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Valerie L. Peterson
Attorney at Law
(954) 315-4778
NAELA News Journal - NAELA News Online

Sweeping Changes to the VA Pension Eligibility Rules

By Valerie L. Peterson, Esq. 

Published October 2018

On September 18, 2018, the Department of Veterans Affairs (VA) amended the rules regarding eligibility for VA pension. The new rules are quite comprehensive and, in some ways, more restrictive. However, they also provide much needed clarity as well as new opportunities for attorneys practicing in this area.

Deep-Dive Webinar Available
Some of the main changes to the rules are highlighted below. NAELA also hosted a webinar that took a deeper dive into the new rules that is available here. You’ll need to sign in to access the webinar. If you need help with your sign in contact us.
 
Lookback and Penalty Period
There is now a look-back period of 36 months when applying for needs-based pension benefits. Any “covered 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 5 years. A covered asset is one that, but for the transfer, would have caused the claimant’s net worth to be excessive.

Start of the penalty period. The penalty period starts in the month after the transfer. Therefore, a transfer made on November 15, 2018, will result in a penalty that begins in December, 2018. The rules make it clear that only transfers on or after October 18, 2018, will be penalized. The lookback for transfers will begin after the effective date and will be phased in one month at a time, with 36-month lookback periods (presumably) applying to applications filed on or after October 18, 2021.

Exceptions. There are a few exceptions to the new transfer penalty rule. 

1) No penalty will be assessed if the transfer was to a trust established for a child who was incapable of self-support prior to age 18. 

2) 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 (the assets transferred were not “covered assets” as defined by the rules). 

3) 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. 

4) Only transfers that occur on or after October 18, 2018, will be subject to the lookback and transfer penalty rules.

Annuities may be penalized. If the annuity can be liquidated, then it is counted as an asset. If the annuity cannot be liquidated, then distributions from the annuity are considered income. If the annuity was purchased during the look-back period, then a penalty will be imposed for the amount the annuity was purchased for. If purchased prior to October 18, 2018, it will be not be subject to a penalty, but payments from it will be counted as income.

Calculating the penalty period. The divisor used to calculate the penalty is the Maximum Annual Pension Rate (MAPR) in effect as of the pension application date, at the rate of the aid and attendance level for a Veteran with one dependent. The annual MAPR is divided by twelve and rounded down to come up with the monthly rate. In 2018 this number is $2,169, and is applicable to all claimants, regardless of marital status. The penalty period will be recalculated if all or part of the gifted money is returned (also referred to as a partial or total cure). There is also a 5-year cap on the total penalty period assessed.

Net Worth
There is now a bright-line rule regarding the allowable net worth of a Veteran. This amount is currently set at $123,600, 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 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 for any household relative. 

A homestead owned by the Veteran is not included in the net worth calculation. However, there is a 2-acre limit imposed on the homestead. If the claimant’s homestead is over 2 acres, then other rules apply and the value of the property in excess of 2 acres may be included in the net worth calculation. It does not appear that the new rules would penalize the transfer of a home, as the home is not included in the definition of a “covered asset.” However, we will not know how the VA will treat the transfer of the home until after the new rules are in place.

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. 

More Medical Expense Deductions
The new rules provided an additional Activity of Daily Living (ADL) to include assistance with ambulating within the home. The rules also define Instrumental Activities of Daily Living (IADLs) and set out specific instances when expenses for care that include ADLs and IADLs may be deducted from income. The rules also specify when room and board at a care facility other than a nursing home or assisted living facility may be deducted from income as a medical expense.

Opportunities Moving Forward
While the rules are certainly more restrictive than before, attorneys and potential claimants now have bright-line income and asset rules, and clarity on how the VA will treat transfers prior to an application. This removes the uncertainty that existed previously when trying to advise potential claimants about appropriate net worth, and what type of information the VA may ask for following an application.

The new rules also allow for more parity when weighing Medicaid and Veterans’ pension planning. The net worth rules along with the timing of the penalty period put the two benefits on more equal ground. And the expansion of available reimbursable medical expenses, including those for help with IADLs, will allow more opportunity to reduce income while paying for care in a less restrictive setting, such as at home or in an independent living facility.

Even though the new rules define what a trust is, they do not change how assets in irrevocable trusts will be treated for VA pension purposes. For claimants who cannot qualify within 36 months, a properly drafted irrevocable trust will be a valuable proactive planning tool and one that will also work for Medicaid planning purposes.

The complete set of new rules took effect on October 18, 2018. As a reminder, any assets transferred before this date will not be subject to the 36-month lookback period. The net worth limit will apply for applications submitted on October 18 and after. 

About the Author
Valerie L. Peterson, Esq., is the CEO of ElderCounsel, as well as a frequent author and lecturer on issues regarding elder law and Veterans benefits. Since 2012, Valerie has served as an adjunct professor for Stetson Law School where she teaches the Veteran’s Benefits Course to Elder Law LL.M. students.