Changes in Gifting Rules for VA Pension?

Introduction
VA Pension Rates
Net Worth Limits
Congress’ Approach to Make Changes
Status of Congressional Bill
Medi-Cal
Medi-Cal Transfer Penalties
Ultimate Answer

Dear Mr. Miller:

Introduction: My Dad is in assisted living and it is costing $4000 per month. He is a Korean War Vet. He only has $1800 monthly coming in from social security and his pension. I called my three brothers and they want nothing to do with this, so it is all on my shoulders.

If I kick in $2200 a month that’s over $26,000 per year! How am I going to save for my retirement and how am I going to pay the college costs for my 18 year old son when he starts UCLA next year? Dad has about $100,000 in the bank. At this rate that will last less than 7 years and that’s if the costs don’t go up! He’s 80 but based on his family genetics he’ll probably be with us at least another 10 years.

Someone told me about the VA pension. How much does that pay and can he qualify? I’m told that the rules for gifting assets to qualify have changed drastically.
Perplexed Daughter

Dear Perplexed:

VA Pension Rates: The VA Pension is real and could help, to the tune of over $1700 per month (married veterans get a bit more, widows get a bit less). (Here are the basic rules.) Instead of the money lasting less than 7 years it could last more than 16. So that could change everything for you.

Net Worth Limits: The big problem for his qualification is his net worth. Simply put, he has too much–right now. So he will have to gift off approximately $70,000. Given your brothers’ attitude I would suggest that maybe you should get all of that, but that is an internal family matter.

Congress’ Approach to Make Changes: You are correct in that a bill was wending its way through Congress that was to change the rules on gifting to qualify for the VA benefit. It would have tracked the Medi-Cal approach creating penalties for making gifts within three years prior to applying to the VA. The penalty would have disqualified your Dad from this benefit for approximately 3.5 years. That would have been disastrous.

Status of Congressional Bill: The good news is that this bill (SB 1982, also known under other numbers) did not pass the Senate when the vote was taken (February 27, 2014) so is not law. Under current law the $70,000 gift, if done correctly, will have no effect on your Dad’s eligibility. By the way, the bill never made it out of committee the year before. But I suspect it will be reintroduced once again in future legislative sessions.

Medi-Cal: Please note, however, that there is another benefit program that must be considered any time you are making gifts to qualify for the VA Pension program. That is the Medi-Cal law. If your Dad’s condition worsens, or he falls and breaks his hip, he will probably be transferred to a skilled nursing facility (SNF). The costs for a SNF are generally far higher than assisted living. I am told that acute or subacute care is often in the $10-20,000 range. The VA pension of $1700 would be a drop in the bucket at that point.

Medi-Cal Transfer Penalties: So you will be looking at Medi-Cal which can pay an unlimited amount each month. However, unlike the VA pension in which prior gifts typically have no effect on eligibility, Medi-Cal does impose penalties for gifts made in the last 3 years (planned to be 5 years under future law). A lump sum gift of $70,000 would disqualify your Dad from any Medi-Cal benefits for 9 months. To put that into perspective, at a Medi-Cal monthly contribution of $10,000, that would be a $90,000 penalty. That’s a lot.

Ultimate Answer: Again, good news: If that gift were made in a different fashion, then there would be no penalty whatsoever. These two benefit programs are complex and circulate with rumors and misinformation. And that is why expert advice in the VA and Medi-Cal field are so important. Expert advice means lawyers, not the local insurance guy who says he “does VA.”

4/2014