Welcome to our Q&A on elder law and estate planning issues. The entire video is above, and the transcript is below.
I hope you enjoy!
John Watts ==============
Hello. My name is John Watts. I’m a lawyer in Alabama, and we’re going to do our regular elder law and sometimes estate planning … today, it will just be elder law question-and-answer webinar. We’ll try to do this around 12:00 Central Time every Friday. If you’d like to get your question answered, you can leave us a comment below this video. You can go to Alabama Elder Lawyer and contact us there, or you can call us at 205-879-2447 and just let us know what your question is. We’ll be happy to put that in our list.
Today, we have one, two, three, four, five, six questions. Several of these are on the VA pension. Then we have a couple on long-term care insurance and then one about independent living and some VA benefits. We’ll go ahead and get started.
The very first question is: can I get both the VA pension and the VA disability benefits?
It’s a great question. A lot of confusion on this. We have the VA, which is this massive structure, and there’s really several parts to it. For our purposes, there’s a compensation part and a pension part.
Another way to say it is the compensation or the disability over here is service-related. Excuse me. Service-related. That means I was injured during service or I contracted a disease. I had an accident, I got shot, whatever it is, while I was on active duty. You might think of this almost like … kind of like a worker’s compensation type benefit. That is one benefit. That’s the dominant benefit in the VA.
Now over here, we have, on the other hand, the non-service related or what’s called VA pension or VA Aid and Attendance. What that does for us is it says, look, it has nothing to do with being injured in the service. We can have a guy that was in the Korean War, and he gets out in, say, ’54 and never goes back in the service, never hurt, never injured, no disease.
Then what are we now?
Sixty-one years later, a drunk driver hits him, and he’s paralyzed. Now he can’t dress himself, can’t bathe himself. He needs help. Well, that’s when the VA pension or VA Aid and Attendance comes into play. It wouldn’t be service-related because it had nothing to do with his service. That was 60 years ago.
The question is: can we get the service-related and the non-service-related? The answer is no. You get the higher one. At the maximum levels, the service-related, the VA disability, that’s the higher one. The non-service-related VA Aid and Attendance for a married couple, you’re generally looking at about $25,000 a year, whereas on the service-related, it could be higher than that. So you just decide which one is the highest.
Now, typically, the service-related takes a long time to get, but the non-service-related, at least when we do the applications for folks, we’re typically getting those approved in four weeks, six weeks, eight weeks, whereas the service-related, you may be looking ultimately at two, three, four, five years to get those. Even if we know we have both, we might apply over here for the service-related but then go ahead and get the VA pension, the non-service-related, just to get some money coming in. Hopefully, that
answers that question. You just get the higher of the two, but you cannot get both.
All right, our next question is: why can’t my mother get the VA pension, that’s that Aid and Attendance, when she was married for 40 years to a veteran who died and then she remarried but then got divorced?
Let me make sure we’re clear on this. She’s married to a veteran, a wartime veteran, who qualifies under this benefit. We go along for 40 years, and then he dies, okay? She’s considered a surviving spouse of that wartime veteran. If she applied then and if she qualified, she would get the benefit.
But she then remarries. When she remarries, she is now the spouse of that second husband. She’s no longer the surviving spouse of the husband that died because she’s now somebody else’s spouse, so this goes away for the VA pension purposes. Now she’s married here, and let’s say he’s a veteran. Okay, everything’s good, but then time goes along and now she gets divorced, and then he dies. Well, see, when she divorced, she’s no longer the spouse of that second husband. She’s the ex-spouse, so when he dies, she is not the surviving spouse, which is the test.
You go back to the question: why can’t she get benefits, because for all these years, 40 years, she was married to a veteran? Well, the problem is she got remarried. Now, there’s nothing wrong with getting remarried, but under this benefit, you say, “If I’m trying to get benefits and I’m not personally a veteran, then the only way I’m getting the VA pension is if my spouse who’s died, if that spouse qualified and if I’m the surviving spouse of that wartime veteran, but if I divorce, then I’m not the surviving spouse.”
I’m not saying this is fair, this is right. This is just what the law is. There are a few little exceptions, very obscure exceptions, so if you’re in this situation, it’s worth looking into and checking out, but just as a general rule, if you’re not the veteran, then you have to be the surviving spouse of a veteran who would have qualified.
Okay, our next question: will a VA pension pay for independent living for my Dad?
We have a spectrum here. At one end, we have I’m living at home. At this end, we have I’m in a nursing home. Well, the next step from my home might be independent living, so nobody’s helping me get dressed or take a shower or anything like that. It’s just I’m in, maybe it’s an apartment; maybe it’s a free-standing place, but it’s designed for folks of a certain age, but nobody’s coming in to help me.
That normally does not count when we’re looking at what’s called the IVAP, Income for VA Purposes. That’s where we total up the household income, and we’ve talked about this in other videos. We total up all the household income, and then we subtract out the un-reimbursed medical expenses. Well, we do not subtract out our mortgage payment, our homeowner’s insurance. If we’re not at home, but we’re in independent living, we don’t subtract that out either.
Now, if we go to assisted living and we need it, or we go to a nursing home and we need it, then we can take that money that we’re writing out every month and lower our income. This is how somebody that … I’ll give you a quick example. Let’s say they’ve
got $3,000 a month in income and $3,000 a month for assisted living. Well, we take the $3,000 income, subtract out the $3,000 for assisted living. That leaves us with zero, so now if we otherwise qualify, we get the full VA pension benefit.
But if, let’s take that same example, we have $3,000 in income, and independent living is $4,000, well, what do we do? We start off with $3,000 and we subtract, well, nothing. See, it doesn’t matter, $4,000, $5,000, $25,000. We don’t deduct that if it’s independent living. We don’t deduct assisted living unless we actually need the assisted living. To answer your question about, “Will a VA pension pay for independent living for my Dad?” no, it generally will not.
Okay, our next question is: what are the different types of long-term care insurance?
Okay, so it’s really important that we all look at long-term care insurance. What does that mean? There’s the traditional type, and you might think of this, it’s like your car insurance, your homeowner’s, your Blue Cross. You pay money every month, and if you need it, then great. You get the benefit. If you don’t need it, that money’s gone forever. Okay?
Now, another type is you take usually a lump sum. Maybe it’s $50,000 or $100,000. You pay that to the insurance company, and if you ever need long-term care, then those benefits are there, and it’s usually going to be significantly above what you paid in. Maybe you pay $100,000, and they say you get, I don’t know, $200,000, $250,000 worth of benefits. It all depends on what kind of plan, your age, health, all that type of stuff. That’s what happens if you need the benefit.
What if you die at home?
You never leave your home. You’re in perfect health. You die while doing an Iron Man competition in Hawaii. Well, if you were doing that normal long-term-care policy, you’re just making payments every month, you lose that. But this, what some people call a hybrid policy, it’s really a life insurance policy also, so it has a death benefit. It says, okay, well, if you die and you never touch the benefits, here’s how much your heirs get or whoever. I should say your beneficiaries get. It might be exactly the amount that you put in. It might be more than that, less than that.
Which one is better? Is it the traditional one or this kind of hybrid approach? Well, there’s no right or wrong answer. Some objections people have to the one where they pay every month is they say, “Well, what if I never use it? I’ve wasted it.” I get that. That makes a lot of sense. I will point out, though, every month you pay your homeowner’s insurance and you don’t have your house burn down, you wasted that money, but nobody goes, “Well, what if I’ve been paying for 20 years and my house never burns down?” Nobody complains about that. We go, “Oh, I’m so thankful my house didn’t burn down.”
What about your health insurance? Nobody goes, “I am so mad. I got to the end of the month, and I still don’t have cancer today.” Nobody says that. It is kind of interesting, with long-term care, we do get sort of bent out of shape if we don’t use the benefit, but that’s why that lump sum is there.
Now, should you do the lump sum? Well, look, you’ve got to get with your financial advisor and run the numbers. Obviously, by paying out $100,000, you don’t have access to that $100,000, or you only have the ability to get it however your policy says.
Now, sometimes the policy says you can reach in there and grab that money back. You’ve just got to check out your own particular policy. All different types of options and varieties. That one, if you never use it for long-term care, well, your children or whoever will get the life-insurance benefits, but if you do use it, you’ve got all these benefits there. There’s no right or wrong answer. You just have to check it out.
A lot of times, it makes sense to meet with somebody like me, an elder-law attorney, to say, “Okay, well, how does this fit in with the overall plan?” because long-term-care insurance can be a critical part of your plan. Sometimes, having that plan allows us to not have to do certain elder-law planning techniques, because we know we’ve got that policy.
Sometimes, it allows us to do a whole bunch of elder-law planning strategies because we know we’ve got that policy. All different possibilities. Definitely something to check out, even if you don’t do it, just to find out what are your options. Do you even qualify for it? If you do, how much money are we talking about every month or in a lump-sum payment?
Okay, our next question is: how does long-term-care insurance fit in with Alabama Medicaid?
If you’re listening to this whole webinar, I started to touch on that in the last question, but let me just kind of walk you through this. With Medicaid, and that’s what the question is: how does long-term-care insurance fit in with Alabama Medicaid? Medicaid, if you’ve seen my other videos, this will be very familiar with you, but if not, you can find some in more detail.
Imagine a timeline, and here’s where you are right now, 2015, August 28, 2015. You apply for Medicaid, and you qualify. They look back in time five years and say, “During this time period, this five years, 60 months, did you give anything away?” If no, then you’re fine, because to apply, you’ve got to be qualified, and then going forward, you’ll be qualified… (During our live session we experienced a couple of technical difficulties. Sorry for the inconvenience.)
… $150 a day. Well, what’s $150 a day? That’s $4,500 a month. Let’s say you have $1,500 a month in Social Security. Well, that’s going to be, what, $6,000 a month. That’s the typical cost of a nursing home. I’m ignoring inflation right now. There’s all different parts of policies, but just go with that $6,000 a month total income and benefits, and your cost is $6,000 a month.
If you come to me today, August 28, 2015, and say, “Hey, I’m going in a nursing home. This is permanent. I do have this long-term-care policy. I also have $500,000 in assets. I really want that to go to my kids. I don’t want that to be burned up in the nursing home.” You say, “Okay.” Look, I’m not getting into every exception. Let’s just give you a general idea. We say, “Okay. We can transfer that money, put it into a trust or give it to our kids.” I’m not a big fan of that. Usually, we put it into a trust.
I think here’s my handy little trust here. A trust is a box that we created. We put that money in it. We shut the lid, what’s called an irrevocable trust, so you can’t get to it anymore because it’s not yours. Now, is that a gift? Yeah, that’s a gift, but see, even though you would be qualified right now to apply for Medicaid, we don’t do that. We just go along through time, and then we get, let’s say, 61 months out. Now we apply for Medicaid.
Well, how have we been paying for it? Remember, we’ve got the long-term-care policy and our Social Security. It’s $6,000, so all this time, we’ve been paying for it. Well, then we apply here. Medicaid is going to look back five years to August, 2015. Do they see any gift? Well, no. Actually, if we go 61 months, we’re really looking at September, 2015. Are they going to see this gift we made back here in August? No, they’re not going to see it because they only look back five years. That’s the law. So long-term-care insurance can allow us to even make a gift at the moment of the crisis.
Now, it’s better to not wait till the last minute because there are all sorts of things that can come up, but it does give us that power. Sometimes, we do that intentionally. We say, “You know what? We’re not going to create the trust now. We’re going to get this long-term-care insurance, and then if we need it, then we’ll create the trust.”
Other times, we’ll say, “No, we’re going to go ahead and create the trust.” Then, as we go through time, maybe we don’t need that long-term-care policy because now we’re more than five years from when we gave away all that money, and so we can say, “You know what? I’m going to cancel my long-term-care policy. I’m not going to pay $500 or $600 or $700 for it.”
So all different ways that these things work together. It’s not that either you do a trust or you do elder-law planning. Elder-law planning is all of that. It may be a trust. It may be annuities, special types of annuities. It may be long-term-care insurance. All these different options that we have.
When we sit down with families, we want to see the whole picture. Then we say, “Okay. Now that we see this, you know what, let’s go check out long-term-care insurance. Go to your financial advisor. If you don’t have somebody, we’ll recommend somebody to you, but go to your advisor, to your insurance agent. Find out what your options are. Come back and tell us. Let’s see how that, this little long-term-care policy, how does that fit in with the picture? It may be the only thing you need to do, or it may just be one part of an overall plan.” Hopefully, that answers the question of: how does long-term-care insurance fit in with Medicaid?
Now, what I think is … Let me check the time here. I think we’ve got time for one more. Will a VA pension …? Okay, actually, that was a duplicate question, so I think that is our final question that we have.
I’ll tell you what. I’ll mention one that was not asked this last week, but a couple weeks ago, and I’ve addressed this in other times, but somebody will say, “Well, when you start talking about this five-year look-back period and penalty period and are arranging things with long-term-care insurance or with a trust, isn’t that illegal?”
No, it’s not illegal if we follow the law. It’s kind of an interesting statement. If we follow the law, it is not illegal. It is lawful. It is not unlawful. Here’s what you have to keep in mind, particularly with this Medicaid. They’ve got this five-year look-back. Well, what if when you apply they look back 60 months and they see a gift? Do they say, “Well, if you had just waited one more month, we wouldn’t see that, so we’re not going to penalize you”? No, they don’t say that. They say, “Aha, 60 months. You’re being penalized.”
Well, is that fair?
It’s the law.
You know the law, or you should know the law when you’re applying for Medicaid. Don’t ever apply for Medicaid without having a real good plan. You know what the rule is. It’s 60 months, so if they get you on 60 months, that’s fair. If, on my credit card, it says it’s due on the 5th and I pay it on the 15th, they hit me with a late fee. I go, “Yeah, but it’s not that late,” or maybe they give me a grace period till the 15th, and I pay it on the 16th. You know what? I’m late. I get hit with a late fee.
By the same token, if when Medicaid looks back 60 months, they don’t see the gift because you did it 61, 62 months ago and we control when we apply for Medicaid, that’s not being illegal. That’s just being smart. It’s being a good steward of what we’ve been blessed with. We’re just following the rules.
If you’re going down the interstate and it’s 70 miles an hour and you’re going 69 miles an hour, are you breaking the law? No. What if you’re going 71? Well, technically, you’re breaking the law. Somebody goes, “But that’s just two miles an hour difference.” What if you’re going 70 miles an hour? That’s lawful. 71 breaking the law. You know, that’s what the law is. We can argue about should it be 70 miles an hour, 60 miles an hour? We can argue should it be 60 months? Should it be 600 months? Should it be six months or no months? That’s not our job to make the law. Our job is to say, “You know what? The government’s made this law. We’re going to follow the law.”
Well, I hope that these have been helpful to you. If you will let us know any comments you have, you can put those below this video. You can call us, 205-879-2447 or go to Alabama Elder Lawyer. We’ll be glad to put your question in line, and hopefully, unlike this week, I won’t put the same question down twice.
We’ll get those questions answered, and we will see you about noon next week. What will that be? September, I don’t know, the 5th or something, the 4th, but whatever it is, on Friday a week from today, we’ll see you. Thanks a lot, and I appreciate you watching. Bye-bye.