Your Presenter:
Dale M. Krause, J.D., LL.M.
0 CEO of Krause Financial Services
0 Licensed insurance agent throughout
the nation
0 Developer of specialized annuity products
0 Educator
0 Expert witness
0 29-years of elder law experience
What’s All This About Changes in
VA Planning?
0 Numerous House and Senate Bills have been
proposed that will change the face of VA
planning if passed and enacted
0 Drafted in response to a Government Accountability
Office report following concerns that unscrupulous
organizations were recommending gifts and products
that, “may not be appropriate for elderly veterans.”
0 Would impose a look-back period similar to what DRA
did for Medicaid planning
What Changes Will a Look-Back
Bring to VA Planning?
0 More questions than answers at this point
0 Look-back period will be 36-months
0 Will look-back be 36-months from the date of the gift
or 36-months from the date of application?
0 Most likely from the date of application
0 Penalty will be calculated based on the anticipated
monthly pension benefit
0 Maximum penalty will be 36-months
What Does This Mean For Us?
0 Unless client’s made gifts prior to planning, it
doesn’t change much of what we do.
0 Here’s why……we don’t recommend gifts!
VA Case Study
Meet Charles Miller
0 79-year-old widower
0 Korean War veteran
0 Recently lost his wife – primary caregiver
0 Sold the family home - $155,000 in savings
0 $1,200 in monthly income
0 Entered an assisted living facility – charging $3,767.10
per month for his care
What is Charles Worried About?
0 Despite medical condition, Charles has
longevity
0 Concerned with running out of money current life savings will only last for 41
months
0 Does not want to be evicted from
assisted living – forced into nursing home
What is Charles Not
Worried About?
0 He is not worried about leaving anything
to his three children
0 He believes that they are all financially
stable.
Charles’ Monthly Expenses
UMME
$4,236
Other
$428.43
• Assisted Living - $3,767.10
• Medicare Part B - $104.90
• Medicare Supp. - $364.00
• Cable Television - $71.94
• Cell Phone - $76.60
• Automobile Insurance - $52.13
• Entertainment & Incidentals - $227.76
• Total Monthly Expenses - $4,664.43
Total
Charles’ IVAP
Income for VA Purposes
Income
$1,200
UMME
$4,236
IVAP
($3,036)
What Does the VA Plan Look Like?
Estate Plan - $7,500
Outstanding Bills - $5,000
Pre-Paid Funeral Plan - $10,000
Retain Assets in Savings - $30,000
61-Month Level-Pay Immediate Annuity - $102,500
All the Above Equate to Charles’ Life Savings - $155,000
Level-Pay Immediate Annuity
Single
Premium
Period
Certain
Monthly
Payment
Total
Payout
$102,500
61 Months
$1,706.43
$104,092.23
• With Charles being 79 years of age, he has a Medicaid life
expectancy of 8.41 years/100.92 months.
• The period certain was determined based on Charles’
monthly income need, but stayed within his Medicaid life
expectancy.
VA Eligibility
Total
Monthly
Income
$2,906.43
UMME
$4,236.00
IVAP
($1,329.57)
IVAP
($1,329.57)
VA Pension
Benefit
$1,758.00
Excess
Income
$428.43
Why is there Excess Income?
0 Excess income created by the plan is identical to
Charles’ non-medical monthly expenses
Cable Television
Cell Phone
Automobile Insurance
Entertainment & Incidentals
$ 71.94
$ 76.60
$ 52.13
$227.76
$428.43
Economic Results
0 Charles has total monthly income of $4,664.43
0 Charles has total monthly expenses of $4,664.43
0 No need to take from $30,000 retained in savings
0 Can be used for increases in cost of care
0 Will not accumulate excess monthly income
Advantages of the Plan
0 Charles passes after residing in the
assisted living facility for 45 months
0 $79,110 of VA benefits received
0 Maintained control of his money throughout his
lifetime and received the care he needed
0 Ultimately provided a wealth transfer of $47,302.88
to his children
0 $27,302.88 remaining in his annuity
0 $20,000 remaining in his savings account
Does Charles annuity need to be
DRA compliant for VA Planning?
0 No.
0 The VA does not require that an annuity be
irrevocable as to the parties, non-assignable, or
name a certain beneficiary
Contingency 1 – Nursing Home
0 Assume Charles enters a nursing home in
month 45 rather than passes away
0 He wants to immediately qualify for Medicaid
benefits or “Merge onto the Medicaid Highway”
0 Charles has two options:
0 Option 1: Sell his annuity on the secondary market, or
0 Option 2: “Flip the switch” and make the annuity
compliant with DRA
Option One: Selling the
Annuity
0 Step 1: Sell the annuity to a family member or
on the secondary market – J.G. Wentworth
0 Step 2: Proceed with a Gifting/Medicaid
Compliant Annuity Plan utilizing annuity sale
proceeds and funds left in his savings
0 Step 3: Apply for Medicaid and be deemed
ineligible due to gift, knowing eligibility will
exist thereafter
Option Two: “Flipping the
Switch”
0 Step 1: Reduce savings account to $2,000 through the
purchase of a Medicaid Compliant Annuity
0 Step 2: “Flip the Switch” and convert his current annuity
into a Medicaid Compliant Annuity - name the
state as primary beneficiary, and make the
annuity irrevocable and non-assignable
0 Step 3: Apply for Medicaid and be deemed
eligible – co-pay equals social security
and annuity income, less a personal
needs allowance and any supplemental insurance
But Won’t the Immediate Annuity be an
Uncompensated Transfer for Medicaid
Purposes?
0 If the “switch” is flipped before the Medicaid
application is made, the Medicaid office sees an
annuity that is:
0
0
0
0
0
Irrevocable
Non-assignable
Actuarially sound
Provides equal payments
Designates the Medicaid agency as a beneficiary
0 Meeting the requirements of the Deficit Reduction Act
of 2005, the purchase will be deemed a compensated
transfer
Contingency 2 – More Assets
What if Charles had $202,500 to invest into an annuity?
Charles still only needs income of $1,706.43 from an annuity
Charles invests $163,600 into a 100-month level pay annuity which pays
him $1,677.53 per month
Charles invests $38,900 into a 100-month balloon style annuity which
pays him $28.90 per month – balloon of $37,928.90
Charles has total monthly income of $4,664.43
Charles has total monthly expenses of $4,664.43
Pending VA Legislation
0 “VA may also consider the transfer of an asset , including
transfers to an annuity , trust or other financial
instrument or instruments, as a disposal of a covered
resource for less than fair market value if it reduces the
corpus of a veteran’s estate that could reasonably have
been used for the veteran’s maintenance.”
0 This language in one of the proposed VA bills could be
interpreted in two ways.
0 1. An annuity that is actuarially sound would not be a
transfer for less than fair market value and with the
planning technique just outlined, the corpus is still used for
the veteran’s maintenance
0 2. The purchase of an annuity would create a penalty
period no matter what
Recent Annuity Decision
Zahner v. Machereth
0 On January 16, 2014, the United States District
Court for the Western District of Pennsylvania
held that a DRA Compliant Annuity with a term
of 60-months was a legitimate, retirementplanning tool, while an annuity with a term less
than 24 months was a sham-investment and a
transfer for less than fair market value
0 Case is being zealously appealed
0 Worst case scenario – all annuities in PA
Medicaid planning would need to be at least 24months
How do I Learn More About
Planning with These Products?
0 We offer complimentary planning for Medicaid and
Veterans Benefits
0 Step outside and speak with Stuart to learn more
about the planning techniques available to you and
your clients, and grab a
2014 Krause Report