Following are descriptions of several of the issues which attorneys at my law office have confronted in recent claims we filed on behalf of veterans and their dependents seeking non-service connected pension benefits from the Department of Veterans Affairs (VA) which may be of interest to readers.

Life Insurance

The face value of a life insurance policy is not considered to be an asset in determining eligibility. Only the cash value of a life insurance policy is considered to be a countable asset.

Life insurance benefits which are paid on the death of a veteran are not considered income. However, once deposited in a bank  or brokerage account, the life insurance benefits are considered to be assets in determining eligibility for pension benefits.

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Distributions From An IRA

The VA treats distributions from an IRA as income for VA purposes during the calendar year in which the distributions are received in determining eligibility for VA pension benefits.

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Assets In A Revocable Trust

The VA counts assets in a revocable trust in determining eligibility for needs-based pension benefits because the applicant or his/her dependent owns the trust or has control over the trust or the trust assets.

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Sale Of Principal Residence

The proceeds from the sale of the home is NOT considered to be income for VA purposes.  However, sales proceeds are considered to be assets and countable in determining pension eligibility.

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Overpayments Resulting From The Agency’s Failure To Reduce VA Benefits After Medicaid Eligibility Is Achieved

After a recipient of VA pension benefits becomes eligible for Medicaid, the VA pension is reduced to $90 per month. However, even if the VA fails to reduce the monthly pension benefit immediately, the agency will not seek a refund of the excess over $90 received by the veteran back to the date Medicaid became effective. The regulations provide as follows:

M21-1MR 5 – Pension and Parents Dependency and Indemnity Compensation (DIC) Chapter 3. Pension Reductions for Medicaid-Covered Nursing Facility Care Sec. 5.iii.3 Pension Reductions for Medicaid-Covered Nursing Facility Care Subpart III – Authorization Issues    6. Effective Dates for Reductions – Running Award Continued  d. Beneficiary Liability for Overpayment

The beneficiary is not liable for excess pension paid over the $90 monthly limit, unless VA failure to reduce the amount is due to the beneficiary’s willful concealment of information necessary to make the reduction.

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Impact Of Active Duty Service vs. Service In The Reserves

In order to be eligible for VA pension benefits, a veteran must have served in the armed services on active duty for ninety (90) days, at least one (1) day of which must have been served during a period of war time.  Service in the Reserves does not count.

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Service-Connected Compensation, Needs-Based Pension and Military Retirement

Veterans may receive both needs-based pension benefits and military retirement pay.

Veterans may not receive both service-connected compensation and needs-based pension benefits.

Veterans may not receive both service-connected compensation and military retirement pay.

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Transfers Of Real Property While Retaining The Right To Income; Life Estates

Transfers of property to others living in the same household as the veteran are disregarded in calculating the veteran’s net worth. In addition, transfers of real property in which the veteran retains a life estate in the property are disregarded by the VA. The regulations follow:

M21-1MR 5 – Chapter 1, Sec. 5.iii.1.i, Subpart III:

a. Effect of Asset Transfers on Countable Income

A claimant may attempt to reduce net worth or countable income by transferring property to another person without actually giving up all rights in the property. However, no sale or gift of property to a member of the same household will reduce the claimant’s net worth or IVAP, or a person outside the claimant’s household will reduce net worth or IVAP, unless the claimant can demonstrate that there has been an actual relinquishment of rights to the property and income from the property.

b. When a Claimant Transfers Property but Takes Income From the Property

If a transferee takes legal title to the property and receives income from the property, a true transfer is deemed to have occurred. However, if the transferee turns income from the property back to the claimant, the income is countable under 38 CFR 3.271 as a gift of money.

g. Definition: Life Estate

A life estate is an estate which is limited in duration to the life or lives of a particular individual or individuals, and is non-inheritable.The life tenant is the owner of the property during his/her life and is entitled to exclusive possession and control of the property.

h. Life Estate: Determining a Claimant’s Net Worth

When a claimant transfers an interest in property to someone other than a relative residing in the claimant’s household, retaining a life estate in the property, 38 CFR 3.276(b) requires that the transfer be disregarded in determining the claimant’s net worth for Improved Pension purposes, unless the right to ownership (control) is relinquished.This requirement is due to the fact that the life tenant retains ownership interest in the property during his/her lifetime. Note: If necessary, request a copy of the life estate to determine whether the right to ownership of the property has been relinquished. Reference: For more information on the effect of property held as a life estate on pension eligibility, see VAOPGCPREC 15-92.

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Proceeds From A Reverse Mortgage

Proceeds from a reverse mortgage are NOT considered to be assets which must be reported to the VA because the reverse mortgage proceeds are the proceeds of a loan which must be repaid. Loans are not considered as assets or income under the applicable regulations:

M21-1MR, Part V, Subpart iii, Chapter 1, Section I

m.  Loans, Including Reverse Mortgages

Do not count loans to a claimant as long as the claimant incurs a legally binding obligation to repay the loan.Do not count funds received from a reverse mortgage.  A reverse mortgage is considered a home equity loan that must be repaid when the homeowner no longer lives in the home. Note:  Loans must be distinguished from gifts.  A gift disguised as a loan is countable.