On September 18, 2018, the Department of Veterans Affairs (VA) amended the rules regarding eligibility for VA pension. These new rules will change VA planning drastically, including the following:
- There is now a look-back period of 36 months when applying for needs-based pension benefits for wartime Veterans or for the surviving spouses and dependent children of wartime Veterans. Any asset that was transferred for less than fair market value during the 36-month period immediately preceding the pension application will result in a penalty period, not to exceed five years.
- There are a few exceptions to the new transfer penalty rule. There isn’t a penalty if the transfer was to a trust established for a child, who VA has determined is incapable of self-support. Also, there is no transfer penalty imposed if the claimant’s net worth would have been below the net worth limit already, regardless of the transfer.
- With regard to an annuity, if the annuity can be liquidated, then it is counted as an asset. If the annuity cannot be liquidated, then distributions from the annuity is considered income. If the annuity was purchased during the look-back period, then a penalty will be imposed.
- A claimant will not be subject to a penalty period if the transfer was the result of fraud, misrepresentation, or unfair business practices related to the sale of financial products.
- No undue hardship provisions are included in the new VA rules.
- The divisor used to calculate the penalty is the Maximum Annual Pension Rate in effect as of the pension application date, at the rate of the aid and attendance level for a Veteran with one dependent.
- There is now a bright-line rule regarding the net worth of a Veteran. This amount is currently set at $123,600.00, which is also the maximum Community Spouse Resource Allowance amount allowed by Medicaid. This number will increase annually with the increase in Social Security benefits. If the Veteran or other claimant has a net worth over the threshold and thus does not qualify for benefits, he or she can spend-down assets by purchasing goods or services for fair market value.
- A homestead owned by the Veteran is not included in the net worth calculation. However, there is a two-acre limit imposed on the homestead. If the claimant’s homestead is over two acres, then other rules apply and the value of the property in excess of two acres may be included in the net worth calculation.
- The value of “personal effects suitable to and consistent with a reasonable mode of life” is not included in the asset calculation. This would include personal transportation vehicles and most household goods.
- The annual income of the claimant and certain dependents is included in the calculation of net worth. However, reasonable and predictable unreimbursed medical expenses can be deducted from income.
These two changes have broken from the historical rules of no look-back period and no set asset limit. The complete set of new rules, including the above, will go into effect on October 18, 2018. So, any assets transferred before this date will not be subject to the 36 month look-back period. Nor will the asset limit be applicable. Because of this, it is extremely important to pursue VA pension planning before October 18, 2018.
ElderCounsel members received a set of tools including a letter to clients informing them of the change and the need to plan, a letter to referral sources summarizing the rule changes, and a PowerPoint presentation they can use when speaking to clients, members of the public and referral sources about the new rules. We will discuss the new VA rules in detail during our member exclusive webinar Final Friday Update on September 21. (Members: The recording is available in the Education Library.)