On January 23, 2015, the Department of Veterans Affairs (VA) published proposed regulations in the Federal Register which, if adopted, would amend its rules governing entitlement to VA pension benefits. The VA says the intention of the proposed changes is “to maintain the integrity of VA’s needs-based benefit programs, and to clarify and address issues necessary for the consistent adjudication of pension … claims.” The proposed rules are comprehensive and substantial, and establish new requirements for the evaluation of net worth, countable asset transfers for pension purposes, medical expenses and income deductions. In that regard, the new rules, for the first time, establish a net worth limit, a look-back period and transfer penalties for claimants applying for VA pension benefits, such as homebound and aid and attendance claims.

Proposed Changes to the Net Worth Calculation 

The VA does not currently have a net worth limit. The proposed regulations establish a net worth limit as the dollar amount of the maximum community spouse resource allowance (CSRA) established by Medicaid. The current CSRA is $119,220, which would be increased each year under the VA proposed regulations by the same cost-of-living increase provided to Social Security beneficiaries. 

The amount of a claimant’s net worth is calculated by, first, determining the fair market value of all real and personal property owned by the applicant, less the amount of mortgages or other encumbrances on the claimant’s property. Second, in another change from existing law, annual income is added to the claimant’s net worth.  Third, a claimant’s net worth is reduced when the claimant’s annual income decreases or when the claimant spends down assets on food, clothing, shelter, or health care. VA calculates a claimant’s net worth when it receives an original or new pension claim, a claimant’s request to include a new dependent, information that a claimant’s net worth has increased or decreased, or when the claimant’s annual income decreases. Once net worth is calculated, the VA will deny or discontinue pension benefits if a claimant’s net worth exceeds the net worth limit. 

A claimant’s primary residence, including a residential lot not exceeding 2 acres, will be excluded as a countable asset under the new rules. Also, proposed rules provide that if the residence is sold, proceeds from the sale are countable unless the proceeds are used to purchase another residence within the calendar year of the sale. 

Proposed Changes to Asset Transfers and the Penalty Calculation 

The new rules contain a proposal to establish a 36-month look-back period for any transfer of “covered assets.” A “covered asset” is an asset that was part of a claimant’s net worth, was transferred for less than fair market value, and would have caused the claimant’s net worth to exceed the net worth limit if the asset was not transferred. Thus, the penalty will not be based upon the entire value of the transferred asset, but only upon the value of an asset that would have exceeded the net limit had it not been transferred. The proposed regulations contain the following example: Assume the net worth limit is $115,920, and a claimant’s annual income is zero. The claimant’s total assets are $117,000, which exceeds the net worth limit. In addition, the claimant transferred $30,000 by giving $20,000 to her married son and giving $10,000 to a friend. The claimant’s covered assets are $30,000 because this is the amount by which the claimant’s net worth would have exceeded the limit due to the covered assets alone. 

There is a presumption in the new law that any asset transferred during the look-back period was made for the purpose of decreasing net worth in in order to qualify for a pension benefit. The penalty divisor is the maximum aid and attendance pension rate available to the claimant. The maximum penalty which could be imposed is ten (10) years. The length of the penalty period resulting from the transfer of a covered asset would be calculated by dividing the va;ue oof the covered asset by the maximum aid and attendance pension rate available to the claimant. ‘‘Penalty period’’ is defined as a period of non-entitlement due to the transfer of a covered asset. The penalty period begins in the month following the month in which the asset was transferred. 

A transfer of assets to a trust, or the purchase of an annuity or other financial instrument, reducing net worth and which “would not be in the claimant’s financial interest but for the claimant’s attempt to qualify for VA pension” results in a penalty period. However, assets transferred to a trust established for the benefit of a child are exempt and not subject to penalty if the VA has rated the child as incapable of self-support and there are no circumstances in which the trust assets can benefit the claimant or his/her spouse. Also, only the interest from an annuity is countable when a covered asset is converted to an annuity when (1) the VA previously considered the covered asset in the net worth calculation, or (2) the funds used to purchase the annuity were proceeds from the sale of the claimant’s primary residence, the value of which would not have caused the claimant to exceed the net worth limit. 

Proposed Changes to Medical Expenses Deductible from Income 

The existing rules authorize the VA, in determining annual income in the current pension program, to exclude from annual income amounts paid by a veteran, veteran’s spouse, or surviving spouse, or by or on behalf of a veteran’s child, for “unreimbursed medical expenses” to the extent they exceed 5% of the applicable maximum annual pension rate. The new regulations define “unreimbursed medical expenses” for VA purposes that can be deducted from a claimant’s income as those that are “medically necessary or that improve a disabled individual’s functioning.” Medical expenses meeting the definition are identified as health care provider payments, payments for medications, medical supplies, medical equipment, vitamins and supplements, transportation expenses, health insurance premiums, and hospital charges, as well as charges for nursing homes, assisted living facilities, adult day care and similar facilities (including meals and lodging) as long as the primary reason for residing in the facility is to receive health care services or custodial care. ‘‘Custodial care’’ is defined as regular assistance with two or more activities of daily living (ADLs) or regular supervision because an individual with a mental disorder is unsafe if left alone due to the mental disorder.  In addition to the claimant’s unreimbursed medical expenses, the unreimbursed medical expenses of dependents and certain other family members are deductible. Payments for care services provided by a relative who is not a licensed care provider are deductible from income if the claimant meets the medical requirements for an aid and attendance or housebound VA benefit. 

Proposed Changes to Exclusions of Income and Assets from Calculation of Net Worth 

The new regulations list 27 exclusions applicable to all VA-administered needs-based benefits. For example, the proposed regulations exclude from both income and assets the value of the allotment provided under the Food Stamp Program, the value of free or reduced-price food under the Child Nutrition Act of 1966, and the amount of any home energy assistance payments or allowances provided under the Low-Income Home Energy Assistance Act of 1981. Similar needs-based benefits received by VA claimants are also excluded.

The Federal Register is annexed here – Federal Register, Vol 80, No. 15

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