Wartime veterans (or their widows) may receive tax free income to help offset the cost of long term care. The benefit, Improved Pension, commonly referred to as Aid and Attendance, is a means tested benefit wherein the claimant must meet both income and asset limitations.
The asset limitation is not a bright line figure, however, a standard guide is that if the claimant has more than $80,000 of countable assets (the home, cars, and personal property are exempt), the claim will be denied. Thus, often the veteran will seek counsel from a qualified attorney to assist with asset preservation and qualification for benefits.
A problem with reduction of assets may arise when the veteran has a large retirement account. Unlike other investments or cash account, retirement accounts cannot be liquidated without incurring a sizable income tax consequence.
Can the IRA be converted to a SPIA?
Historically, in this situation, the recommendation was to roll either a portion of or the entire retirement account into a single premium immediate annuity (SPIA). SPIAs create an income stream based on the insured’s life expectancy, thereby eliminating the cash value of the investment. Given there was no cash value, then that automatically reduced the net worth of the claimant, bringing the assets below the permissible limits.
The Veterans Administration has begun denying claims where a SPIA has been used, asserting that the SPIA has not reduced the net worth. Although no laws have changed, the VA has changed its procedure of how it treats annuities when calculating net worth. Until the law does change, my recommendation is that:
(1) if you have pending claims with SPIAs that ultimately become denied, then appeal.
(2) if you have a large retirement account, either
(a) don’t apply for VA benefits, or
(b) use a SPIA but caution your client of the probability of a denial and the likelihood of an appeal.
Victoria L. Collier, Certified Elder Law Attorney, Fellow of the National Academy of Elder Law Attorneys, Co-Founder, Lawyers with Purpose, LLC, and author of 47 Secret Veterans’ Benefits for Seniors…Benefits You Have Earned but Don’t Know About.
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