On September 18, 2018, the Department of Veterans Affairs (VA) adopted new regulations governing pension benefits, including aid and attendance. The new regulations established a net worth limit for a household of $127,061 effective December 1, 2018. A household includes the veteran, the veteran’s spouse and the veteran’s dependent children living at home.
Net worth includes both countable assets and annual income. Countable assets include stocks, bonds, mutual funds, annuities, retirement plans, real estate, and anything else of value with certain exceptions. A primary residence with 2 acres or less does not constitute a countable asset. The VA deducts from the value the amount of any lien or mortgage from a commercial lender. If you are not currently residing in the primary residence, the VA does not count it. The proceeds from the sale of a home will not be counted if used to purchase another residence within the same calendar year as the sale. Personal effects such as appliances, family vehicles, and jewelry that are suitable to and consistent with a reasonable mode of life do not count.
Annual income includes payments of any kind from any source that are anticipated during the coming 12 months. Social security benefits, wages, rents, pensions, IRA distributions, interest, dividends, capital gains, business income, and trust income count as income. Many payments from government sources such as Agent Orange settlements do not count.
Unreimbursed medical expenses reduce income. For example, if a claimant’s countable assets total $115,000 and his annual income is $9,000, the claimant’s assets exceed the net worth limit. However, if the claimant will spend $10,000 on in-home medical care for prescriptions and nursing services, then his net worth is $114,000 and he can apply for veterans pension benefits. Medical expenses include health care provider payments, medications, medical supplies and equipment, medically necessary foods, vitamins and supplements, transportation expenses for medical purposes, health insurance premiums, long-term care insurance premiums, hospital and nursing home charges, and assisted living facility charges including meals and lodging. Home care expenses are also treated as medical expenses if a physician or other qualified medical professional states in writing that the claimant requires health care or custodial care provided by the caregiver.
The net worth limit increases each year based on the maximum community spouse resource allowance (CSRA) for the Medicaid program. The CSRA changes in January of every year. You can find the net worth limit at www.benefits.va.gov/pension/current_rates_veteran_pension.asp . You calculate the applicant’s net worth as of the date of the application.
The VA also adopted a 3-year lookback period for transfers of assets. Any transfer of assets within 3 years of applying for benefits will result in a penalty period barring eligibility. Unlike Medicaid, the penalty period begins on the first day of the month that follows the date of the transfer.
Let’s take an example. Assume a claimant had a net worth of $100,000 but gave his children a vacation home worth $260,000 in 2016 (2 years ago). First, calculate the covered asset – the value of the asset subject to the penalty. The covered asset is $232,939, calculated as follows: $100,000 + $260,000 - $127,061 net worth limit = $232,939. Second, calculate the monthly penalty divisor by taking the maximum annual pension rate for aid and attendance with one dependent ($26,766 effective 12/1/18) and dividing by 12 = $2,230. Finally, divide the covered asset by the monthly penalty divisor: $232,939 divided by $2,230 = 104 months (rounded). The penalty period exceeds the new 5 year limit (60 months) on VA penalty periods. Thus, the claimant would not be able to apply for veterans benefits for 5 years. In this case, it would be better to just wait until the 3-year lookback period expires (2019) before applying rather than incur a penalty by applying now.
A transfer includes a sale, gift or exchange of assets for less than fair market value. A transfer also includes the transfer to or purchase of any financial instrument or investment that reduces net worth and would not be in the claimant’s financial interest but for the claimant’s attempt to qualify for VA pension. Only if the claimant establishes that he or she has the ability to liquidate the entire balance of the asset for the claimant’s own benefit will the VA consider the transaction as not a transfer. For example, the funding of a claimant’s Revocable Trust or the purchase of a deferred annuity would not be considered a transfer because the claimant can liquidate the entire balance. On the other hand, the purchase of an irrevocable, non-assignable immediate annuity or the transfer of real estate to an Irrevocable Grantor Trust will now be considered a transfer. The entire amount transferred to purchase an annuity or an irrevocable trust is considered uncompensated value triggering a penalty.
The VA did carve out an exception for a Special Needs Trust for a disabled child. A child for VA purposes, however, is defined as a person who is not an adult (i.e. in Connecticut, the age of 18). It will be interesting to see if the VA will allow an exception to the definition of a child for the purpose of determining transfers subject to a penalty.
To be eligible for benefits, a veteran’s countable income must not exceed the annual benefit amount. Countable income reduces the annual benefit dollar for dollar. Effective December 1, 2018, the maximum annual pension rates and eligibility for the 3 pension benefit programs are as follows:
If you are a veteran or the spouse of a deceased veteran and you think you may qualify for VA pension benefits, make an appointment with an elder law attorney at Cipparone & Zaccaro or consult with the Connecticut Department of Veterans Affairs in Norwich. Thank you for your service to our country.
