There was an excellent article in the May 2012 edition of Kiplinger's Retirement Report (subscription required) on a little –known scam which is run by some less-than-scrupulous insurance agents on frail elderly veterans and their surviving spouses. The deal they present is this:  buy an annuity from me and I'll help you qualify for the Veterans Administration's Aid and Attendance (A&A) benefit.

The A&A benefit is available for veterans who served during wartime and their surviving spouses. You qualify by meeting an income and assets test (generally about $80,000 or less, plus the value of your home and a car). You must also provide proof that the cost of your care to help you with activities of daily living (bathing, dressing, walking, eating and the like) exceeds your monthly income. This benefit is very useful for residents of assisted living facilities, where the cost of care can easily be double the resident's income.

The A&A regulations have nothing to do with Medicaid regulations. Part of the elder law attorney's job is to advise clients that what may work for one program will not necessarily work for the other and to provide options and counsel. This is not what these “helpful” salespeople do. Instead, they will convince elderly veterans and their families that they must unload assets, and the “best” way to do that is by purchasing an annuity. What the veteran is not told is that these are more often than not deferred variable annuities. The money in these accounts will not be accessible to the veteran for a number of years without payment of a premium, and may not begin paying out income for many years (I've seen deferred variable annuities sold to 75-year-olds that would not begin to make payments until the consumer turned 90!) What's more, these annuities are generally treated as being either available assets or disqualifying transfers (depending on what state you're in) by the state Medicaid agency, thus making the veteran or his spouse unable to get Medicaid benefits unless the annuity is cashed in. In the meantime, the salesman has gotten a nice, juicy commission.

Even if the annuity is an immediate payout annuity, the amount of the payment might be so high as to cause the veteran to have too much income to qualify for A&A – but because the payout is immediate, the investment cannot be undone.

What's particularly shameful is that some assisted living facilities seem to see nothing wrong in allowing these salesmen to put on seminars and encouraging their residents to use their services. While I understand the facility's desire to be sure that their residents have sufficient funds to pay their bills, they have a legal and ethical duty to make sure that their residents aren't getting fleeced as a result of programs which they promote.

Massachusetts is fortunate in that every town is served by a Veterans Service Agent (VSA) paid for by the taxpayers, whose job includes doing this sort of paperwork. These applications are also handled at no charge by VSAs who are affiliated with such organizations as the Veterans of Foreign Wars. Before you ever think of applying, see an elder law attorney for counseling on your options and advice about whether your income, assets and infirmities may make you eligible for the A&A benefit and important information about how the trust and transfer-of-assets rules differ from those of Medicaid. Then contact a VSO for help with the application. Your elder law attorney may also handle the application at no charge as a courtesy to you.