Veteran’s Administration Benefits – Proposed Legislation Could Change the Landscape for Some Individuals

As this article is being written, so are drafts of various bills being adjusted in Washington. It appears that, although the Veteran’s Administration (VA) is not held in high esteem at this time, there are still provisions of various laws that need to be amended in order to allow certain benefits to be available in relatively few cases.

The primary bill pending is called the Disabled Military Child Protection Act, which would allow veterans who invest in a survivor benefit plan (SBP) to transfer their benefits to a supplemental needs trust for their special-needs children. The current law requires the children to receive the funds directly and then establish their own trusts with various provisions that are less than desirable.

In some cases, the act requires these individuals to have a guardianship established, and then requires the guardian to establish the trust under their own local probate-court guidelines. The benefit of this proposal would be to allow any veteran to leave the funds directly to a trust, which will also permit the beneficiary to continue to qualify for various governmental benefits that they may already be entitled to receive.

As most people understand, the cost for a disabled child can well exceed $100,000 per year. If an individual who is disabled receives funds, they are precluded from obtaining some governmental benefits, and the proposed act will allow a military family to plan adequately for their special-needs child in the future. Most retirees of the military have an SBP, which they may choose at the time of their retirement. They may have a portion of their monthly retirement plan withheld in order to provide that, after their death, a monthly survivor benefit can be paid to a spouse, child, or other eligible recipient.

Very often, a person with a disabled child desires that a portion of the benefit be payable in the future for their disabled beneficiary, who will probably need the funds.

Unfortunately, at the current time, these SBP benefits must be paid directly to the recipient; they may not be transferred to a trust. The income received by this disabled beneficiary is counted as income for Medicaid and Supplemental Security Income (SSI) purposes, and, as a result, the benefit becomes a liability more than an asset to the disabled child, because this may render them ineligible for other federal or state benefits.

In 1993, Congress passed the Omnibus Budget Reconciliation Act and allowed the use of special-needs trusts in various cases. This allows for an individual with disabilities to consider these assets as non-countable for purposes of Medicaid or SSI. Thus, the funds in the trust are used for supplemental needs to pay for other living expenses and extra care above and beyond what the government may pay, but the beneficiary does not disqualify for other governmental benefits. This keeps the person from becoming impoverished, and allows them to meet their basic living needs with a bit more flexibility with the funds left to them.

Part of the bill does allow non-military parents to also create special-needs trusts for the disabled children and have their retirement benefits paid to the special-needs trust. It is estimated that there are approximately 1,000 severely disabled military dependents who could benefit from this change in the law without a significant amount of tax-revenue loss to the government.

In addition, there will be an added provision that these trusts are considered ‘first-party trusts,’ which means that, upon the death of the disabled beneficiary, the government will be repaid based on what was spent by Medicaid during the beneficiary’s lifetime, so that the government will in fact be repaid with the balance of the funds remaining in the hands of the trustee upon the demise of the beneficiary.

The recent VA crisis legislation, which has provided some less-than-flattering publicity to the VA, was passed in somewhat of a hurry in order to fix the ongoing problem. One of its provisions that thankfully did not get included in the law was a look-back period for some VA benefits. There was a provision that was proposed to have a three-year look back for the approval of VA benefits to either veterans or their spouses, such as aid and attendance. This would have caused a major blow to any person applying for benefits, similar to those individuals who apply for Medicaid, which maintains a five-year look-back period.

Aid and attendance is a wonderful benefit available to individuals who are in the home or possibly in an assisted-living facility and may need additional assistance to care for themselves. This benefit provides a tax-free sum based on their needs, which will allow them to hire in-home care and remain in their home or potentially remain in an assisted-living facility so as to not require long-term care in a nursing home.

The look-back period would have prevented these veterans and their spouses from obtaining benefits for three years if the proposed applicant had given away any money. In some states, giving away money in order to obtain long-term care triggers a penalty of up to five years. However, in many states, if the individual is living in the community and not an institution, there is no penalty for obtaining community benefits, but the proposed law would have imposed a three-year penalty before obtaining veteran’s benefits.

The coordination of VA benefits and Medicaid benefits is very important for people who do not have to move to an institution. The U.S. Supreme Court has, in several cases, mandated that people should be able to live in the least-restrictive environment, such as their own home, a child’s home, or an assisted-living facility, as opposed to a long-term-care setting. This also saves the federal government and the states significant expense, because long-term care in an institutional setting is far more expensive than if the person lives at home.

This coordination of benefits is important, and it is difficult to coordinate benefits in the ever-changing environment of new laws and regulations. It is equally important to advocate for one’s family, and if any individual is in a situation with a dependent child who is disabled and the parent is receiving government benefits (including VA benefits) now, planning is important, as well as advocacy with their own senator and representative in order to preserve the benefits and maintain financial and personal independence for their family member.

For the latest on pending legislation, visit www.naela.org.