On September 18, 2018, the VA published a new rule in the Federal Register “RIN 2900-AO73: Net Worth, Asset Transfers, and Income Exclusions for Needs-Based Benefits” which will change the way Veterans plan and qualify for benefits. This rule will take effect October 18, 2018 and will not be retroactive.  The official rule can be viewed HERE.

Below is a brief summary of what the new rule entails.

Net Worth Limit – Previous to the new rule, we were left guessing as to the amount of assets the VA would allow to be retained by a claimant when qualifying for benefits. It was generally known to be somewhere around $20,000-$80,000 based on a claimant’s age, expenses and circumstances.  Now, the VA has given us clear direction and established a bright-line net worth limit of $123,600. This new amount is subject to increase with cost of living increases and Social Security increases. The net worth calculation is the combined value of the claimant’s assets and annual income.

Primary Residence – Before the new rule, the claimant’s primary residence was an excluded asset when calculating Net Worth. Luckily, under the new rule, it will continue to be excluded as an asset for VA Pension purposes. In certain cases, the new rule will allow the primary residence may be considered excluded even if the claimant is not residing in the primary residence at the time of application. Under the new rule, if that primary residence is sold, the net proceeds from the sale of the home will not be counted as an asset if those proceeds are used to buy another primary residence within the same calendar year as the sale. This change in the rule about sale proceeds necessitates planning the timing of a sale of a primary residence a new consideration in planning strategies.

Covered Assets – Now defined by the VA, a “covered asset” as an asset that was part of a claimant’s net worth, that was transferred for less than fair market value; and, if not transferred, would have caused or partially caused the claimant’s net worth to exceed the net worth limit.

Trusts and Annuities – This portion of the new rule will cause a major shift in VA planning strategies for the future. Beginning October 18, 2018, transfers to trusts and annuities are considered as transfers for less than fair market value under the new rule unless the claimant retains the ability to liquidate the entire balance of the trust or annuity for his or her own benefit.

Look-back Period – This is one of the biggest impacts of the new rule on eligibility for a claimant. The VA has created a 36-month look-back period which looks back to the preceding 36 months from the date of the VA application. This means transfers of covered assets transferred for less than fair market value will cause a penalty which can hinder the planning options available for claimants in the future.

Penalty Period – Along with the look-back period, the VA has enacted a Penalty Period (capped at 5 years) for the transfer of a “covered asset” within the look-back period. If a claimant has made a transfer of a covered asset during the look back period, the VA’s new rule gives guidance on ways to reduce the penalty period and ways to cure the transfer. It is highly recommended to talk with a VA Accredited Attorney before transferring assets, giving assets away, adding someone as an owner of an asset (such as bank account, real estate or car) in order to prevent a penalty situation.

Spend-down of Assets – Based on the new rule, claimants may not meet the net worth limits. Luckily, the new rule will allow a claimant to spend-down assets on an item or service for which fair market value is received without a penalty. This is good news, because this allows for a different avenue of planning strategies to get a claimant qualified for benefits that will avoid a penalty.

Medical Expenses – How the VA calculates a claimant’s income for VA purposes (IVAP) will not change, but “Medical Expenses” as a component of the IVAP determination is now defined as unreimbursed payments for items or services that:

  1. are medically necessary;
  2. improve a disabled individual’s functioning; or
  3. prevent, slow, or ease an individual’s functional decline.

Activities of Daily Living (ADLs) and Instrumental Activities of Daily Living (IADLs) – The new rule also defines ADLs as basic self-care activities, i.e. bathing/showering, dressing, eating, toileting, transferring (moving from one position to another, such as getting in and out of bed), and ambulating within the living area. IADLs are defined as independent living activities, such as shopping, food preparation, housekeeping, laundering, managing finances, handling medications, using the telephone, and transportation for non-medical purposes. This rule change provides definitive and helpful guidance on what VA considers ADLs and IADLs in order to determine if a claimant meets the “custodial care” prong in determining eligibility.

Custodial Care – Defined by the new rule as regular assistance with two or more ADLs; or regular supervision because an individual with a physical, mental, developmental, or cognitive disorder requires care or assistance on a regular basis to protect the individual from hazards or dangers incident to the claimant’s daily environment.

VA Pension payments to a Medicaid nursing home benefit recipient – VA benefits will be capped at $90 per month for those claimants receiving ICP Medicaid benefits (those benefits for someone living in a nursing home or skilled nursing facility). Additionally, the new rule now enumerates that a VA Pension recipient is not liable for any payments exceeding the $90 per month if such payment was a result of the VA’s failure to reduce payments, unless the VA Pension recipient willfully concealed the overpayment from VA.