In his pre-session presentation at the 2020 ASNP Annual Meeting, “Special Needs Planning Integration with Veterans Benefits,” Doylestown, Pennsylvania ASNP member Richard L. Newman provided an overview of VA health care and disability benefits, and concluded with a brief discussion of how VA benefits intersect with special needs trusts.
VA Benefits Basics
While noting that hours could be devoted to each separate VA benefit program, Newman said that three categories of benefits are available to veterans (or to their dependent children, spouses and parents of deceased veterans, dependents of disabled veterans, active-duty service members, or members of the reserves or National Guard): health care, compensation for service-connected disabilities, and improved pension for wartime veterans or their surviving spouses. Far more detail about each can be found in his presentation and materials.
Health care Benefits
Health care benefits are provided to eight groups ranked according to priority. Category 8, the lowest priority, currently has benefits suspended due to a lack of resources. Eligibility for health care benefits is afforded only to those who served in the active military, naval, or air service and not dishonorably discharged. Many different services and benefits are available to those who are eligible, including burial and home improvement or structural alteration benefits.
Service-connected disability compensation is a monthly cash benefit paid to veterans whose disability was caused by an injury or disease incurred or aggravated during active military service, but not necessarily in combat. The four requirements to receive compensation include medical evidence of the disability and a causative link, unless it is one of 120-plus Presumptive Service Connection ailments. Special Monthly Compensation provides veterans additional compensation for certain specified injuries.
Dependency and Indemnity compensation is available to surviving dependents of veterans with service-connected disabilities through two separate programs. Defined by whether the veteran died before (death compensation) or on or after January 1, 1957 (Dependency and Indemnity Compensation, DIC), most applicants elect to receive DIC because it typically pays more.
Improved pension programs provide veterans and surviving dependents with help paying for long-term care. Veterans must have military service that includes one day of service during a period of war and meet several other requirements to be eligible for these benefits.
New regulations effective on October 18, 2018, established Net Worth Determination rules and a bright-line net worth limit for receiving the VA pension benefit. In 2020, the net worth limit is $129,094. Countable and noncountable assets for determining net worth are specified in the regulations. Noncountable assets include a primary residence (up to two acres); personal property; prepaid funeral/burial; assets transferred prior October 18, 2018; and assets transferred up to the net worth limit.
A 36-month look-back period penalizes the transfer of countable assets, with the right to partially or totally cure the transfer. Asset transfers to a special needs trust (SNT) are allowed if the SNT is irrevocable, for the benefit of a child younger than age 18, and does not benefit the veteran or her spouse.
Income limits also determine eligibility for improved pension benefits. The VA will pay the difference between the claimant’s income and her yearly income limit (Maximum Allowable Pension Rate, MAPR), in 12 equal monthly payments. Unreimbursed Medical Expenses, defined in the regulation, may be subtracted from a claimant’s income calculation.
The most common pension benefits sought from the VA are Aid and Attendance and Housebound benefits. They are for claimants in need of the regular aid and attendance of another person or who are substantially confined to home because of disabilities reasonably certain to continue for life.
VA Benefits and Special Needs Planning
In 2015, Congress passed a law allowing monthly annuities under the Survivor Benefit Plan (SBP) to be paid directly to an SNT. To qualify, the trust must be established for the sole benefit of a disabled dependent child of the SBP participant; irrevocable; and an exempt, first-party or pooled trust under 42 U.S.C. § 1396 (d)(4)(A) or (d)(4)(C). Payments must be irrevocably assigned to the SNT, anytime during the veteran’s lifetime or after his death by the child’s surviving parent, grandparent, or court-appointed legal guardian of the disabled dependent child. The child must be disabled pursuant to 42 U.S.C § 1382c(a)(3) and dependent as defined in 10 U.S.C. § 1447(11). DIC benefits cannot be assigned to an SNT
Newman said that the VA has offered little guidance on SNTs and VA benefits. However, some opinions by the Office of General Counsel allow the following conclusions:
- Third-party trusts will not be counted as part of a VA benefit applicant’s net worth so long as she cannot exercise control over the trust property for her own benefit. As long as the applicant is not the trustee and the trust is properly drafted, Newman offered, it should be okay.
- Third-party trusts will be counted as part of the applicant’s net worth if he can exercise control over trust property for his own benefit.
- Money in self-settled first-party trusts will be counted in the net worth of the applicant if the trust permits use of assets for her own benefit. This, Newman said, is pretty much any first-party trust.
- Even if the trust is not counted as part of the net worth of the applicant, the distributions will be counted as income if they are retained.