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Seniors and Veterans Need Proper Guidance to Ensure they Qualify for Benefits

Published December 10, 2012

Low-income and elderly veterans seeking to qualify for government benefits face a confusing array of rules and regulations and may feel compelled to deliberately manipulate their finances with an eye toward these benefits. An alarming recent trend has seen unscrupulous or misinformed investment professionals and attorneys guiding veterans into investments and wealth management strategies that may be ill-suited to their needs or may even subject them to penalties.

Certain benefits available to veterans and seniors are intended only for low-income individuals; in order to qualify, applicants must not exceed certain levels of income and net worth. These benefits include veteran pensions, veteran Aid and Attendance benefits, and Medicaid.

Annuities are one investment that individuals may be persuaded to purchase in order to manipulate their apparent wealth. An annuity is a contract in which an investor, usually elderly, makes a lump sum payment in exchange for a series of future payments until death. They are a form of longevity insurance and are appropriate for some individuals because of the guaranteed income stream that will last as long as the investor lives.

The downside of annuities is that the cash used to purchase them is tied up. Veterans who purchase them may benefit in terms of income, but may find themselves short on cash in the event of an emergency. Investors who change their minds and decide annuities aren’t right for them may face significant challenges in extricating themselves from the investment.

Asset transfers are another misguided strategy sometimes employed in order to qualify for VA pensions or Medicaid. Consider a father who hands over some assets to his children, or sells them for less than fair market value, in order to lower his net worth and thereby qualify for government benefits. He will not only be subject to the “lookback” period, but also a penalty period during which he will not be eligible for Medicaid.

The Medicaid lookback period is the 60 months preceding an individual’s filing for Medicaid benefits. Assets given away or sold for less than fair market value during this period count toward the individual’s net worth for purposes of determining Medicaid eligibility. If, during the lookback period, your father sold his car, worth $10,000, to you for a mere $5,000, the $5,000 difference still counts toward his net worth.

Worse still, such a transaction would incur a penalty period. That $5,000 your father sacrificed to lower his net worth would actually make him ineligible for Medicaid for a period of time. The length of that period depends on the average monthly cost of nursing home care in your state. If that figure is $2,500, the penalty period would be 5,000 divided by 2,500, or two months of ineligibility for Medicaid.

Note that this penalty period used to begin on the date of the asset transfer. But under the Deficit Reduction Act of 2005, it begins on the date the individual would otherwise qualify for Medicaid. This greatly reduces the ability of strategic asset sales and transfers to help an individual qualify for Medicaid.

Clearly, the rules governing eligibility for senior benefits, both for veterans and for non-veterans, are quite complex, and trying to beat the system can backfire.

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