veterans who are now deceased; however, divorce cuts off entitlement to this and other VA benefits, as does remarriage after the death of a qualifying veteran. Currently, VA Aid and Attendance will pay monthly up to $2,054 to qualifying married veterans, $1,732 to qualifying single veterans, and $1,113 to qualifying widows of veterans, and none of the added income from this VA program is taxable under current rules. This means that, for married veterans, the benefit can increase an applicant’s income by nearly $25,000 per year without increasing that couple’s tax obligations.

The VA also analyzes the health status and the financial status of veterans who have qualifying service. To meet the VA’s health criteria to qualify for the Aid and Attendance benefit, the veteran or veteran’s widow must present medical evidence showing that he or she needs assistance with activities of daily living. In other words, the applicant must show that he or she suffers from some sort of disability. Under the VA rules, documentation showing that the applicant is legally blind will automatically satisfy the VA health requirements, as will a diagnosis of dementia. But any number of physical or mental infirmities can be proven through medical documentation to satisfy this part of the VA’s analysis.

For those veterans and widows of veterans who prove qualifying military service and appropriate medical need, the final analysis focuses on the current financial status of the applicant. The financial requirements for receiving VA Aid and Attendance are broken down into two parts—an asset test and an income test. Unfortunately, an incorrect understanding of the income test often discourages qualifying veterans from pursuing the benefit.

The basic income rule for Aid and Attendance states that each dollar of income a household receives reduces the available benefit by one dollar. The Aid and Attendance pension available to a married veteran like Ryan is just over $2,000 per month. In Ryan’s case, he and his daughter initially thought that they were wasting their time when they heard this. Some quick math told them that the $3,500 income the Ryans received each month would more than eliminate any benefit they might receive from the VA under this program. But that conclusion overlooks a key point that causes so much confusion for potential applicants. The VA actually uses the family’s net income after qualified recurring medical expenses are deducted in determining qualification for the benefit. Many different types of expenses qualify for deduction for this purpose, including Medicare premiums, Medicare supplement premiums, drug plan premiums, long-term care insurance premiums, the cost of in-home caregivers, assisted living fees, and nursing home costs. In Ryan’s case, the cost of assisted living alone would be a sufficient medical deduction to qualify him for the maximum VA benefit for a married couple. If Ryan and his wife moved into an assisted living facility, the $6,000 assisted living bill due each month would be subtracted from their $3,500 income, leaving the Ryans with negative income for VA purposes and qualifying Ryan for the maximum benefit.

The reason the benefit numbers published by the VA are listed as “maximum” possible awards is that qualification for the VA benefit is not an “all or nothing” proposition. For example, if the Ryans elected to hire caregivers to come into the home each month at a rate of $500 per week, or $2,000 per month, and their other qualified recurring medical expenses totaled $1,000 each month, resulting in a total deduction of $3,000, the Ryans would qualify for the VA Aid and Attendance benefit at a reduced amount. The Ryans’ $3,000 in monthly medical expenses would be deducted from the $3,500 monthly income, resulting in an income for VA purposes of $500. This $500 would reduce the VA award dollar for dollar, resulting in a final VA award of about $1,500. The award would be $500 less than the maximum possible award because they would not be able to show that they are using all of their income on qualified recurring medical expenses.

In addition to the income test, the VA employs an asset test to determine whether an applicant qualifies for the Aid and Attendance benefit. As a general rule of thumb, when a married veteran’s total family assets exceed $80,000, he will fail the asset test and be denied the benefit. For single applicants, $40,000 is generally viewed as the asset limit. But when the applicant’s total countable family assets are less than the $40,000 or $80,000 limit, he or she is not guaranteed approval. The VA employs a life expectancy test, taking into account the age of the veteran, his total resources, and his total expenses, to determine whether the veteran has sufficient resources to last the remainder of his expected lifetime. For this reason, most applicants elect to be conservative and not toe the $40,000 or $80,000 asset limit too closely.

It is important to note that the applicant’s homestead and one vehicle can be excluded from the total assets when employing the asset test. However, if the home is sold and converted into cash, the result is typically withdrawal of the VA benefit for a full 12-month period, and the applicant is required to reapply from scratch after the year is up. For that reason, many applicants for the VA Aid and Attendance benefit elect to preplan by changing the title on their home prior to applying for benefits if there is any possibility that the home might be sold after the application has been submitted.

In Ryan’s case, his total countable assets exceeded the upper limits for the Aid and Attendance benefit by at least $20,000, and he did contemplate selling his home if he and his wife moved to assisted living. So Ryan’s attorney presented several options that were available to Ryan to shelter his assets and create a situation in which Ryan would meet the asset test. The most interesting option to Ryan involved the creation of an irrevocable asset shelter trust, designed to keep his estate out of probate, pass on his assets to his children after he and his wife died, and qualify Ryan for the VA Aid and Attendance benefit by virtue of the fact that assets titled in the name of this trust are not countable for VA purposes. By putting $30,000 in cash in this type of trust, Ryan would reduce his countable assets well below the $80,000 asset limit, and by titling his home in the name of the trust, he could avoid future problems with the VA at the time of sale of the home since the sales proceeds would belong to the trust, not to Ryan.

Ryan’s daughter challenged the attorney’s proposal, asking why this transfer to an asset shelter trust did not violate the five-year look back she had heard about. The attorney explained that the look back she was concerned with related only to Medicaid, not to VA benefits. Under current law, the VA does not employ any type of look back provision and does not penalize asset transfers. As an added benefit, however, use of this asset shelter trust would start the five year clock for Medicaid eligibility, so that if one or both spouses needed more care than assisted living could provide down the road, their home (or the proceeds from the sale of their home) and the cash they set aside would be protected in the Medicaid eligibility analysis as well.

Ryan asked why he could not just deed his home to his children like some of his neighbors had done. In fact, deeding the home to the children would have the same result as far as VA benefits and the Medicaid five-year look back are concerned. However, such a plan could have some negative, unintended consequences. First, from a tax perspective, Ryan would lose the homestead tax credit on his real estate tax bill if he deeded his home to his children and his kids would have to pay capital gains taxes on the sale of the home as if they were selling investment property, using Ryan’s original purchase price as the tax basis. The asset shelter trust retains Ryan’s homestead exemption while he occupies the home, and it retains the capital gains tax exemption that applies to the sale of one’s homestead. Second, from a liability perspective, if Ryan deeded his home to his children and they suffered any legal troubles, his home would be subject to their potential legal liabilities. That is not the case with the trust.

The attorney cautioned that not all trusts qualify as asset shelter trusts for VA and Medicaid purposes. In fact, few trusts do. To qualify, the trust must be irrevocable, and the grantors cannot serve as trustees or maintain any control over the trust assets. Additionally, the grantors cannot be beneficiaries of the trust income or principal. Transferring assets to an asset shelter trust is almost the equivalent of giving the property outright to the children, without the negative tax and liability consequences.

Learning about the VA Aid and Attendance benefit did not make the personal decision to leave the home and move to assisted living an easy one, but it did take the financial concerns off the table and lessened Ryan’s fears about running out of money and leaving nothing to his children.”

(Image Credit: Flickr/ Beaded Lady)