VA Releases Final Draft of Net Worth, Asset Transfers and Income Exclusions for Needs-Based Benefits

By Stephen J. Silverberg
New York Elder Law Attorney

Some changes recently announced will have significant changes on planning for VA pensions, and others brought a sigh of relief to veterans and their advocates. The good news was the announcement that changes in the adjudication of VA pension claims in the final rule are NOT retroactive.

Here is a further breakdown of the new rules, and what the changes mean:

VA Pension payments to a Medicaid Nursing Home Benefit Recipient: The new rule leave the $90 limit on VA pension payments to Medicaid nursing home benefit recipients in place, but importantly, provides that a VA pension beneficiary is not liable for any pension payments over the $90 per month from VA’s failure to reduce payments, unless the VA Pension beneficiary willfully conceals the overpayment from the VA.

Net Worth Limit: With the new rule, a bright-line net worth limit of $123,600, subject to increase by the same percentage as the Social Security COLA increase, has been established. The net worth calculation continues to be the claimant’s assets and annual income. This change eliminates the need for any guesswork regarding how low a claimant’s assets must be (based on their age) before submitting a VA pension claim.

Primary Residence:  Another sign of relief – the claimant’s place of residence continues under the new rule to be excluded as an asset for VA Pensions, even if the claimant is not living in the primary residence (sometimes). If the primary residence is sold, net proceeds from the sale are still not counted as an asset if the proceeds are used to buy another primary residence within the same calendar year that the residence was sold. This change makes timing any buy/sell of a home important.

Asset Spend-Down:  Under the new rule, a claimant or a person acting on their behalf can decrease assets without penalty if the assets are spent on an item or a service for which fair market value is received. This rule change will provide the basis for VA pension planning strategies going forward.

Look-back and Penalty Periods: The VA has created a 36-month look-back period. With this, the VA has enacted a Penalty Period of up to five years for transferring a “covered asset” within the 26-month look-back period preceding the date that the VA receives a pension claim. The new rule provides guidance on curing and reducing penalty periods, which is helpful.

Covered Asset Definition:  A “covered asset” is now defined as an asset part of a claimant’s net worth, was transferred for less than fair market value, and that, if not transferred, would have caused or partially caused the claimant’s net worth to exceed the net worth limit.

Trusts and Annuities: The new rule specifically defines trusts and annuities as instruments and investments that the VA considers transfers for less than fair market value. However, a trust or annuity where the claimant retains the ability to liquidate the entire balance of the asset for the claimant’s own benefit will not be transfers for less than fair market value.

This change makes many annuities that caused the most concern among commenters to the proposed rule useless and ineffective. It also requires a review and reconsideration of strategies for trusts to help veteran to be eligible for VA pensions.

Medical Expenses: The new rule does not change how VA calculates a claimant’s income for VA purposes, but it defines what are considered medical expenses. Medical expenses, for VA purposes, are now defined as unreimbursed payments for items or services that are:

  • Medically necessary
  • Improve a disabled individual’s functioning
  • Prevent, slow, or ease an individual’s functional decline.

Examples are payments for prescriptions and non-prescription medication, payments to a health care provider as defined in the rule, and payments for adaptive services that include certain payments for service animals.

This rule changes provides guidance for what the VA will consider as medical expenses used to reduce a claimant’s income for VA purposes.

Activities of Daily Living (ADL) and Instrumental Activities of Daily Living (IADL):  The new rule also defines activities of daily living, including basic self-care activities: bathing or showering, eating, dressing, toileting, transferring -moving from one position to another, like the ability to get in and out of bed), and ambulating within the living area. Instrumental Activities of Daily Living are defined as tasks about independent living, including shopping, food preparation, housekeeping, doing laundry, managing personal finances, using medications, using a telephone and transportation for non-medical purposes. The rule change provides definitive and helpful guidance on what VA considers ADLs and IADLs.

Custodial Care: The new rule redefines custodial care as regular assistance with two or more ADLs, or regular supervision because a veteran with a physical, mental, developmental or cognitive disorder requires care or assistance regularly to protect them from hazards or dangers from his or her daily environment.

If you have any questions or concerns about VA benefits, please contact the office at 516-307-1236 to make an appointment to discuss your situation.

About the Author
Stephen J. Silverberg is nationally recognized as a leader in the areas of estate planning, estate administration, asset preservation planning, and elder law. He is a past president of the prestigious National Academy of Elder Law Attorneys (NAELA), and a founding member and past president of the New York State chapter of NAELA.