Do You Have the Right Tools

Video Transcript: Do You Have the Right Tools

“But my sister Dawn and her husband went through this with his father, and they lost everything,” Ben was telling me. “The VA made them spend everything down to less than $30,000 before having the benefit start, and he was in a facility for three years before the pension kicked in. I just don’t see how we’re going to save anything for my father that can eventually be passed down to me and my sister, and it is a considerable amount of money he earned over his lifetime.”

“I understand, Ben,” I said. “But Dawn and Charlie didn’t come to me or anyone else for help, and then they just spent the money on the assisted living facility. Between what Charlie’s dad had in income and the assets he spent down, it was more than three years before he qualified for the Aid and Attendance Pension Benefit. However, we probably could have had him qualified within a few months. But the fact is that you came to us now, and we can do much, much more than Dawn and Charlie did for Charlie’s father.”

“I’ve read your materials, and what you’re saying makes perfect sense,” Ben said. “I just wish that Dawn had come to you before Charlie’s father had spent so much. But how come every senior veteran doesn’t do this, then? It seems like a slam dunk.”

“Not too many people know about the pension benefit,” I told Ben. “And often what they do hear isn’t 100% accurate. Fortunately, you and Dawn are getting things done for your father with enough time to qualify pretty quickly based on the numbers we ran. We’re getting started now.”

“Then where do we start?” Ben asked.

I answered, “First, we set up the toolbox…”

There is a series of trusts, powers of attorney, and other legal and financial tools that should be set up when putting together a Care Assistance Plan for the Aid and Attendance Pension Benefit for a veteran, their spouse, or widow or widower, whether it contains additional protection for Medicaid down the road or not. The important thing is to make sure that the correct legal document plan is integrated with the needs of the pension applicant’s assets.

My office usually sets up the whole range of tools just to be sure. Some of the trusts and some of the documents may never be used, but it is far better to have a tool and not need it than to need it and not have it. And when we are talking about debilitating diseases, once the need arises, which may be years after qualification for the pension, it may be too late for someone to sign those documents to cover Medicaid.

I’ve had family members that waited too long and didn’t take my advice in putting together the right legal documents, and because of that he wasn’t competent to sign a power of attorney and had to instead be declared incompetent and have a guardian assigned. It was much more expensive, the planning options were much more limited, and because of the three years of procrastination the family lost out.

Here is a brief overview of the standard tools we put together for our Care Assistance Planning clients, first for the mandatory documents in a V.A. Pension Benefit Planning case and then some additional documents we sometimes use for further Medicaid Planning:

Irrevocable Family Trust: The Irrevocable Family Trust is designed to be the keystone of the Care Assistance Plan, holding most of the assets to be protected and containing the actual estate planning instructions for after death. This is where most assets are placed to get the immediate passing of the asset test for the Aid and Attendance Pension Benefit and also get the five year clock going so after the five years has run, all of the assets in the Irrevocable Family Trust will also be exempt from a Medicaid spend down. It is also these assets that will probably be converted in whole or in part to provide some long term investment benefits described below. There is usually one trust for an individual or a couple.

Irrevocable Property Trust: While most of the “liquid” assets go into the Irrevocable Family Trust, there are some specific tax reasons to place real estate into the Irrevocable Property Trust. The provisions of the Irrevocable Property Trust are only slightly different than the Irrevocable Family Trust, but those differences can provide a world of tax difference for your loved ones after death if they sell the real estate.

Without getting too much into the hows and whys, when someone controls real estate when they pass on and their heirs sell it, there are usually no federal capital gains taxes because the property gets something called a “stepped up basis.” If the person instead had gifted the real estate to their children a few years or even days before death, then the real estate would not get a stepped up basis and there would be capital gains taxes. For example, if Fred passed on and his heirs inherited a house that Fred bought decades ago for $100,000 and the heirs sold it a few weeks later for $400,000, there would be no capital gains taxes because federal law would have set the “tax basis” for the real estate to be fair market value on the date of Fred’s death. If Fred instead had signed over the same real estate to his son Doug the day before he died and Doug then sold it for $400,000, at the 15% capital gains tax rate Doug would have to pay $45,000 in capital gains taxes.

In short, the person or couple planning gets to keep the right to any income generated from the property and keeps the right to live on the property. Even though it is in an irrevocable trust, those rights are enough to avoid losing the stepped up basis for the heirs upon death, but it is not enough that Medicaid can say they still own the property and it has to be spent down. There is usually one trust for an individual or a couple.

Durable General Power of Attorney: The Durable General Power of Attorney can be an extremely useful document during a time of medical crisis. The power of attorney can help someone take control of an ill person’s non-trust assets during incapacity. During that incapacity, a durable general power of attorney may become critical to reaching the money in accounts kept outside of the trusts to pay for medical or other expenses, dealing with government agencies, signing tax returns, and other legal and financial matters.

One of the saddest things we see in our office is when people we advised years ago to put in place a good Care Assistance Plan come back to us after failing to plan and asking us to at least do a Durable General Power of Attorney so the family can legally transact business and take care of their loved one. But at that point the person is no longer competent to sign legal paperwork so the family needs to go to court, have their loved one declared incompetent, and then report to the court on a regular basis how they have spent money and managed assets. Unfortunately, that is almost always an expensive process.

Health Care Power of Attorney: One of the most common horror stories for married couples revolves around one spouse dying, the survivor falling ill, and multiple children with conflicting views bickering while the doctors and hospital wait for orders to help the dying parent. If the parent had a healthcare power of attorney, they could have assigned one child, or someone completely different, to make their medical decisions if they are not able to. The situation is worse for unmarried couples where family members may swoop in and take control of healthcare decisions, kicking out the partner and not even letting them see their loved one.

Having a healthcare power of attorney allows a person to assign the people they want, in succession, to make these important health care decisions when he or she is no longer able to make those decisions on their own. It is also common for healthcare power of attorney documents to incorporate language regarding the agent making end of life decisions, such as keeping or withdrawing life support or artificial nutrition and hydration. However, most of my clients prefer to make those critical decisions themselves ahead of time in a Living Will (see below).

Living Will: This document is highly dependent on State law, and conditions can vary greatly. For my home state of North Carolina, this document will express your individual orders regarding life support and artificial nutrition and hydration that a doctor should follow, and this is triggered when the person is “terminable and incurable” and/or in a “persistent vegetative state.” For the State of New York where I went to law school, the Living Will is nothing more than appointing an individual to make those end of life decisions and not ordering doctors directly.

In the end, the Living Will is your wishes regarding life support and artificial nutrition, whether it is through direct orders to physicians or by naming someone else to step into your shoes and make those decisions on your behalf.

Nomination of Conservator: I often describe this document as a bit of “overkill” in both estate planning and Care Assistance Planning, but it is better to be safe than sorry. Simply put, the Nomination of Conservator is a document naming the people you wish to be in charge of you as a person should a court declare you incompetent and assign you a guardian. So in short, a Nomination of Conservator is a nice way of saying it is a nomination of guardian document for an adult.

Last Will and Testament: While nearly all assets in a good Care Assistance Plan will end up avoiding the probate process because the assets are held in a trust, we invariably find something that needs a Last Will and Testament to spell out where probate assets go at the end of the process. But the Last Will and Testament has to be specifically geared to work with the rest of the Care Assistance Plan.

The main reasons this Will has to be different from the normal, run of the mill Will are 1) the only beneficiary of the Will is one of the other trusts, and 2) for married couples in Medicaid Planning cases there has to be special provisions to avoid Medicaid coming back and claiming some, or possibly all, probate assets to pay for the care of the other spouse. In many cases, the Will is only a small part of the overall plan, but who wants to lose a few thousand dollars because this small part is not quite right?

Other Professional Assistance: While there are trust and legal document solutions, there is also a need for more comprehensive health and related services. One of the reasons we work with The Senior Veterans Council is that they have a registered nurse, a social worker, and a geriatric care manager on their team helping create a more complete plan than just the “money” part involved in the Aid and Attendance Pension Benefit. After all, we are talking about qualifying for more money in order to pay for care. We want to make sure that we have the right type of health care as well as information on all of the other possible programs are identified for you.

The following are some additional documents we sometimes utilize in a toolbox that is also looking ahead specifically for eventual Medicaid qualification but not usually used for most V.A. Pension Benefit cases:

Irrevocable Miller Special Needs Trust: In my home state of North Carolina and many other states, this trust is actually irrelevant because of those state’s current Medicaid rules that make a Medicaid recipient’s income irrelevant. But just because the income is not really relevant now doesn’t mean the rules for a particular state won’t change later and the trust may be sorely needed then.

As discussed before, since most states simply require all of a Medicaid recipient’s income go to the nursing home first then the level of income is almost irrelevant unless their income can cover the entire bill. But in those states where there is an income limit, the Miller Trust can be used to receive the income, have it counted as assets instead of income, and then have those assets “spent down” each month by paying the nursing home bill. There is usually one trust per person.

Irrevocable Funeral Trust: This is a very specific trust designed to hold money for a funeral and related expenses for an individual, and the money in this trust is considered to be “spent” even though it may be held as cash or, preferably, life insurance that has not paid out yet. The reason the Medicaid office is OK with this trust is that it is irrevocable, all of the funds spent have to be spent on funeral and related expenses, and anything left over has to go to the Medicaid office to reimburse them for any money paid for the individual receiving care. Because of this, I encourage my clients to make the typical $10,000 transfer, purchase an irrevocable life insurance policy designed for funeral expenses, and no more since anything left over is lost anyway. It is better to put any additional funds into the Irrevocable Family Trust. There is usually one trust per person.

Revocable Living Trust: Usually a revocable living trust is an excellent estate planning tool for avoiding probate but nothing more. In the Care Assistance Planning realm, it has a whole different application depending on the financial situation. Just as with the Miller Trusts, having the Revocable Living Trust may or may not be actually needed in your particular state, but it is better to have it in case the rules change. The use is specifically to maximize the amount that the spouse not needing care can keep.

In some states, often referred to as 50-50 states, there is a minimum and maximum amount of liquid assets that a spouse can keep and the other spouse can still qualify for Medicaid, but it is not as simple as moving money from one spouse to the other. For example, if the minimum amount a spouse can keep is $25,000 and the maximum amount is $110,000 and the couple combined has $112,000, then in non-50-50 states, it is as simple as giving the nursing home spouse $2,000 and transferring the remaining $110,000 to the other spouse. In a 50-50 state, the calculations are different. The $112,000 is actually split in half, meaning the maximum the non-nursing home spouse can keep is $56,000 and not the full $110,000.

So is there anything we can do to let the non-nursing home spouse keep more? Sure. There is also a rule that says any assets in a revocable living trust are countable, even if the asset would otherwise be exempt, like a primary residence. So if in the example above we also have a primary residence worth $150,000, then we can put the house into the non-nursing home spouse’s trust prior to the snapshot date and then show on the snapshot date that there are $262,000 in countable assets ($112,000 plus $150,000). So now the calculations are $262,000/2 equals $131,000, and the non-nursing home spouse gets to keep the maximum $110,000. As part of the “spend down,” we can now transfer the house out of the Revocable Living Trust and to the non-nursing home spouse’s individual name, and the house becomes exempt as a primary residence. This one simple maneuver just saved the non-nursing home spouse $54,000. Because we often are not sure which spouse may or may not need care first, there is usually one trust per person.

As you can see, there is a fairly standard Care Assistance Planning toolbox to help a veteran and their family facing care costs, both for qualifying for the V.A.’s Aid and Attendance Pension Benefit as well as a few added documents for Medicaid Planning. However, it is important to note again that not all of the components may be needed when the time comes. Often, the specific V.A. Planning package is enough, but whether or not more is needed should be discussed with the attorney handling the case.

If you do have further questions, you can email them to my office or call me directly. Call my office at 919-518-8237 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 finding the right professionals to help you obtain 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 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

Yes, I want a free information packet “How a Little Known VA Benefit Can Provide Monthly Financial Support”

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.