GeriLaw | Robert Fleming, Tucson elder law attorney, and colleagues

Veterans' Benefit for Home and Assisted Living Care

One little-known benefit for veterans and their families is the Aid and Attendance (A&A) benefit.  This benefit can be used for care in an assisted living facility or for care at home.

Title 38 of the U.S. Code contains statutes regulating veterans' benefit programs.  Many of our readers are probably familiar with service-connected Veterans’ Compensation.  This compensation is provided to veterans for disabilities caused or exacerbated by military service, and it is normally expressed as compensation for a certain percentage disability.

Non-service connected benefits (pensions) are available to veterans (and some widows or widowers) who meet certain conditions.  The veterans do not have to be retired from military service, but the program is needs-based.  The veteran must have served 90 days on active duty (the requirement is longer for more recent veterans), with at least one day during wartime, and have received a discharge under conditions other than dishonorable.  The veteran must be “permanently and totally disabled” because of a non-service connected condition, or be over the age of 65 years.  Additionally, for the improved pension program, the veteran's income cannot exceed $931 per month (with no dependents) or $1,220 per month (with one dependent), the current maximum annual pension rate (MAPR). 

The A&A benefit is an increased benefit for veterans who require “care or assistance on a regular basis” to protect them from dangers in their daily living environment.  Veterans living in assisted living facilities are presumed to need this level of assistance, but the veteran should include a letter from the veteran’s personal physician regarding the veteran’s disability.  The need for A&A increases the income limit from $931 per month to $1,554 per month (with no dependents), and from $1,220 per month to $1,842 per month (with one dependent).  The MAPR for the A&A benefit, therefore, is the higher of $1,554 or $1,842 per month.  (Widows or widowers can receive a maximum of $998 per month.)  One significant feature of the pension program is that income is reduced by paid but unreimbursed medical expenses, including insurance premiums, Medicare premiums, prescriptions, dental and vision care, and the costs of an assisted living facility, in-home aid, or adult day care.  In many cases, these costs can easily reduce the applicant's income to a level that would permit the applicant to receive the benefit.  The net worth of the applicant is also considered in the evaluation for A&A; there are no hard and fast rules, but a net worth below $80,000 for a couple, or $50,000 for an individual, has been acceptable.  The VA looks to the net worth at the time of the application; there is no penalty period for the transfer of assets.  If the veteran, however, transferred property that produced a great deal of income on the previous year’s tax return, that previous year’s higher income would be reflected on the application and may affect eligibility.  Further, because the lack of a penalty for transferring asset conflicts with Medicaid requirements, elder law attorneys should advise their clients of this disconnect and plan accordingly.  The A&A benefit payments are made directly to the veteran or eligible surviving spouse, and they are specifically excluded from the definition of income for Medicaid purposes.  The benefit is reduced to $90 per month if the veteran lives in a nursing home.

Andrew Hook
Oast & Hook
www.oasthook.com

Designing a Structured Settlement by Thomas D. Begley, Jr.

In designing a structured settlement, there are a number of features that warrant careful consideration.

•  COLA. In designing a structured settlement, consideration should be given to providing a cost of living adjustment (COLA) to provide for future cost of living increases. Historically, inflation has run an average of 3% per year. Financial advisors use something called “the rule of 72's.” To determine how long it will take money to double, divide the rate of return into the number 72. For example, if a person receives a 6% rate of return on an investment, it will take 12 years to double the money. The converse would seem to apply to the structured settlement. It is anticipated that there will be a 3% inflation rate over time. Divide 3 into 72 and it will take 24 years for the monthly payments to lose half of their purchasing power. Therefore, a 3% cost of living increase should be built in to a structured settlement in order to preserve purchasing power. This will reduce the initial payments, but will give the injured party constant purchasing power over the life of the contract.

•  POPs. A structure can also be designed to provide lump-sum payments at appropriate intervals, such as at age 18 when monies may be needed for college education, if appropriate. Anticipated future needs can be met in this manner. A POP is a lump-sum distribution in an amount certain at a previously agreed upon time.

•  Lifetime Payments or Fixed Term. In many situations, the injured plaintiff has a permanent disability and will not be able to work. In those situations, it is important to obtain a structured settlement that will pay the injured person or the special needs trust for the life of the disabled person. Since tomorrow is never guaranteed, it is usually wise to obtain a guarantee period where payments will continue even after the death of the injured person. Plaintiff names a beneficiary on the contract to receive the guaranteed payments. The addition of the guarantee period will reduce the amount of the periodic payment, but elimination of the risk is usually seen as worth the price when discussing the structure with the client.

•  Deferred Payment. In cases involving a minor, the payments from the structured settlement may not be required until at time in the future such as age 18. During the meantime, the parents often provide what support the minor child will need. By deferring payment for a period of time, the funds in the structured settlement annuity can build up and the periodic payments starting at the agreed upon time will be significantly higher. The longer the payments are deferred, the larger the periodic payments will be.

• The Beneficiary. Who should be the beneficiary of the structured settlement on death of the beneficiary of the trust? If the beneficiary of the structure is the trust, the balance of the payments will be used to repay Medicaid. There appears to be no restriction in federal law on naming a family member as contingent beneficiary of the guaranteed portion or a structure upon the death of the primary beneficiary of a structure, however, state law must be consulted. The Supreme Court of New York held that there is no authority to consider any guaranteed payment remaining after the death of the trust beneficiary from the trust assets subject to the State's remainder interest.[1] This would have the effect of avoiding a payback to Medicaid since the structure would then be paid to the family member and not to the trust. Only assets remaining in the trust would be required to be paid to Medicaid. The guaranteed portion of the future payment would be includable in the estate of the deceased beneficiary. Consideration should be given to purchasing a commutation rider form the insurance company to provide for funds to pay the federal estate tax.

Thomas D. Begley, Jr., CELA

Begley & Bookbinder, PC

ATTORNEYS AT LAW

COMMITTED TO EXCELLENCE

 

Specializing in Elder & Disability Law

wwww.begleylawyer.com

(800) 533-7227

 

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[1] IMO Eddie Sanango, Supreme Court of New York, County of Kings, Index No. 41383/94 (Oct. 22, 2002).

National Healthcare Decisions Day

Governor Timothy Kaine has signed a Certificate of Recognition, designating April 16, 2008, as Healthcare Decisions Day in the Commonwealth of Virginia.  Virginia has had its own Advance Directives Day for the past two years, and this year’s effort is part of the inaugural National Healthcare Decisions Day.  The purpose of this day is to raise public awareness of the importance of planning for healthcare decisions related to end-of-life care and medical decision-making in the event that patients are unable to speak for themselves, and to encourage the specific use of advanced directives to communicate these important healthcare decisions.

In Virginia, the Health Care Decisions Act provides the specifics of the Commonwealth’s advance directives law.  It is estimated, however, that only about 15% of all Virginians have executed an advance directive, and it is estimated that less than 50% of severely or terminally ill patients have an advance directive.  One of the primary goals of National Healthcare Decisions Day is to encourage hospitals, nursing homes, assisted living facilities, continuing care retirement communities, and hospices to participate in a nationwide effort to provide clear and consistent information to the public about advance directives.

All adults in Virginia have the right to prepare an advance directive in order to put their wishes regarding medical care in writing.  There are two components to the advance directive.  The first component is the living will.  This permits an individual to state what kind of life-prolonging treatment the individual wants or does not want if diagnosed with a terminal illness and the individual is unable to express his or her wishes.  Life-prolonging treatment includes using machines, medicines and other artificial means to help individuals breathe, eat, get fluids into their bodies, have a heartbeat, and otherwise stay alive when the body cannot do these things on its own.  Medications used to keep an individual comfortable are not considered life-prolonging treatment.  Life-prolonging treatment will not help an individual recover.  Another way to look at the living will is that if an individual is in the dying process, then the individual does not want artificial means to prolong this process, but the individual might want pain-relieving medications to be administered, even if it accelerates the dying process. 
The other component of the advance directive is often called a power of attorney for healthcare.  This allows an individual to appoint an agent or agents to make medical decisions for the individual if the individual becomes incapable of making medical decisions.  The document can specifically tell the agent what kind of care the individual does or does not want.  For example, the document can give the agent the authority to work with a physician for the physician to enter a do not resuscitate order (DNR) on the individual’s behalf, but the advance directive itself is not as a DNR order.  The agent can only make medical decisions if the individual’s physician and another physician or licensed clinical psychologist examine the individual and determine in writing that the individual cannot make medical decisions for himself or herself.  As soon as the individual is capable of speaking again, decision-making authority of the agent ceases.

It is important for people to put their wishes in writing, because oral advance directives can only be created if an individual has a terminal condition and can tell his or her wishes directly to his or her physician.  Unfortunately, many terminally ill individuals may no longer be competent to discuss their wishes with their physicians.  Putting the wishes in writing reduces confusion about the patient’s desires, and also establishes clear lines of authority for decision-making.  This is important for blended families where there may be second spouses and adult children, and for younger couples where conflicts can arise between parents and spouses.  Everyone 18 years of age or over should sign an advance directive; it is not just for the elderly.  Every adult may need an agent to make medical decisions in case of a sudden illness or injury, such as an auto accident. 

Anyone 18 years of age or older can be named as an agent in an advance directive; the agent does not have to be a Virginia resident.  An alternate agent should be named in case the primary agent is unavailable to serve.  Advance directives must be witnessed by two individuals 18 years of age or older; the agents should not witness the document.  Advance directives do not need to be notarized; however, the advance directives that Oast & Hook prepares for its clients are notarized in case they need to be used in other states.  Although Virginia advance directives are designed to be valid in any state, individuals who spend a considerable amount of time in another state, should prepare an advance directive for the other state.  Advance directives can also be registered with the U.S. Living Will Registry or Docubank.

Copies of an advance directive are valid.  For this reason, Oast & Hook recommends that its clients keep the original advance directive in a secure place, and let their agents know where it is located.  They should give copies of their advance directives to their primary care physicians and all specialists.  They should also give copies to each agent, and discuss their wishes with their agents.  They should carry a copy of the advance directive in the glove compartment of their vehicles and place one on the side of their refrigerator.  It is also a good idea to take a copy of the advance directive when traveling.  Oast & Hook provides its clients with wallet cards stating that the client has executed an advance directive, and listing the names and telephone numbers of the client’s agents.  The Oast & Hook advance directive also includes a privacy act waiver, also called a HIPAA waiver, which permits the agent to talk immediately with the physicians or review medical records, even if the physicians have not declared the client incapable of making medical decisions.  This is helpful for seniors when their children do not know if they need to act as the agent for their parents and the only way they can decide is to talk with the parent’s physicians.

Andrew Hook
Oast & Hook
www.oasthook.com

What is a "Qualified Disability Trust?"

The “Victims of Terrorism Tax Relief Act of 2001” created a new tax entity: the Qualified Disability Trust. What are these trusts, and what benefits do they offer?

Revisions to section 642 of the Internal Revenue Code spell out what is required. In order to receive the special tax treatment, a trust must have been created for the sole benefit of an individual with a disability as defined by the Commissioner of Social Security. So what does the special treatment get you? A qualified disability trust can claim a personal exemption in the same amount as an individual ($3400 for tax year 2007) rather than the measly $300 permitted for other trusts.

As is so often the case with tax law, however, the code gives no hint about the real advantages or disadvantages. That’s why we’re here.

First, in order to understand the effect of qualified disability trust status one must consider general rules of trust taxation. Trusts pay taxes at the same rates as individuals – except that the graduated tax rates are very sharply compressed. In 2007, for example, a trust with $30,000 of taxable income would pay $9,543.50. An individual with the same $30,000 of taxable income would pay $4,774. In other words, the trust will incur a tax penalty of $4,769.50 just by being a trust.

The Victims of Terrorism Tax Relief Act reduces the disparity, but not by much. If our imaginary trust could meet the definition to be treated as a Qualified Disability Trust, its income tax bill would be reduced by $1,085 – but it would still pay $3,684.50 more than an individual taxpayer.

What difference does it make that trusts and individuals are taxed differently? A healthy percentage of trusts for individuals with disabilities are set up with their own money, either from personal injury lawsuits, or inheritances, or accumulated wealth. Those trusts, even though irrevocable, are inevitably taxed as “grantor” trusts, which means that the individuals claim all the income and deductions. Because of that status there is no benefit from the purported tax relief – and if there were, it would be far less than the increase in tax liability from treatment as a trust for the vast majority of them anyway.

If, however, a trust is established and funded by, say, a parent or grandparent, and the funds never belonged to the person with a disability, there may be some value to the Qualified Disability Trust treatment – though it is almost certain to be a very slight benefit. Assuming the trust is being used to pay for items benefiting the person with a disability, those payments are essentially a deduction from the trust’s taxable income. That means that unless the trust is accumulating income it will likely see no benefit from the additional deduction.

The same may not be true for the beneficiary, however. Even though the trust may pay not income tax because of its distributions for the benefit of its beneficiary, that beneficiary will have a tax liability to report. If the beneficiary is paying some tax, the extra deduction for the trust may have the effect of reducing the reportable income on which the beneficiary is taxed – and that might reduce the tax itself by between $510 and $1225. Not exactly a windfall, but better than the proverbial poke in the eye.

So who, exactly, will benefit from this provision of the Victims of Terrorism Tax Relief Act? Not, particularly, victims of terrorism. In order to benefit the following things must be true:

1. The trust cannot be a “grantor” trust – it must hold money that was a gift from someone other than the beneficiary’s estate or a lawsuit on his or her behalf.
2. The trust must have income sufficient to make the beneficiary pay some income tax – that is, its income must exceed its expenses plus the beneficiary’s deductions (including the standard deduction and personal exemptions – about $8500 for a single person with no dependents in 2007).

That all assumes, incidentally, that the law is read broadly. Under one interpretation, the only way any trust would get the modest tax benefit would be if it included a provision directing that the state should be repaid for its Medicaid expenditures on the death of the trust’s beneficiary – a provision that should not be considered, much less included, in any trust not funded with the beneficiary’s own money.

What is the practical result? In our experience, almost no trusts can meet the requirements for treatment as a Qualified Disability Trust, and any benefits are so modest as to hardly make it worth trying. Apparently no one in Washington wanted to find out what might actually amount to tax relief for trust beneficiaries with disabilities.

Robert B. Fleming
Fleming & Curti, PLC
Tucson, Arizona
www.elder-law.com

Abandonment and Elective Share

A recent Supreme Court of Virginia opinion addressed the issue of abandonment within the context of an elective share claim against a decedent’s estate.  In Purce v. Patterson (Record No. 062368, January 11, 2008), the wife had filed for divorce in 2003, but no decree of divorce had been issued prior to her death in 2005.  Her husband filed an elective share claim against her estate, and the trial court held that he had wilfully abandoned the wife, and, therefore, under Virginia Code § 64.1-16.3, he was not entitled to an elective share of her augmented estate.

The couple were married in 1988, and the wife had many health problems throughout the marriage.  The husband did not visit the wife in the hospital during her illnesses and did not take care of her when she returned home.  They had a tumultuous marriage, and they agreed that the wife would leave the marital residence, which she did in 2000.   The wife brought into the marriage several rental properties that she owned, and that she managed.  Her husband did not participate in managing the rental properties, and he did not provide any financial support to the wife after their separation.  During her final illness, the wife lived with her daughter in New Jersey; the husband did not know she was in New Jersey, and he did not visit, call, or communicate with her.

The husband asserted that his post-separation conduct is not relevant to determining whether one spouse abandoned the other.  The Supreme Court of Virginia disagreed, citing Virginia Code § 64.1-16.3(A), which addresses the period of abandonment relevant to an elective share claim:

If a husband or wife wilfully deserts or abandons his or her spouse and such desertion or abandonment continues until the death of the spouse, the party who deserted the deceased spouse shall be barred of all interest in the estate of the other by intestate succession, elective share, exempt property, family allowance, and homestead allowance.

The Court said that it was required to determine whether the wilful desertion or abandonment continued “until the death of the spouse,” and it concluded that the trial court did not err in considering facts occurring subsequent to the separation.

The husband’s remaining assignments of error challenge the sufficiency of evidence to support the trial court’s finding of abandonment.  The Supreme Court of Virginia said that this was a mixed question of law and fact.  The Court agreed with the parties that because the term “abandonment” is not defined in the statutes governing elective share claims, the principles of domestic relations law are helpful in determining the issue of abandonment under Virginia Code § 64.1-16.3.  In domestic relations cases, the term “abandonment” is generally used synonymously with “desertion.”  The Court has defined desertion as “a breach of matrimonial duty – an actual breaking off of the matrimonial cohabitation coupled with an intent to desert in the mind of the deserting party.” “Matrimonial duty” includes cooking, cleaning, support, and contributing to the well-being of the family.  The Court stated that in this case it would use the word “abandonment” to mean “a termination of the normal indicia of a marital relationship combined with an intent to abandon the marital relationship.”

The Court discussed the differences in the analysis of the evidence in the context of a domestic relations claim and an elective share claim.  The Court determined that the parties’ agreement to separate or seek a divorce does not defeat a finding of wilful abandonment, although it is relevant evidence of the termination of cohabitation.  The Court analyzed the evidence in this case and determined that the mutual decision to cease cohabitation and the filing of the divorce petition were the result of an agreement of the parties, and not the product of wilful abandonment.  The Court, however, also determined that the husband’s conduct after the separation and until the wife’s death did show a lack of support for the wife, and of the marital relationship.  The Court found nothing in the record that indicated that the husband intended to reconcile with the wife, and at the time of the wife’s death, the husband “ceased to perform any marital duties.”  The Court concluded that the evidence was sufficient to support the trial court’s holding that the husband abandoned the wife prior to and continuing until the time of her death, and the Court affirmed the judgment of the trial court that the husband was not eligible for an elective share of the wife’s augmented estate.

Andrew Hook
Oast & Hook
www.oasthook.com