Successful VA Annuity Case: Using an Annuity Post-Eligibility
Using an annuity in VA planning is a great way to quickly spend-down your client’s excess net worth and qualify them for the Aid & Attendance pension benefit. The cash assets are eliminated and the claimant is able to obtain financial assistance in paying for their high care costs. Typically, the annuity is purchased immediately before the individual applies for benefits as the final step in the spend-down process.
When dealing with crisis planning, it is common for a client to obtain excess cash assets after eligibility is achieved. In Medicaid planning, the client can typically maintain their benefits by purchasing an annuity with the excess assets within the month of receipt. But when it comes to VA, it is the understanding of many planners that this is not an option – if the claimant receives excess assets (proceeds from the sale of a home, an inheritance, etc.), they will lose their pension benefits.
Recent Case Involving the Sale of a Home
Krause Financial Services has learned of a recent case which involved the purchase of an immediate annuity after the VA claimant sold their home. The transaction occurred after the claimant had already been receiving VA benefits, and they were able to maintain their benefits. For many, this strategy is unheard of – once the claimant sells their home, they become over-resourced, and they are no longer eligible to receive their pension. However, in this case, because the proceeds from the sale of the home were funded into an immediate annuity before January 1 of the following year, the claimant was not considered to be over-resourced.
Using Annuities in VA Planning
It is difficult to know for sure whether all VA caseworkers would treat this case the same way, however using an annuity pre-eligibility is a surefire way to accelerate qualification for the Aid & Attendance benefit. A VA Annuity allows for an individual to convert their excess net worth into an income stream. In that the Aid & Attendance benefit is sensitive to a claimant’s income-to-medical expense ratio, the VA Annuity is always structured in a manner that ensures the client remains eligible for the maximum pension rate.
The VA Annuity can be funded with either non-qualified or tax-qualified funds, with both level and balloon-style payment options available. This makes it a great option for dealing with a client’s IRA, which is considered a countable asset for VA purposes. By funding the IRA into an annuity, the client avoids immediate taxation on the funds. Rather, the funds are taxed as payments are made within each calendar year.
The most revolutionary part of this product is its flexibility. It is a Single Premium Immediate Annuity (SPIA) that contains no cash value and is revocable as to the beneficiaries. Should the owner require Medicaid benefits in the future, the annuity can be converted to be Medicaid compliant by adding the State as a beneficiary and electing to make the contract irrevocable. Or, in cases where the client may no longer need the annuity, it can often be sold on the secondary market. In short, it won’t jeopardize your client’s future planning options.
If you have a client that is a qualified veteran or a surviving spouse of a qualified veteran in need of the Aid & Attendance pension benefit, using a VA annuity may be the perfect solution!
Contact Krause Financial Services today at 866-605-7437 to speak with a Benefits Planner!