In fiscal year 2011, VA provided about $ 4.3 billion in pension benefits for about 517,000 recipients. These benefits are available to low-income wartime veterans who are 65 and older, or who are under age 65 but are permanently and totally disabled due to conditions unrelated to their military service. Surviving spouses and dependent children may also qualify for these benefits. Average annual payments in fiscal year 2011 were $9,669 for veterans and $6,209 for survivors. VA provides pension benefits through its Veterans Benefits Administration (VBA), and claims processors assess claims at VBA’s three PMCs. VA also accredits representatives of veterans service organizations, attorneys, and claims agents to assist claimants with the preparation and To become accredited, an submission of VA claims at no charge. individual must meet certain requirements set forth in federal law. To qualify for pension benefits, claimants’ countable income must not exceed annual pension limits that are set by statute. These income limits are also the maximum annual pension payment that a beneficiary may receive and may vary based on whether claimants are veterans or survivors, their family composition, as well as whether they need enhanced benefits, such as aid and attendance or housebound benefits.example, to qualify for pension benefits in 2012 a veteran with no dependents and who is in need of aid and attendance benefits cannot have income that exceeds $20,447. In determining if a claimant’s income is below program thresholds, VA includes recurring sources of income such as Social Security retirement and disability benefits, but not income from public assistance programs such as Supplemental Security Income (SSI). See 38 C.F.R. § 3.275. For claimants who are veterans, VA also assesses the net worth of the veteran’s spouse to determine financial eligibility. determine if claimants’ financial resources are sufficient to pay for their expenses without assistance from VA. VA pension claimants may also be eligible for other means-tested programs, such as Medicaid, a joint federal-state health care financing program that provides coverage for long-term care services for certain individuals who meet specific income and resource thresholds. Each state administers its Medicaid program and establishes specific income and resource eligibility requirements that must fall within federal standards. Similarly, the SSI program provides cash benefits to individuals who are 65 or older, blind, or disabled who have limited income and whose resources are $2,000 or less. We identified over 200 organizations located throughout the country that market their services to help veterans and their surviving spouses qualify for VA pension benefits by transferring or preserving excess assets. These organizations consist primarily of financial planners and attorneys offering products and services such as annuities and the establishment of trusts, to enable potential VA pension claimants with excess assets to meet financial eligibility criteria for VA pension benefits. For example, one organization’s website advertised that it develops financial plans which include various insurance products, and that its specific area of expertise is to help VA pension claimants with hundreds of thousands of dollars in assets obtain approval for these benefits. Under current federal law and regulations, VA pension claimants are allowed to transfer assets and reduce their net worth prior to applying for benefits, so services being marketed and provided by these organizations to qualify for VA pension benefits are legally permissible under program rules. In contrast, for Medicaid—another means tested program—federal law explicitly restricts eligibility for coverage for long term care for certain individuals who transfer assets for less than fair market value prior to applying., As a result, when an individual applies for Medicaid coverage for long-term care, states conduct a look-back—a review to determine if the applicant transferred assets for less than fair market value prior to applying. Individuals who have transferred assets for less than fair market value during the 60 months prior to applying may be denied eligibility for long- term care coverage for a period of time, known as the penalty period. For example, gifting assets would generally be considered a transfer of assets for less than fair market value and result in a penalty period. Also, under the SSI program, claimants who transfer assets for less than fair market value prior to applying may become ineligible for these benefits for up to 36 months. During our investigative calls, all 19 organizations correctly noted that pension claimants can legally transfer assets prior to applying. They indicated it is possible to qualify for VA pension benefits despite having excess assets, and almost all provided information on how to transfer these assets. (See figure 1 for transcript excerpts of calls with organizations on services they provide to qualify for VA pension benefits.) A number of different strategies may be used to transfer pension claimants’ excess assets so that they meet financial eligibility thresholds. Among the 19 organizations our investigative staff contacted, about half advised transferring excess assets into an irrevocable trust with a family member as the trustee to direct funds to pay for the veteran’s expenses. A similar number also advised placing excess assets into some type of annuity. Among these, several advised placing excess assets into an immediate annuity that generates income for the client. In employing this strategy, assets that VA would count when determining financial eligibility for pension benefits are converted into monthly income. This monthly income would fall below program thresholds and enable the claimant to still qualify for the benefits. About one-third of the organizations recommended strategies that included the use of both annuities and trusts. For example, one organization we contacted advised repositioning some excess assets into an irrevocable trust, with the son as the trustee, and placing remaining excess assets into a deferred annuity that would not be completely accessible, since most of the funds could not be withdrawn without a penalty. In addition, several organization representatives we interviewed also told us they may advise using caretaker agreements to enable a client to qualify for VA pension benefits. Organizations told us this strategy generally involves the pension claimant transferring assets to family members as part of a contract, in exchange for caretaker services to be provided by these family members for the remainder of the claimant’s lifetime. Some organization representatives we interviewed told us that transferring assets to qualify for VA pension benefits is advantageous for elderly pension claimants because it enables them to have more income to pay for care expenses and remain out of a nursing home for a longer period of time. For example, representatives from one organization said the use of immediate income annuities allows pension claimants to increase their monthly income that, combined with the VA pension, could help pay for assisted living or in-home care costs. Other financial planners and attorneys said if claimants do not conduct financial or estate planning to qualify for the VA pension and instead spend down their assets prior to applying, the monthly amount of the pension benefit they eventually receive may be insufficient to pay for their long-term care. They said that, as a result, these claimants may decide to seek Medicaid coverage for nursing home care because of their lack of financial resources, when they could have remained in an assisted living facility or at home with the aid of the VA pension. Some of these organizations told us that nursing home care financed by Medicaid is more costly for the government than if the veteran had received the VA pension benefit and obtained care in a lower-cost assisted living facility. Many organizations we identified also conduct presentations on VA pension benefits at assisted living or retirement communities to identify prospective clients. According to attorneys and officials from state attorneys general offices we spoke with, managers of assisted living facilities or retirement communities may have an interest in inviting organization representatives to conduct presentations on VA pension benefits because these benefits allow them to obtain new residents by making the costs more affordable. For example, we obtained documentation indicating that one retirement community paid an organization representative a fee for a new resident he helped the facility obtain. Another community in another state paid organization representatives fees to assist residents in completing the VA pension application. Some products may not be suitable for elderly veterans because they may lose access to funds they may need for future expenses, such as medical care. To help elderly clients become financially eligible for VA pension benefits, some organizations may sell deferred annuities which would make the client unable to access the funds in the annuity during their expected lifetime without facing high withdrawal fees, according to some attorneys we spoke with. An elderly advocacy organization representative we spoke with also noted that elderly individuals are impoverishing themselves by purchasing these products when they may need the transferred assets to pay for their long-term care expenses. As part of our investigative work, one organization provided a financial plan to qualify for VA pension benefits that included both an immediate annuity as well as a deferred annuity for an 86-year-old veteran that would generate payments only after the veteran’s life expectancy. Some organizations that assist in transferring assets to qualify people for VA pension benefits may not consider the implications of these transfers on eligibility for Medicaid coverage for long-term care. Individuals who transfer assets to qualify for the VA pension may become ineligible for Medicaid coverage for long-term care services they may need in the future. For example, asset transfers that may enable someone to qualify for the VA pension program, such as gifts to someone not residing in a claimant’s household, the purchase of deferred annuities, or the establishment of trusts, may result in a delay in Medicaid eligibility if the assets were transferred for less than fair market value during Medicaid’s 60-month look-back period. According to several attorneys we spoke with, some organization representatives are unaware or are indifferent to the adverse effects on Medicaid eligibility of the products and services they market to qualify for the VA pension. As a result, potential pension claimants may be unaware that the purchase of these products and services may subsequently delay their eligibility for Medicaid. In addition to the potential adverse impact of transferring assets, we heard concerns that marketing strategies used by some of these companies may be misleading. According to several attorneys we spoke with, some organization representatives market their services in a way that may lead potential pension claimants and their family members to believe they are veterans advocates working for a nonprofit organization, or are endorsed by VA. As a result, they may fail to realize these representatives are primarily interested in selling financial products. For example, some organization representatives may tell attendees during presentations at assisted living facilities that their services consist of providing information on VA pension benefits and assisting with the application, and do not disclose they are insurance agents selling annuities to help people qualify for these benefits. One elder law attorney we spoke with said many attendees at these presentations may have Alzheimer’s disease or dementia and are not in a position to make decisions about their finances. Therefore, they are vulnerable to being convinced that they must purchase a financial product to qualify for these benefits. Concerns have also been raised that VA’s accreditation of individuals to assist with applying for VA benefits may have unintended consequences. According to attorneys and officials in one state, organization representatives use their VA accreditation to assist in preparing claims as a marketing tool that generates trust and allows them to attract clients. Claimants may not understand that this accreditation only means that the individual is proficient in VA’s policies and procedures to assist in preparing and submitting VA benefits claims and does not ensure the products and services these individuals are selling are in claimants’ best interests. Finally, some organizations may provide erroneous information to clients, or fail to follow through on assisting them with submitting the pension application, which can adversely affect pension claimants. For example, one veteran said he was told by an organization representative to sell his home prior to applying for the VA pension and that he did not have to report the proceeds from the sale on the application. He followed this advice and was approved for benefits, but VA later identified these assets, which caused him to incur a debt to VA of $40,000 resulting from a benefit overpayment. Organizations may also promise assistance with the application process to any interested pension claimant but, unbeknownst to the claimant, may not follow through in providing this service if the claimant does not want to transfer assets. For example, the daughter of a veteran we spoke with, who sought application assistance from an organization representative, told us the representative never submitted her father’s pension claim to VA as promised. She learned of this about a year after she thought the claim was submitted and had to reapply through a county veterans service officer. Her father was approved 2 months later but passed away less than a month after his approval. She believes her father could have received benefits for a year if the representative had submitted the claim, and believes the representative did not do so because she did not want to use his services to transfer assets. The costs of services provided by these organizations to assist in qualifying for VA pension benefits varied, but organizations may be charging prohibited fees. Among the 19 organizations our investigative staff contacted for this review, about one-third said they did not charge for their services to help qualify claimants for VA pension benefits. For example, financial planners told us that, generally, there are no direct costs associated with transferring assets into an annuity, but that costs would be included in the terms of the annuity, such as the commission earned by the insurance agent. Among organizations that did charge for services, fees ranged from a few hundred dollars for benefits counseling up to $10,000 for the establishment of a trust. Also, although federal law prohibits charging fees to assist in completing and submitting applications for VA benefits, representatives from veterans advocacy groups and some attorneys we spoke with raised concerns that these organizations may be charging for fees related to the application, or find ways to circumvent this prohibition, such as by claiming they are charging for benefits counseling. For example, one organization our investigative staff contacted charged $850 to have an attorney work on the application process, a $225 analysis fee, and $1,600 for the establishment of a trust. Another organization representative indicated he charged a “long term planning fee” of $1,200 to be paid prior to services being provided. The organization representative asked that someone other than the veteran pay this fee, claiming that only disinterested third parties can be charged fees but not the veteran. Also, in a case identified by officials in one state, a veteran was charged $3,000 by an individual for assistance in applying for VA pension benefits which were ultimately denied. In addition, concerns have been raised that fees charged may be excessive for the services provided. For example, in July 2011, California enacted a law generally prohibiting unreasonable fees from being charged for these services. The VA pension program provides a critical benefit to veterans, many of whom are elderly and have limited financial resources to support themselves. Current federal law allows individuals to transfer assets prior to applying for VA pension benefits and still be approved. As a result, claimants who have sufficient assets to pay for their expenses can transfer these assets and qualify for this means-tested benefit. This arrangement circumvents the intended purpose of the program and wastes taxpayer dollars. A number of organizations help claimants with these asset transfers, but some of the products and services provided may have adverse implications for the claimant such as delaying eligibility for Medicaid coverage for long-term care or causing claimants to lose access to their financial resources. Accordingly, we asked Congress to consider establishing a look-back and penalty period for pension claimants who transfer assets at less than fair market value prior to applying for pension benefits, similar to other federally supported means- tested programs. Chairman Kohl, Ranking Member Corker, and Members of the Committee, this concludes my prepared statement. I would be pleased to answer any questions that you may have at this time. For further information about this testimony, please contact Daniel Bertoni at (202) 512-7215 or bertonid@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. Other key contributors to this testimony include Jeremy Cox, Paul Desaulniers, Alex Galuten, Nelson Olhero, Martin Scire, and Walter Vance. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: This testinony discusses the Department of Veterans Affairs (VA) pension program, which provides economic benefits to wartime veterans age 65 and older or who have disabilities that are unrelated to their military service, as well as to their surviving spouses and dependent children. To qualify for VA pension benefits, a claimant must have limited income and assets. Recently, concerns have been raised that some organizations are marketing financial products and other services to help individuals whose assets exceed the programs financial eligibility thresholds qualify for these benefits. These organizations may charge substantial fees for products and services that may not always be in claimants best long-term interests. In our report released today on VAs pension program, we identified vulnerabilities in VAs procedures for assessing financial eligibility. We also found that there is no prohibition on claimants transferring assets prior to applying for benefits, and some claimants do so. Other means-tested programs, such as Medicaid, conduct a look-back review to determine if an individual has transferred assets for less than fair market value, and if so, may deny eligibility for benefits for a period of time. This control helps ensure that only those in financial need receive benefits. This testimony is based on our report and focuses on what is known about organizations that are marketing financial products and services to veterans and survivors to enable them to qualify for VA pension benefits. In summary, we identified over 200 organizations that market financial and estate planning services to help pension claimants with excess assets qualify for pension benefits. These organizations consist primarily of financial planners and attorneys who offer products such as annuities and trusts. All 19 organizations our investigative staff contacted said a claimant can qualify for pension benefits by transferring assets before applying, which is permitted under the program. Two organization representatives said they helped pension claimants with substantial assets, including millionaires, obtain VAs approval for benefits. Some products and services provided, such as deferred annuities, may not be suitable for the elderly because they may not have access to their funds within their expected lifetime without facing high withdrawal fees. Also, such asset transfers may result in ineligibility for Medicaid coverage for long-term care for a period of time. The majority of the 19 organizations contacted charged fees, ranging from a few hundred dollars for benefits counseling to $10,000 for establishment of a trust. In our report we asked Congress to consider establishing a look-back and penalty period for pension claimants who transfer assets prior to applying for pension benefits, similar to other federally supported means-tested programs, such as Medicaid. We also recommended that VA obtain timely information on asset transfers, strengthen income and asset verification processes, and provide clearer guidance to claims processors. VA concurred with our recommendations and agreed that a look back and penalty period for asset transfers was needed.