What Does HR 2189 Mean for VA Planning?

DE PERE, Wis. - Nov. 20, 2013 - PRLog -- A major concern the Government Accountability Office (“GAO”) discovered in scrutinizing the VA’s pension program performance was the quantity of organizations that market planning services to veterans with excess assets.  According to the GAO, many of those organizations consist of professionals recommending products that “may not be appropriate for elderly veterans because they may not have access to all of their funds for their care within their expected lifetime without facing high withdrawal fees^*.”  This is where the GAO’s recommendation to impose a look-back period began.

The first set of bills aiming to put a stop to “pension poachers” was S 3270 and HR 6171.  However, these bills did not address the timeliness of VA eligibility determinations, exempt transfer rules, transfers made for purposes other than eligibility, or the ability to cure a prior transfer by returning the asset in question.  Thus, S 748 and HR 2341 were introduced.  The proposed legislation was still lacking, leading to the addition of S 944 and HR 2189.

S 3270 (https://www.govtrack.us/congress/bills/112/s3270) has died, along with HR 6171 (https://www.govtrack.us/congress/bills/112/hr6171).  S 748 (https://www.govtrack.us/congress/bills/113/s748) and HR 2341 (https://www.govtrack.us/congress/bills/113/hr2341) were referred to the committee in April 2013 and June 2013, respectively, and have been sitting stagnant since.  S 944 (https://www.govtrack.us/congress/bills/113/s944) was reported to the committee in July 2013, and we all know HR 2189 (https://www.govtrack.us/congress/bills/113/hr2189) passed the House on October 28, 2013.  NAELA continues to work closely with the U.S. Senate Committee on Veterans’ Affairs to address the pending legislation by proposing solutions to be incorporated.

Watching the VA draft legislation associated to the imposition of a look-back period is all too familiar of a process.  Most of us can recall the same anxiety and speculations made while we were waiting for the legislation associated to the Deficit Reduction Act of 2005.  Since HR 2189 made it past the House and is now awaiting the Senate’s consideration, I’ve had the pleasure of picking the mind of experienced planners in the industry – both elder law attorneys and financial advisors.

Many questions and speculations surround the future viability of trusts, annuities, prepaid funerals, and gifts, to-wit:

1.  If the annuity purchase remains in the ownership of the veteran or spouse, is it a reduction of the corpus?

Some feel the lack of cash value immediate annuities provide does make it a reduction of corpus.  Others feel that the income generated by immediate annuities can be consumed for care and maintenance on behalf of the claimant, making it a moot point.

2.  What are the guidelines for a resource to be “reasonably expected to be consumed for care and maintenance?”

Some speculate that this will again be some type of (secret) formula comprised of age, unreimbursed medical expenses, income, and net worth.

3.  What about prepaid funerals?

Since the proposed legislation implies that a conversion of a “covered resource” to a trust could be construed as a reduction of corpus, the use of prepaid funeral trusts may have some limitations.

4.  Will the look-back period be phased in?

The proposed legislation is silent as to how the look-back period will be implemented.  However, we do know that the legislation will not become effective until one year from the date of enactment.

5.  What does the VA define as corpus?

The VA is silent on their definition; however, Black’s Law Dictionary defines a corpus as “the property for which a trustee is responsible; the trust principal.”

The VA’s proposed legislation will be successful in undermining the number one issue – “VA Specialists” recommending inappropriate products and irresponsible planning techniques to veterans and their families.  As to its impact on planning with annuities, we can’t be certain; although I’m very optimistic the planning will still have its place.

However, as the legislation now stands, if taken in the strictest definition it could also eliminate any ability to conduct VA planning and obtain VA eligibility within an immediate 36-month time frame.  That may leave families to spend-down organically.  With limited assets, limited income, and only a $2,054 monthly pension benefit at most, how long can one afford to remain in an assisted living facility?