When is Income Not Income
Video Transcript: When is Income Not Income
I ran into Mom and her daughter Tuesday at the grocery store, which is unusual for us since we usually do the weekly shopping very early on Saturday morning, and the place is pretty empty at that hour. This time Fran and her daughter Doris (not their real names) needed some key ingredients for that afternoon’s lunch that they forgot.
“Oh, Mr. Marsocci!” Fran said seeing me. “It’s good to see you. I didn’t know attorneys shopped for groceries!”
We all laughed at that.
“It’s good to see you, too,” I said. “How’s Don doing?”
“He’s doing well,” Fran said. “In fact, we’re making an apple pie for lunch, and then we’ll bring him a few slices this afternoon. It’s still his favorite.”
“I still can’t thank you enough for helping Mom and Dad,” Doris said. “Thanks to you, Dad’s stay in the assisted living center is still going reasonably well, and Mom still has enough money each month to get by. If it weren’t for your help and the Aid and Attendance Pension Benefit, Mom would have been on food stamps and keeping the heat turned off in the winter.”
“You’re very welcome,” I said. “I only helped your Dad qualify for the assistance he deserved because of his service, and I helped your Mom keep all of the income she was entitled to. This wasn’t something that was handed out to you. Your Mom and Dad earned it by serving their country when it needed them.”
At first glance, the rules surrounding income may seem straightforward, but when it comes to the Aid and Attendance Pension Benefit, it can be extraordinarily complicated. In particular, there are some specific techniques and rules that can be followed which can allow for qualification for the benefit. Because of these tremendous but hidden opportunities, it makes it well worth having qualified professionals generate a complete plan. But for today, we’ll look at the income requirements when it comes to both individuals and spouses as well as some of the opportunities to divert income to another family member to help qualify.
Calculating Income for VA Purposes
The General Income Test
One of the worst mistakes veterans or their families make is calling the Veterans Administration and asking about the Aid and Attendance Pension Benefit. When asked about the how much income the veteran and/or spouse or widow(er), they usually give out their gross income, or even their net revenue after deductions and taxes. Unfortunately, the reply from the V.A. is usually that they earn too much money.
However, the income number is not their gross income, or even their net income after taxes, but is, in fact, called Income for VA Purposes, or IVAP. The first step is determining what counts as income and what doesn’t count.
Income that counts for VA purposes comes from a variety of sources, including wages, gifts of stock or property received, inheritances received, IRA & 401K withdrawals, Social Security payments received, Social Security Disability payments received, and even gambling winnings. That sounds like a pretty exhaustive list, but there are some big exceptions to what counts as income.
The following sources are NOT counted in the income calculations for VA purposes: assistance contributions from non-profits, family assistance program payments related to the upkeep of a veteran’s home, life insurance payments or cash surrender value received, Medicaid payments received, VA compensation, VA DIC, Supplemental Security Income (SSI), other VA Pensions such as housebound or other Aid and Attendance payments. In some situations, even installment sales of property are not considered counted income. In addition, any “bartered services” are not counted as income, even though such bartered services are often considered income taxable on 1040 tax returns.
As you can see, just adding up income is not as easy as it first appears. But what about deductions?
Deducted Unreimbursed Medical Expenses
Next, we need to calculate all care expenses not paid for through other sources, known as “unreimbursed medical expenses,” or UMEs. This includes a wide array of costs related to prescriptions and non-covered medical procedures and health care worker assistance costs.
But in addition to what people consider traditional medical expenses, UMEs also covers a wide array of other non-medical costs, which can include the entire cost of assisted living care… even room and board costs if specific conditions are met. There are also far too many other deductible costs to list here, especially since there are some very fine distinctions in what can be deducted and what can’t that sound very similar.
Income for VA Purposes
Once you add all income and then subtract all UMEs, you end up with the actual income for VA purposes number. The true IVAP is what the Veterans Administration needs in order to determine whether or not the income test is met, and then also it is used to calculate how much the monthly pension amount would be.
A Technique to Lower the IVAP
In addition to the IVAP calculations making a lot more veterans, their spouses, and widows or widowers eligible when compared to straight “income,” there are also ways to lower the IVAP if necessary.
One of the biggest catch 22s that senior veterans go through is tightening the budget too much because they can’t afford to hire people to help with care… which means that they have too much in income because the expenses they should have are not offsetting the income in the IVAP calculations. And it is a natural reaction when a person or family is faced with income not being able to cover expenses and the desire to preserve what assets they do have. So what do they do?
They cut back on expenses, especially regarding care. It takes strong, self-reliant people to work in the military, and those characteristics carry through long after service has ended. So veterans and their family members tend to “push through it” and uncomfortably strain doing ordinary activities of daily living.
Unfortunately, this cutting back might be one of the worst things to do. By actually hiring people, sometimes even hiring family members using properly drafted and executed care contracts, the Unreimbursed Medical Expenses can be raised, therefore lowering the IVAP. So where is the money paying for these “extra” but necessary expenses going? Exactly where they should if home health workers or an assisted living facility is being paid to provide the necessary care. Or, even better, family members who are legitimately providing needed services are getting paid. So the money is actually “staying in the family.” Again, however, it is important to structure the care contract to meet both IRS and Medicaid standards.
There are many more small factors in calculating income for VA purposes, and veterans and their families want to make sure they are qualified under the income test before spending a lot of time trying to work through the rest of the VA Pension Benefit process. If you want to speak to someone to discuss the income test, then please contact us at 919-518-8237, or we can also recommend that you contact The Senior Veterans Council through their website at www.SeniorVeteransCouncil.com.
If you do have further questions, you can email them to my office or call me directly. Call my office at 919-844-7993 and ask for Jeff, but please mention you are calling in response to my V.A. Pension Benefit Planning e-mails. Thanks again and enjoy the information. The next section will be on the asset limits to qualify for the V.A. Pension Benefit.
Jeffrey G. Marsocci
The Care Assistance Center, LLC
8406 Six Forks Road, Suite 102
Raleigh, NC 27615
Jeffrey G. Marsocci was born in Fort Worth, Texas but was raised in Lincoln, Rhode Island and graduated from Mount Saint Charles Academy High School. He graduated from Hofstra University with an undergraduate degree in Business, and two years later earned his law degree from the same school. He also earned a Certificate Degree in Non-Profit Management from Duke University in 2004, he was the Alumni of the Month for Hofstra University in June of 2013, and his firm was honored by the City of Raleigh with the 2011 Human Relations Business Award. Mr. Marsocci also became a Certified Medicaid Planner™ in 2014, a certification granted by the CMP™ Governing Board*, and he is an attorney accredited by the Veterans Administration to practice before the V.A. and its applicable administrative and legal tribunals.
In addition to working in his estate planning, estate administration, and Care Assistance Planning practice in Raleigh, NC since 1996, Mr. Marsocci is the author of numerous books including Estate Planning Basics, The Veteran’s Long Term Care Solution and other planning books found on Amazon.com. Mr. Marsocci frequently holds seminars for clients, financial advisors and other attorneys on topics related to the life and estate planning field as well as developing and presenting continuing legal education courses for attorneys and life insurance agents. Mr. Marsocci is a member of the North Carolina Bar Association, the Wake County Bar Association, and the National Italian American Bar Association. He and his wife Kathleen live in Raleigh, North Carolina and work with various charitable and non-profit groups including Kiwanis. Both are recipients of the President’s Call to Service Award through the Points of Light Foundation for completing more than 4,000 hours of service during their lifetimes.
*Certification is granted based upon a qualified candidate demonstrating a mastery of the skills and knowledge of the subject matter. To achieve certification, a CMP™ must meet certain education and/or experience requirements, show proficiency in Medicaid Planning through a thorough examination, and commit to adhere to the highest in professional standards. A CMP™ also subjects himself or herself to discipline by the CMP™ Governing Board. A Certified Medicaid Planner™ is not necessarily an attorney, so this designation is not governed or regulated by any state bar association.
Professional advice on how to access Medicaid and VA Benefits without giving up the house or assets using a trusted step-by-step process that literally walks you through a complex and bureaucratic system.
Get your free information packet “How a Little Known VA Benefit Can Provide Monthly Financial Support”
David Cole of the Senior Veterans Council and I have put together a useful packet of information along with my book “The Veteran’s Long Term Care Solution: The Truth Behind Long Term Care Planning for Veterans with the Aid and Attendance Pension Benefit” which includes:
- 20-minute DVD outlines how the benefit can provide financial assistance towards the cost of in-home care, Assisted Living, or possibly independent living facility costs.
- VA Aid and Attendance Benefit Rate Table
- How to access immediate funds while applying for government assistance
- Using a NOVA Professional Advocate to Pre-Plan Your VA Claims
- Special Industry Report: Medicaid Secrets Reveals: Learn proven strategies to save your home and protect your life savings from devastating nursing home costs
- The Promise to America by Lyndon B. Johnson
- National Care Planning Council
- Book by Jeffrey G. Marsocci – The Veteran’s Long Term Care Solution: The Truth Behind Long Term Care Planning for Veterans with the Aid and Attendance Pension Benefit
Disclaimer: The information contained in this email is provided “as is” with no warranties or guarantees. This information should not be considered as actual legal, tax or investment advice and you should always contact a certified accountant, tax professional, or attorney before making any financial decisions. While every attempt has been made to provide current and accurate information, neither the author nor the publisher can be held accountable for any errors or omissions. You agree that you are solely liable for any and all reliance, use, or action on this information.