On Jan. 23, 2015, in an attempt to “maintain the integrity of the program,” the VA proposed sweeping changes to its regulations regarding net worth and asset transfers. On Sept. 18, 2018 the proposed rule was adopted as final and it became effective on Oct. 18, 2018. While some of the changes may be favorable to a claimant by providing some clarity and consistency, many of them may significantly impact a veteran’s eligibility for benefits and the timeline in which they will be received.
Establishing a Bright-Line Net Worth Limit
Previously, the VA did not have a clearly established net worth limit. While the VA takes into account such factors as liquidity of assets, number of dependents, and life expectancy of the claimant, there were no definitive criteria for determining whether a claimant’s resources are sufficient to meet their basic needs without the pension.
The new rule establishes a clear net worth limit, which will allow less discretion on the part of the adjudicators and provide more consistency in the decision-making process. The net worth limit is the same as the maximum annual community spouse resource allowance used for Medicaid purposes. This amount is currently $127,061 (effective 12/1/2018) and the limit would be increased at the same time and in the same manner as recipients of Social Security receive for cost-of-living adjustments.
Inclusion of Annual Gross Income in Net Worth
An applicant’s annual income will be added to the sum of his or her assets when determining net worth. This means that veterans with higher incomes will be permitted to save a lower amount of assets, and veterans with lower incomes will be permitted to save a larger amount of assets.
Exempt Assets: Primary Residence & Lot Size Limits
Additionally, a claimant’s primary residence, including a “reasonable lot area” is currently excluded as an asset for purposes of calculating net worth. The rule change defines “reasonable lot” by limiting the area to 2 acres, unless the additional acreage is not marketable. If the primary residence is sold, the VA will not include the proceeds from the sale as an asset if they are used to purchase another primary residence within the same calendar year. However, to the extent the purchase of the new residence is less than the sale price of the previous primary residence, the excess amount will be considered an asset for purposes of net worth calculations.
36 Month Look-Back Period on Asset Transfers and Penalty Periods
Previously, veterans were permitted to transfer significant assets without penalty prior to applying for a pension. However, the new rule establishes a 36 month look-back period. All transfers for less than fair market value made during the 36 month look-back period are presumed to be for the purpose of decreasing net worth, unless the applicant can prove by clear and convincing evidence that the transfers were made for some reason other than to qualify for the pension benefit.
The transfer penalty applies only to “covered assets” - assets that were part of the claimant’s net worth, were transferred for less than fair market value, and would have caused the claimant’s net worth to exceed the limit for pension eligibility had they not been transferred.
The penalty period for transfers is calculated in months by dividing the transfer amount by a set divisor of $2,230. For example, if an applicant transfers $80,000.00, his or her penalty period would be 35.87 months, which would be rounded down to 35 months.
The VA has proposed a maximum penalty period of 8 years for transfers, opting to deviate from the 36 month maximum consistent with the SSI statute. The VA favored the longer maximum penalty period, indicating it would be inequitable for a claimant who transferred $25,000 to be penalized the same length of time as a claimant who transferred $1,000,000.
Expenses that can help decrease assets include medical expenses, which are medically necessary, improve a disabled individual’s functioning, or that prevent, slow, or ease and individual’s functional decline; over-the-counter drugs, vitamins, supplements (prescribed by a medical professional), and incontinence supplies; service animals with vet care; mileage to and from the doctor’s office or hospital; and dental, eye, and hearing care.
Additionally, the new regulations allow the costs of a care facility, other than a nursing home, to be deducted. A care facility other than a nursing home is a facility in which a disabled individual receives health care or custodial care. The new regulations define custodial care as regular assistance with two or more activities of daily living (ADLs) or supervision because an individual with a physical, mental, developmental, or cognitive disorder requires care or assistance on a regular basis to protect the individual from hazards or dangers incident to his or her daily environment. Furthermore, the new regulations put no hourly cap on caregivers’ service fees.
These facility costs can be fully deducted if a physician certifies the need for the individual to live in a “protective environment” and states the physical, mental, cognitive, or developmental reason for such protection. However, a residential facility must be staffed with care providers 24 hours per day.
If you need assistance with finding out about your VA benefits, or with how they are incorporated to an estate or long-term care plan, call our office at 1-800-351-8334 and schedule a free consultation.
In 2014, the Achieving a Better Life Experience Act (ABLE Act) opened a door at the federal level to give each state the opportunity to set up programs for people with disabilities and their families to establish tax-advantaged savings accounts without impacting the disabled individual’s public benefits.
On April 18, 2016, Governor Wolf signed the Pennsylvania Achieving a Better Life Experience Act (PA ABLE Act). The PA ABLE Act was passed to provide more financial options and security to individuals whom became disabled prior to age 26. This is to be accomplished through savings accounts established for benefit of the disabled individual in which funds may accumulate tax-free to pay for qualified disability expenses without jeopardizing their eligibility for need-based programs such as Supplemental Security Income (SSI) and Medicaid.
If an individual becomes disabled prior to the age of 26 and is already receiving SSI and/or Social Security Disability Insurance (SSDI), the individual is automatically eligible to establish an ABLE account. However, if the individual is not currently receiving these benefits, they must first obtain a physician certification to set up an account.
These accounts have many tax advantages. They are able to grow tax-free and are exempt from Pennsylvania inheritance tax. Withdrawals are exempt from federal and state income tax when used for qualified disability expenses such as community living expenses such as education, housing, transportation, employment training and support, assistive technology, housing, personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and more.
Typically, the beneficiary of the account is named as the owner, but anyone may contribute. The combined yearly contributions may not exceed $15,000, which will be adjusted annually for inflation. The total account contributions over the life of the beneficiary cannot exceed the limit for Pennsylvania education-related 529 plans. In 2018, this amount was $511,758.
ABLE accounts do not need to be established by the beneficiary. If parent, guardian, or power of attorney opens an ABLE account on behalf of a minor or adult lacking capacity, they are held as the fiduciary and will remain in that role until they decide to relinquish control of the account.
Likewise, ABLE accounts need not be managed by the beneficiary. In Pennsylvania, any person designated in writing by the parent or guardian, a trustee of a trust for which the eligible individual is a beneficiary, if the eligible individual is receiving SSI or SSDI, the representative payee, or anyone else allowed by federal law, which includes parents, guardians, and powers of attorney can have “signatory authority.”
Prior to the ABLE Act, individuals with more than $2,000 were deemed ineligible for SSI and other means-tested programs. It is now possible for disabled individuals to hold assets that exceed this individual resource limit in an ABLE account and still qualify for public benefits as long as the account total does not hold more than $100,000. If the ABLE account accumulates more than $100,000, the disabled individual’s SSI benefits may be suspended. After the account balance is drawn back to $100,000 or less, their benefits will be reinstated. On the other hand, Medicaid is not impacted by this fluctuation.
ABLE accounts are now available in Pennsylvania. To open a Pennsylvania ABLE account, it is expected that you will go through the Pennsylvania Treasury Department and enroll online or through mail. You visit http://www.paable.gov/index.html to read details of the ABLE program in Pennsylvania, or to enroll in an ABLE account.
If you are a Pennsylvania resident looking to open an ABLE account, it is permissible to do so in another state. However, other state plan contributions are not state-tax deductible.
11/16/2018 – Center Valley, PA — Julieanne E. Steinbacher, CELA*, of Steinbacher, Goodall & Yurchak served as keynote speaker at the 2018 Pennsylvania Gerontology Conference, hosted by St. Luke’s University Health Network. She addressed the attendees on family caregiver agreements, essential estate planning documents, long-term care and special needs planning, retirement planning, and available community resources. Julie stressed the importance of keeping everyone in your inner circle informed by clearly communicating your wishes to loved ones, financial personnel, and medical staff.
“It takes a village to ensure your second half of life is the most rewarding for you and your family,” said Julieanne E. Steinbacher, CELA*. “A village consisting of family members, doctors, nurses, elder law attorneys, financial planners, and insurance agents all need to be on the same page when it comes to your care and doing what is in your best interest. A piece of advice that I always give to my clients is to communicate, communicate, communicate! Communication is the glue that holds your wishes intact and ensures they are followed.”
The theme of this year’s conference was “Conversations for the Second Half of Life.” Doctors, lawyers, social workers, nurses, therapists, and dietitians all came together to share innovative ideas and to lay formidable foundations on best care options for an aging baby boomer population. Attendees had the opportunity to request a copy of the book, Protect Your Family! What You Really Need to Know for the Second Half of Life. Attorney Steinbacher co-authored the book with other leading elder law attorneys from across the country. This indispensable resource offers readers the essential tools and knowledge for effective long-term care planning. To request a copy of the book, please call 1-800-351-8334 or visit www.paeldercounsel.com.
*Certified as an Elder Law Attorney by the National Elder Law Foundation.
Julieanne E. Steinbacher, CELA*, is the founding shareholder of Steinbacher, Goodall & Yurchak, an elder care and special needs law firm offering quality representation to clients throughout Pennsylvania. Since its beginning, the firm has dedicated itself to practicing law with extraordinary standards of ethics and values. The vision of the firm has been to provide individuals and their families with a unique plan to protect their assets for their spouses and future generations, while providing for their immediate and long-term needs. To schedule your appointment, call 1-800-351-8334 in the Lycoming and Centre County communities.