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New Annuity Introduced to Assist those Applying for Veterans Benefits -but will it work?

To assist with the costs of care if their medical expenses are high, wartime veterans or their surviving spouses often apply for non-service connected disability improved pension benefits (commonly referred to as “Aid & Attendance” although that is only a portion of the benefit) assuming all eligibility requirements are met.

Various types of annuities are often used in the planning process so that eligibility can be obtained for Veterans Benefits. However, Medicaid benefits are often greater (especially for nursing home care) and the eligibility rules (and planning) are significantly different. On the other hand, VA benefits can be used anywhere (home, assisted living, nursing home, etc.) whereas very few assisted living facilities accept any Medicaid program.As a result, insurance companies have attempted to come up with products that comply with the present rules for eligibility for VA or Medicaid or both. Last month, one insurance company unveiled a new single premium immediate annuity that is revocable and assignable, but still offering a zero cash value with the goal that the annuity would not count as a resource when applying for the improved pension benefit. By remaining revocable and assignable, it gives flexibility for future Medicaid planning (either for wealth transfer or immediate Medicaid coverage). The owner of the policy can at any time add a “restrictions endorsement” – so one could later add the state Medicaid agency as a beneficiary as required under the Medicaid rules.

While there is no question that this could work for Medicaid eligibility assuming the annuity was irrevocable and non-assignable since this type of annuity has previously been accepted by Medicaid, there is a question in my opinion if it will pass muster with the VA. Although it may have a zero cash value, I would think the fact that is presently revocable and assignable could cause great scrutiny by VA. In the June issue of our Texas Elder Law E-letter, I mentioned that it is likely there will be substantial changes in the VA improved pension benefit rules including the likely requirement that there would be a look-back period if there are transfers. It would not be surprising to me if there are changes in the rules regarding the use of annuities and trusts as well.

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