In order for a qualified veteran, or the spouse of a qualified veteran (referred to as the claimant), to qualify for the Veterans Aid & Attendance benefit ("A&A"), he or she must spend down his or her excess resources. Even though the VA has a specific formula for determining the resources to be retained by a claimant, the general school of thought is that a claimant should retain no more than $30,000.00 of cash or other assets.
In those cases involving a caregiver child, the spend-down process is easy. The child can be compensated for the services that he or she provides through a Personal Services Contract. The Personal Services Contract specifically identifies the duties and obligations of the parties. The child will have a duty to provide personal services including: hair care, bathing assistance, transportation to doctor appointments, medication monitoring, etc. In return, the claimant will be obligated to pay the child reasonable compensation for those services. In most cases, the Personal Services Contract will be drafted so that the duties and obligations will continue for the duration of the claimant's lifetime. For Medicaid purposes, a person's lifetime is specific within the Social Security Administration's Period Life Table, which can be found here.
For purposes of an example, assume that Alice Green, the surviving spouse of a qualified veteran, is 77 years of age, and resides at Sunny Hill Acres Assisted Living Facility. Each month Sunny Hill charges Alice $3,500.00 for her care. Additionally, Alice's daughter, Mary, provides personal care services to her mother. Mary provides these services to her mother twice per week, and spends three hours during each visit. The fair market value of these services is $20.00 per hour, which equates to $520.00 per month. With only $1,500.00 of monthly income from social security and pension, and only $227,160.00 in savings, Alice has determined that her funds will only last for 90.14 months/7.5 years.
To avoid outliving her money, Alice elects to apply for a monthly VA A&A benefit of $1,056.00. In order to become eligible for the benefit, Alice takes the following actions:
- Pays an attorney $8,000.00 for an estate plan, reducing her savings to $219,160.00;
- Purchases a $7,500.00 Irrevocable Funeral Expense Trust from National Guardian Life Insurance Company, reducing her savings to $211,660.00;
- Purchases a $64,524.00 Single Premium Immediate Annuity ("Annuity A"), which pays her $520.00 per month for 131 months, reducing her savings to $147,136.00;
- Purchases a $117,136.00 Single Premium Immediate Annuity ("Annuity B"), which pays her $944.00 per month for 131 months, reducing her savings to $30,000.00; and
- Retains $30,000.00 in her savings account.
After all of the above, Alice enters into a Personal Services Contract with her daughter, Mary, which required Mary to provide personal care services of $520.00 per month to Alice for 131 months, which is her Medicaid life expectancy. Next, Alice transfers ownership of Annuity A to Mary, as full payment for the Personal Services Contract.
As a result of the planning, Alice immediately becomes eligible for a $1,056.00 monthly A&A benefit, which allows her to extend her ability to pay for her care from 91 months to 162 months/13.5 years. At the same time, with her monthly income totally to $3,500.00, which amount equals her unreimbursed medical expenses, she does not have a monthly income shortfall. Finally, in that Mary is the owner of Annuity A, and is receiving the payments under the Personal Services Contract, she will be required to report all of the payments as income on her 1040 federal and state income tax returns - as received in a calendar year.
