On October 18, 2018, the Department of Veterans Affairs (VA) instituted a number of important rule changes affecting a service member’s eligibility for the Veterans Pension, a needs-based benefit for certain wartime veterans, their surviving spouses and dependent children.
This article will discuss some of the most noteworthy changes and how these new regulations will impact pension applicants.

Uniform Net Worth Threshold

To be eligible for the Veterans Pension, an applicant must have a net worth (the combination of assets and annual income) below a certain threshold. In the past, this figure was determined using a complicated and, at times, contradictory formula that had the potential to lead to inequitable outcomes. This is no longer the case: the VA has instituted a bright-line, standardized net worth allowance of $123,600. If this number looks familiar, it is also the maximum Community Spouse Resource Allowance permitted by Medicaid. Unlike Medicaid, however, this figure applies to every applicant, regardless of marital status.

Exceptions When Calculating Net Worth

While there are a number of assets or expenses that are not included in an applicant’s net worth calculation, two major exceptions were altered by the new rule changes: homestead and qualified medical expenses.

1. Homestead: Previously, an applicant’s primary residence and surrounding property would be exempt from the net worth calculation so long as the size of the property was similar to that of other lots in the vicinity. For instance, if an applicant lived in a rural area on 15 acres, so long as other properties in the area were situated on similar acreage, the entire property would not count towards the net worth calculation.

The new rules, however, change the homestead exemption in a significant way: the exemption is now limited to 2 acres. More specifically, the value of any usable property over 2 acres may be considered a countable asset.

2. Medical Expenses: The new rules provide a bit more clarity on what is considered a medical expense that can be deducted from an applicant’s net worth calculation. These include:

  • Payments to doctors and other healthcare providers
  • Medications, medical devices, and food, vitamins, or supplements prescribed by a physician
  • Adaptive equipment. This includes service animals, however, not all expenses associated with caring for a service animal are included.
  • Medical-related transportation
  • Smoking cessation products
  • Health insurance premiums
  • Institutional and in-home healthcare services. While this includes nursing and assisted living facilities, the new rules also allow for the deduction of payments made to other residential facilities so long as they provide medical care or services to the applicant.

New Look-Back Period & Transfer Penalties

When assessing pension applications, The VA has adopted a look-back period of 36 months in which it will review any asset transfers an applicant has made in the 3 years immediately preceding the application. While an applicant is permitted to “spend down” their assets in an attempt to gain eligibility, any asset that was transferred for less than fair market value during
that period, and which would have put the applicant over the net worth threshold, will result in a penalty period of up to five years.

Previously, there was no look-back period. In other words, an applicant could simply give away cash or an asset so that their net worth would fall below the eligibility threshold and, in theory, apply for benefits the following day. This is no longer the case.

A few things to keep in mind regarding the look-back period:

  • The rules state that penalties will be assessed only on transfers made after October 18, 2018. All below market value transfers made prior to that date will not result in a penalty period.
  • Any transfer that would not have affected pension eligibility will be ignored. For example, Mike has $100,000 in assets and receives no annual income. A gift of $15,000 to his daughter will be disregarded because, even if Mike had kept the gift, it wouldn’t have put him over the $123,600 net worth limit.
  • On the other hand, a transfer penalty will be imposed on any below fair market value transfer of excess or “covered” assets. Covered assets are assets that, if kept, would have put an applicant over the net worth threshold. For example, Dawn has a net worth of $110,000 and recently transferred $30,000 in stock to her son. If Dawn had kept the stock, her net worth would be $140,000, $16,400 over the net worth limit. Under the new rules, the overage of $16,400 is subject to a penalty.

To determine the length of the penalty period, simply divide the overage amount by $2,169 [the equivalent of one month of the Maximum Annual Pension Rate (MAPR) for a veteran with one dependent]. As such, Dawn’s penalty period is approximately 7.5 months.

Exempt Transfers

  • Any transfer made as a result of deception or fraud will not be considered.
  • An applicant may put assets in trust for the benefit of a child ‘incapable of self-support’ (prior to the child turning 18) without penalty. Please note that the VA must approve a child’s status as ‘incapable of self-support’.
  • An irrevocable, non-grantor trust, in which the applicant has no remaining ownership interest in the asset and receives no income from the asset in trust, will not be considered when calculating net worth. However, the transfer of property or assets into the trust during the 36 month look-back period might be considered a below fair market value transfer, which could result in a penalty.

These new rules significantly alter the eligibility requirements for the Veterans Pension. That said, there are a number of ways to gain or maintain eligibility even if you were unaware of these changes. If you are considering applying for a Veterans Pension, but have concerns over how the new rules will affect your eligibility, we would urge you to contact an experienced estate planning attorney before submitting you application.