Question: My father had a Revocable Trust made several months ago. My concern is that my father now has very limited liquid assets & is in need of 24/7 care. He has partial interest in a home (which the joint owners refuse to sell) and lives in his condo with my sister. He has been paying for elder care 8 hours a day, 7 days a week, which he really cannot afford. He has not yet spent down to $2,000 in liquid assets, but he will be down to that level very soon. The problem I have is that I am going to apply for VA Pension on my father’s behalf, & I was told 2 things that concern me. 1) He cannot have more than $40,000 in assets. 2) The VA does not recognize unsecured loans, which he has. Would you please provide some advice?
Answer: Your situation presents an excellent example of the importance of planning before the need for care arises. You do not indicate how old your father is or what type of illness or care he needs or his income. I do see that he needs 24/7 care but is only paying for 8 hours per day. I presume that since he is living with your sister she is providing some of the additional care. If his goal is to stay with your sister as long as possible the VA pension will be a great resource for achieving this. If he needs more care than can be provided at home for a reasonable cost then you may want to look at the available Medi-Cal benefits. Depending on which County your father lives in (or can move to) and his income, he may qualify for Medi-Cal’s Assisted Living Waiver program (this program has an income cap) or for In-Home Operations (this program uses the same qualifiers as the Skilled Nursing facility program and there is no income cap). Once your father qualifies for Medi-Cal the VA benefit will drop to $90/month, which he will get to keep in addition to the $35/month personal allowance provided by Medi-Cal.
Regarding the net worth qualification for the VA pension, you are correct that the VA does not allow unsecured debts to reduce net worth. You are also correct that the VA will exclude from net worth the portion owned by a joint owner. Unlike Medi-Cal (Medicaid) the VA does not have a bright line rule for the amount of assets the veteran may keep and still qualify for pension. The VA instead looks at net worth in terms of life expectancy.
You indicate your father created a revocable trust several months ago. If he still has mental capacity several options are available to him. He could create an irrevocable trust now and transfer his assets to it to reduce net worth. He would need to be extremely careful how the transfers took place so that eligibility for Medi-Cal would not be jeopardized. In addition, he would need to work with an attorney who will help him evaluate and understand all the planning and tax issues such transfers can create, and one who is well versed in both VA pension and Medi-Cal law. While the VA does not penalize transfers or have a look back period, if he needs 24/7 care later on in a nursing home Medi-Cal will be an important tool for him.
Outright transfers of the house and condo to his children could also be done. There would be no VA penalties, but there will be adverse tax implications in the form of loss of basis (which creates additional capital gains tax upon sale), and Med-Cal transfer penalties if not completed the correct way. In addition, if the recipient was sued, got divorced or passes away the assets will be lost to dad and completely out of his control.
If the condo is considered your father’s primary residence, then it is an exempt asset for both VA and Medi-Cal purposes. He could transfer the condo to your sister (provided he has the requisite mental capacity) without suffering any Medi-Cal penalties, but that transfer will not work for VA purposes. Under the VA rules the transfer of a primary residence to a relative already living in it will not reduce net worth. While the condo would remain exempt during your father’s lifetime, upon his passing, if he received Medi-Cal, the State would seek reimbursement for the payment of his care from his share of the condo.
Because the house is not your father’s primary residence it would not be exempt and could be an unavailable asset (valued at the assessed value not fair market value) due to the joint owners’ refusal to sell, but would remain subject to transfer penalties if given/transferred out of his name.
For any transfer to be valid your father must have the requisite mental capacity. If your father does not have the requisite mental capacity, then transferring assets will not be a viable option unless he has a financial durable power of attorney that contains appropriate expanded gifting powers and public benefit planning.
The only other option, if your father no longer has mental capacity, would be for him to add someone to his bank account to turn it into a multi-owner account and reduce net worth. This option will work only if the bank account is not already owned by his revocable trust. While this will likely allow him to qualify for VA pension, Medi-Cal reimbursement will remain an unresolved issue.
With proper advice and counsel while he was of sound mind he could have arranged his affairs to enable easy qualification for both VA pension and Medi-Cal. Use of an irrevocable trust would provide a means to qualify for benefits and hold the assets in a manner that would reduce capital gains, preserve the step up in basis and protect the assets from being taken away from beneficiaries due to unforeseen lawsuits, divorce or untimely death.
I hope that this information is helpful and wish you the best of luck in helping your father obtain the help he needs.
Heather R. Chubb, Attorney at Law
The Chubb Law Firm
Member of the national ElderCare Matters Alliance, California chapter
Orlando J. Antonini, CPA/PFS, CFP, QFP, RIA, NCG