Veterans Benefits and the “Medicaid Time Bomb”


The growing popularity of the Veterans Administration (VA) Aid & Attendance program has been fueled by financial services organizations promoting their products with the enthusiastic cooperation of long-term care facilities.  On the surface, it seems to be a great partnership, in that both the financial service organizations and the facilities are helping veterans obtain a benefit that helps pay for their care—right now. Unfortunately, these organizations may fail to take into account the probable long-term Medicaid issues of veterans, as well as the tax and investment-related issues associated with obtaining VA benefits. This short-sightedness could result in a care facility having some liability to a resident for future loss of eligibility for Medicaid benefits. This is what I call the “Medicaid Time Bomb.”

It is common for financial service organizations, under the guise of “supporting aged veterans,” to suggest that excess assets be given away to the veteran’s adult children and then placed in annuities. This is done to meet VA asset limitations.  Unfortunately, if within the next five years the veteran should require long-term custodial care in a nursing home, he or she soon discovers that the rules for obtaining Medicaid benefits are quite different than the rules for obtaining VA benefits.  The veterans can be denied Medicaid benefits and penalized for a period of time, largely due to the gifting of money to their children.

How can the Medicaid penalty situation be resolved?  The only cure is to have the annuities cashed in and returned to the veteran. But wait!  Cashing in an annuity often triggers substantial early-withdrawal penalties.  Due to these early-withdrawal charges, even if the gifted annuity is cashed in, the family will not have enough money from the annuity to cure the Medicaid penalty. When a veteran’s family realizes that the veteran has lost money and may still be ineligible for Medicaid benefits, they are understandably at the loss of both assets and Medicaid benefits. That is what I mean by the Medicaid Time Bomb.

Elder law attorneys owe a fiduciary duty (that’s a high duty of loyalty and protection) to their clients.  When we as elder law attorneys analyze a veteran’s overall situation, we must look at the best interests of our client both today and tomorrow.  We know that an annuity may be an important tool to use in both VA and Medicaid planning. 

A qualified elder law attorney concentrates his or her practice in the areas of estate planning, disability planning, Medicaid, VA benefits, guardianships, and elder abuse issues. Call our office to learn how you can avoid the Medicaid Time Bomb.

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