The latest trend in elder abuse — unsuitable annuities that “help” low-income veterans claim pensions — is highlighting a communication breakdown between state and federal agencies, that could allow fraud to slip through the cracks.
This practice taps veterans who are claiming pension and Aid and Attendance benefits from the U.S. Department of Veterans Affairs. Former members of the military must meet certain income and net-worth requirements in order to qualify for a pension, which is intended for low-income individuals.
The potential for abuse arises when advisers or attorneys helping veterans file pension paperwork recommend inappropriate annuities or asset transfers that make the individual look poorer than he or she really is and therefore eligible for tax-free pensions.
CASH IS LOCKED UP
Unsuitable transactions could lock up cash that the veteran might need in the event of an emergency, while untimely asset transfers can interfere with Medicaid eligibility if they are done within the 60-month look-back period in which assets are calculated.
Last week, the National Association of Insurance Commissioners highlighted the practice in a consumer alert. Congress this year also proposed legislation — S 3270, sponsored by Sen. Ron Wyden, D-Ore. — to stem these practices.
But attorneys and agents who work regularly with veterans are arguing that there isn't enough cooperation between the VA, insurance regulators and other authorities to ensure the bad actors are caught and punished.
The VA requires advisers and attorneys who work with veterans' pension filings to be accredited, but it doesn't endorse any products that these professionals might use.
Attorneys say the VA is slow to team up with other agencies.
“The VA doesn't conceive that there are other ways to become more efficient and to prevent abuses to the system if they worked in alignment with other regulatory services,” said Victoria Collier, an elder-law attorney in Decatur, Ga.
She is in the process of detangling a trio of annuities totaling $300,000 bought by an 84-year-old client in conjunction with a plan that would help her qualify for a VA pension.
The surrender periods on the annuities were as long as 13 years, well past the client's life expectancy. To complicate matters, the annuities were placed within a trust.
The insurance agent who sold the annuities is accredited by the VA.
With the help of a securities lawyer, Ms. Collier was able to undo two of the annuity contracts. She has also filed a claim with the agency's office of general counsel to report the insurance agent, who could lose her accreditation and thus her ability to assist veterans.
A June hearing by the Senate Special Committee on Aging publicized these abuses, along with a report by the Government Accountability Office that found that more than 200 organizations across the country that advertised help for veterans seeking to qualify for these pension benefits, mostly by transferring excess assets to annuities or setting up trusts.
The hearing also laid the groundwork for Mr. Wyden's proposed legislation that would subject asset transfers for the VA income benefit to a three-year look-back period.
State insurance regulators are becoming increasingly aware of these practices, and many have annuity suitability regulations in place that are akin to rules from the Financial Industry Regulatory Authority Inc.
Meanwhile, the VA has taken steps to notify the public that veterans shouldn't be paying to have their benefits paperwork filed. However, the two parties don't appear to share information with each other regularly.
Rather, VA officials at regional offices may see patterns of abuse and connect with the VA's Office of the Inspector General and with other regulators on a case-by-case basis, according to a spokesman at the Veterans Benefits Administration.
Further, while the VA InspectorGeneral has the jurisdiction to prosecute criminal violations involving its pension programs, the act of merely hiding the assets and charging veterans for that sort of help isn't illegal, according to a statement by the office.
Accredited parties are required to file veterans' pension paperwork for free, but some have gotten around that requirement by charging planning and management fees, the inspector general noted.
“Twenty percent of the [military] clients calling us are nothing but cleanup work, and we're calling insurers and brokerage firms to reverse the transactions,” said Brian Byars, co-founder of Advanced Retirement Planning LLC.
Although planners and attorneys are asking for tougher rules and more coordination among regulators, they are critical of subjecting veterans to look-back requirements.
The act of using an annuity or transferring assets itself isn't the punishable action, but improper recommendations without tough legal repercussions are the real problem.
“It's important to recognize that there are legitimate ways to assist people, but there are always people who will do things that aren't legitimate,” Ms. Collier said.
dmercado@investmentnews.com Twitter: @darla_mercado
