Many wartime veterans and their surviving spouses are currently receiving long-term care or will need some type of long-term care in the near future. The Veterans Administration has funds that are available to help pay for this care, yet many families are not even aware that these benefits exist.

Pension with Aid and Attendance pays the highest amount and benefits a veteran or surviving spouse who requires assistance in activities of daily living (dressing, undressing, eating, toileting, etc.), is blind, or is a patient in a nursing home. Assisted care in an assisted living facility also qualifies.
Pension with Housebound Allowance is for those who need regular assistance but would not meet the more stringent requirements for Aid and Attendance, and wish to remain in their own home or the home of a family member. Care can be provided by family members or outside caregiver agencies.
Basic Pension is for veterans and surviving spouses who are age 65 or older or are disabled, and who have limited income and assets.
Qualifying for Benefits
A veteran does not need to have service-related injuries to qualify for these pension benefits, but must meet certain wartime service and discharge requirements. A surviving spouse must also meet marriage requirements to the qualified veteran. Certain requirements must be met for a disability claim if the claimant (the veteran or surviving spouse filing for benefits) is less than age 65.

When determining eligibility, the VA looks at a claimant’s total net worth, life expectancy, income and medical expenses. A married veteran and spouse should have no more than $80,000 in ‘countable assets,’ which includes retirement assets but does not include a home and vehicle. This amount is a guideline and not a rule.

Income for VA Purposes (called IVAP) must be less than the benefit for which the claimant is applying. IVAP is calculated by subtracting ‘countable medical expenses’ (recurring out-of-pocket medical expenses that can be expected to continue through the claimant’s lifetime) from the claimant’s gross income from all sources.

Note: It is possible to reduce assets and income to a level that will be acceptable to the VA. For example, excess liquid assets (such as cash or stocks) could be converted to an income stream through the use of an annuity or promissory note. However, because the claimant may need to qualify for Medicaid in the future, it is critical that any restructuring or gifting of assets be done in a way that will not jeopardize or delay Medicaid benefits. An attorney who has experience with Elder Law will be able to provide valuable assistance with this.

Applying for Benefits
It often takes the VA more than a year to make a decision, but once approved, benefits are paid retroactively to the month after the application is submitted. Having proper documentation (discharge papers, medical evidence, proof of medical expenses, death certificate, marriage certificate and a properly completed application) when the application is submitted can greatly reduce the processing time.

Because time is critical for these aging veterans and their surviving spouses, application should be made as soon as possible. For more information, visit http://www.va.gov.

Why You Should Name a Stand-Alone Retirement Trust as Beneficiary
(For IRAs and Other Tax-Deferred Retirement Accounts)

Naming the right beneficiary for tax-deferred retirement accounts is critical. Most people want to continue the tax-deferred growth for as long as possible, pay the least amount in income taxes and get the maximum stretch-out. Required distributions after the owner dies will be based on the new beneficiary’s age and life expectancy, so the younger the beneficiary (like a child or grandchild), the longer the stretch out.

However, naming a beneficiary outright has several disadvantages. If the beneficiary is a minor, distributions will need to be paid to a guardian; if no guardian exists, one will have to be appointed by the court. An older beneficiary may be tempted to take larger distributions or even cash out the entire account, destroying your plans for continued tax-deferred growth. The money could be available to the beneficiary’s creditors, spouse and ex-spouse(s). There is the risk of court interference if your beneficiary becomes incapacitated, and the extra income could cause a beneficiary with special needs to lose government benefits. If your beneficiary is your spouse, he/she will be able to name a new beneficiary and is under no obligation to follow your wishes.

Naming a trust as beneficiary provides more control over, and protection for, these tax-deferred accounts. Ideally it is a separate trust designed specifically for this purpose; because it must meet certain requirements from the IRS, it’s best if it’s not part of a revocable living trust or other trust. For this reason, these trusts are often called ‘stand-alone retirement trusts.’

Required minimum distributions will be paid into the trust for the benefit of your beneficiary. The trust can either be mandated to then pay these distributions directly to the beneficiary (called a conduit trust) or it can accumulate these distributions (called an accumulation trust) and pay out trust assets according to your instructions (for example, for higher education expenses, down payment on a home, etc.)

Because a trust is the named beneficiary instead of the individual, no guardian is needed for minor children and there is no risk of court interference at the beneficiary’s incapacity. An accumulation trust will allow the trustee to receive the required distributions and use discretion to provide for a special needs beneficiary without jeopardizing government benefits.

Your beneficiary is prevented from cashing out or taking larger distributions, assuring the continuation of tax-deferred growth. If a conduit trust is used, distributions that are paid to the beneficiary (but not the account itself) would be subject to creditor claims. Thus, for maximum creditor protection, an accumulation trust is preferable.

Finally, successor beneficiaries can be named in the trust document, allowing you to keep control over who will receive the proceeds if your initial beneficiary should die before the account is fully paid out.

For more information about stand-alone retirement trusts, please contact my office.

Some of the most generous provisions of the tax code are those that permit beneficiaries of IRAs and other qualified retirement plans to defer income tax on the plans until time of withdrawal. This allows the IRA or qualified plan to grow significantly more than if it were subject to tax on gains each year.

Another equally generous provision of the tax code permits beneficiaries to withdraw only a minimum amount from IRAs or qualified plans each year. By taking only these ‘required minimum distributions’ a beneficiary can stretch out distributions over the better part of his or her lifetime, resulting in further deferral of income tax on the amount remaining in the plan.

Unfortunately, most beneficiaries fail to take advantage of this latter provision and withdraw all of the IRA or qualified plan funds immediately, thereby losing the significant tax advantages of tax-deferred growth.

A recent Senate proposal would have required that beneficiaries withdraw the entire IRA or qualified plan within five year’s of the plan participant’s death. Fortunately the Senate proposal died upon arrival, but this is an excellent reminder that retirement plans are assets that need proper planning.

A common misperception is that one should not name a trust as beneficiary because it’s overly complicated and doesn’t permit a stretch out. While naming a trust does add a thin layer of complexity, a properly drafted trust not only permits the stretch out but it is the only approach that ensures maximum income tax deferral, if that is your objective.

Unfortunately there is no ‘one size fits all’ answer here. Rather, this is best decided after consultation with professionals who understand these issues.

A recent Wall Street Journal online article titled Inherited IRAs: a Sweet Deal A Generous Benefit for Families Survives a Senate Challenge discusses this issue but takes the overly simplistic approach when it comes to naming a trust as beneficiary of an IRA or qualified retirement plan. The full article is available online at http://online.wsj.com/article/SB10001424052702304587704577335751592771924.html.