If you think you have read this headline before, it is probably because you have. No, this is not a republished article or mistaken post. As Yogi Berra once so elegantly stated, “It’s déjà vu all over again.”
The Department of Veteran Affairs (VA) has proposed a regulation that would enact new pension eligibility provisions, despite legislation similar to the proposed regulation failing in Congress a number of times over the past two and one-half years. Among the most critical of the proposed changes is the implementation of asset transfer penalties for claimants applying for VA needs-based benefits. The transfer provisions propose a 36 month transfer review or lookback period. Transfers within the lookback period and in excess of the net worth limit (see below) would be subject to a monthly transfer of assets penalty calculated by dividing the total amount transferred by the Maximum Annual Pension Rate (MAPR) for aid and attendance. The applicable MAPR would differ depending upon whether the applicant is a veteran or the surviving spouse of a veteran. The penalty would begin the month after the transfer occurs and extend for the duration of the penalty period up to a maximum of ten years.
The VA justifies the need for the regulation based on a 2012 U.S. Government Accountability Office report citing the need for a new rule “to maintain the integrity of VA’s needs-based benefit programs.” Jeff Stinson of the Stinson Law Firm, LLC has and continues to support efforts to curb those abusive pension practices cited in the study as he has encountered many of the abuses noted in the GAO report in our own community. However, the rigidity of many of the provisions of the proposed regulation would likely trap and penalize unknowing individuals conducting ordinary transactions without the contemplation of obtaining a benefit.
For example, the VA would presume under the new regulation that all transfers made within the 36 month review period were made for the purpose of obtaining pension eligibility with very limited exceptions to rebut the penalty. Thus, applicants who have made gifts for birthdays, holidays, and graduations or contributed regularly to their church or favorite charity would be refused VA assistance even though such transfers were made without the intent of pension qualification.
Further, curing a transfer penalty (cancelling the application of a transfer penalty because gifts have been returned) would require that the entire gift is returned to remove the penalty. So even if a family member can return a portion of a gift received from the applicant within the lookback period, the penalty would be calculated on the entire initial gift made unless the entire gift is returned.
Finally, the VA would include the purchase of an annuity as a transfer subject to penalty and consider the interest portion only of an asset that is converted to an annuity as income. Consequently, this could result in the potential “double penalty” of having a transfer of assets penalty applied due to the purchase of the annuity and counting the principal portion of the annuity payments toward the net worth limit.
The regulation would also penalize surviving spouses more severely by applying a different penalty divisor than for a veteran. So, as an example, a $50,000 gift made by a veteran would result in a 23.58 month penalty where the same gift made by the surviving spouse of a veteran would result in a 43.51 month penalty.
Not all parts of the proposed regulation are negative, however. For the first time, the VA proposes a clear, objective net worth limit. The limit would be equal to the maximum Community Spouse Resource Allowance under Medicaid ($119,220 in 2015) and expenses that are appropriate to deduct from income in determining eligibility may be used to reduce net worth if those expenses exceed income. Since its inception, the pension resource limit has been largely subjective, making the determination of what constitutes “excess” net worth a very subjective principle based in most part on the individual claims examiner. With the new proposed regulation, applicants would no longer need to worry about whether a particular examiner will determine that their modest assets are excessive.
In addition to a clear resource limit, the proposed regulation defines and clarifies what the VA considers to be a deductible medical expense for all its needs-based benefits. This should take away one of the most “esoteric” aspects of the program.
Other provisions of the proposed regulation include better defining the exempt residence under the pension program and allowing an exception to the transfer penalty provision for transfers to trusts benefiting certain disabled children.
The most unsettling aspect of the proposed regulation may be what is lacking. The proposed regulation contains no provision as to the effective date of the regulation. Thus, it is unknown when and how the VA intends to apply the new regulation, whether it be to all claims submitted after the publication of the final regulation, all claims pending before the VA after the publication of the final regulation, some predetermined date in the future, or another scenario.
Public Comments to the proposed regulation are due by March 24, 2015 and can be submitted to the Director, Regulation Policy and Management (02REG), Department of Veterans Affairs, 810 Vermont Avenue NW, Room 1068, Washington, DC 20420 or by fax to 202-273-9026.
The Stinson Law Firm will continue the monitor the progress of this proposed regulation and provide updates as they occur.
Even with new eligibility rules, VA pension planning will continue to be available and necessary for many veterans and surviving spouses of veterans. We remain prepared to work with our veteran clients and their families to determine the plan and benefit most appropriate to each individual. We will also continue to guide clients through a well-reasoned analysis to determine what benefit fits an individual client’s situation best and help balance the different requirements of each program Finally, we will work to ensure that our clients receive the plan most suited to their individual needs.
Jeff is Certified as an Elder Law Attorney (CELA) by the National Elder Law Foundation, a distinction held by only a handful of lawyers in Indiana. For almost 20 years, he has focused on elder law, estate planning, long-term care planning, Medicaid planning, Veterans Affairs benefits planning, special needs planning, guardianships, and estate administration.