In January 2015, the Department of Veterans Affairs (VA) published proposed changes to eligibility requirements for VA pensions and other needs-based benefit programs. Following a 60-day public comment period, the VA reviewed and analyzed more than 850 total comments and took them into consideration before publishing the final eligibility rules and requirements for these VA benefits programs in September 2018.

These new rules will go into effect on October 18, 2018, for all NEW claims/applications for needs-based benefits. Note that any veterans who are already receiving pension funds will not be affected by these changes unless they become ineligible for another reason and must reapply. Pension applications that are pending as of the effective date and do not meet these new rules will require administrative determinations.

Why Is the VA Changing the Rules?

VA pensions, such as the basic veterans pension, aid & attendance (A&A) pension, housebound pension and survivors pension, are all needs-based. The biggest change to the eligibility requirements for these programs is how the VA considers an applicant’s finances and determines if they are truly “at need.”

Prior to this update, the VA used limited financial criteria and vague definitions that caused confusion amongst applicants and led to inconsistent determinations of eligibility and ineligibility. Through these updated rules, the VA seeks to clarify the eligibility requirements for veterans and their families, improve the integrity and consistency of the pension program, and expedite benefits decisions.

The minimum active duty and wartime service requirements as well as the age/disability requirement remain in place for VA pension programs. However, there are new financial requirements and clarified definitions for key concepts, which are explained below.

The VA Now Uses Net Worth to Determine Financial Eligibility for Pensions

Prior to these new rules, the VA used a household income cap to determine if applicants were eligible for pension and, if so, the amount they were eligible to receive. There was no set maximum amount of assets that an applicant could have, which resulted in claims processors inconsistently and arbitrarily approving and denying applications. To eliminate these inconsistencies, the VA has switched to using an applicant’s net worth to determine financial eligibility.

The VA chose to use Medicaid’s maximum community spouse resource allowance (CSRA) as the new bright-line net worth limit for needs-based benefits. As of October 2018, the maximum CSRA is $123,600. Like social security benefits and the CSRA, a cost-of-living adjustment will be made annually to the VA’s net worth limit to ensure these numbers keep pace with inflation. In order to qualify for a VA pension under the new rules, an applicant’s net worth (assets plus annual income) must be less than or equal to the maximum CSRA.

There will be no hardship exceptions to this net worth limit. The VA has concluded that the CSRA is “a number that was adopted by Congress to prevent the impoverishment of the noninstitutionalized spouse of a Medicaid-covered individual. It is no stretch, then, for VA to conclude that individuals with net worth beyond the maximum CSRA are sufficiently protected from impoverishment and do not need VA pension. Moreover, using the maximum CSRA allows pension claimants to retain a reasonable portion of their assets to respond to unforeseen events, including medical care.”

The VA will calculate (or recalculate) a claimant's net worth when it receives a new pension claim, a secondary claim following a period of non-entitlement, gets a request to establish a new dependent, or finds information that an applicant’s net worth has increased or decreased. An example of a change in information would be the income tax reporting that is required whenever anyone sells real estate, such as a house.

Rules for Counting Homes as Assets

The new VA net worth limit does not include a claimant's primary residence of any value, including a residential lot area not to exceed 2 acres, as an asset. This applies even if a claimant is a resident in a nursing home, a care facility other than a nursing home, or the home of a family member for health care or custodial care.

So, if a claimant’s home sits on a farm or a plot of land greater than two acres (87,120 square feet), the extra land would be included in their asset calculations unless the additional acreage is deemed unmarketable. The VA explains that “additional property might not be marketable if, for example, the property is only slightly more than two acres, the additional property is not accessible, or there are zoning limitations that prevent selling the additional property.”

There are VA regulations for the sale of residential property as well. Once a primary residence is sold, the net proceeds are considered assets unless the claimant uses those funds to purchase another residence within the same calendar year as the sale. Unfortunately, this means that a claimant who sells their home in December would have only a few weeks or even days to decide what to do with the proceeds to maintain their financial eligibility for needs-based benefits. If a claimant decides to offer their primary residence as a rental, the rental income counts towards the claimant’s net worth.

Except for the primary residence, all other properties under the claimant’s ownership are considered assets, but encumbrances such as liens and mortgages can be deducted from their value. Even if additional properties are listed for sale, they still count towards an applicant’s net worth.

The VA Has Established Look-Back and Penalty Periods

Unlike Medicaid, which conducts a five-year look-back to catch any disqualifying asset transfers, the VA has never imposed a transfer penalty on veterans who gave away money to reduce net worth and qualify for pensions. That is, until now. The new regulations establish a 36-month look-back period for disqualifying transfers and a penalty period not to exceed five years for those who dispose of assets in an attempt to qualify for pension.

Any assets that were divested within three years of filing a new claim for less than fair market value and that would have disqualified the applicant due to excessive net worth will incur a penalty period. However, only the portion of the assets that would have disqualified the applicant will be used to calculate their period of ineligibility for pension.

For example, if an applicant’s net worth is $133,600 ($10,000 over the $123,600 net worth cap in 2018) and they gift their adult child $15,000, then their remining net worth would fall under the limit. However, the asset transfer would result in a denied application for benefits and trigger a penalty period of ineligibility.

To calculate the length of the applicant’s penalty period, the VA would use the $10,000 of excess net worth as the dividend even though the total transfer was $15,000. The VA then takes the maximum annual pension rate (MAPR) for a veteran in need of aid & attendance with one dependent ($26,036 in 2018), divides it by 12, and rounds down to the nearest whole dollar to produce a monthly pension/penalty rate and the divisor for the asset transfer ($2,169 in 2018). $10,000 divided by the $2,169 penalty rate equals 4.6. However, the VA rounds this penalty length down to the nearest whole month, resulting in a four-month penalty for this hypothetical claimant. Going forward, the VA will use the A&A with one dependent MAPR as the divisor for all applicants who incur penalty periods, regardless of which pension they applied for or how many dependents they have.

The VA will disregard all asset transfers that took place before October 18, 2018. Otherwise, claimants that make transfers of covered assets during the three-year look-back period must provide clear and convincing evidence that these financial activities were not “for the purpose of reducing net worth to establish entitlement to pension.” Additionally, transfers that occur “as the result of fraud, misrepresentation, or unfair business practice related to the sale or marketing of financial products or services for purposes of establishing entitlement to VA pension” are excepted from the look-back, but claimants must provide compelling evidence supporting this exception.

After a penalty period is imposed, claimants have a very tight time frame to try to wholly or partially “correct” their financial ineligibility. The VA will only recalculate the penalty if they made a mistake or if the “VA receives evidence showing that some or all covered assets were returned to the claimant before the date of claim or within 60 days after the date of VA’s notice to the claimant of VA’s decision concerning the penalty period.” For this exception to apply, evidence must be received by the VA no later than 90 days after the date of VA’s notice to the claimant of the decision concerning the penalty period.

Per the new rules, “The penalty period begins on the first day of the month that follows the date of the transfer. If there was more than one transfer, the penalty period will begin on the first day of the month that follows the date of the last transfer.” Once a penalty period has ended, “VA will consider that the claimant, if otherwise qualified, is entitled to benefits effective the last day of the last month of the penalty period, with a payment date as of the first day of the following month.”

Trusts and Annuities Could Trigger Penalty Periods

Another provision of the new regulations discourages the use of annuities and trusts to restructure claimants’ finances in order to qualify for VA benefits. Essentially, if a claimant uses a financial tool like an annuity or trust to transfer assets and retains the ability to access and liquidate the asset, then it counts towards their net worth. However, if a claimant uses a trust or annuity to transfer assets and forfeits their ability to access and liquidate them, then it will count as a transfer for less than fair market value and trigger a transfer penalty. But remember, a penalty period will only be imposed if a claimant’s net worth was greater than the VA limit beforehand and the if transaction itself occurred within the 36-month lookback period. Any income received from trusts or annuities will count as income and affect net worth.

It is important to note that there is no penalty for trusts established on behalf of a child who became permanently incapable of self-support before their 18th birthday.

Deductible Medical Expenses Defined

The ability to deduct unreimbursed health care costs from income and net worth calculations is vital for helping claimants who are very ill and require extensive care to qualify financially for needs-based benefits. The rule allowing the deduction of unreimbursed medical expenses that exceed five percent of the appropriate maximum annual pension rate (MAPR) remains in place, but the new regulations clarify what types of care can qualify as income-reducing medical expenses.

The VA maintains that medical expenses include “payments for items or services that are medically necessary, that improve a disabled individual’s functioning, or that prevent, slow, or ease an individual’s functional decline.” Medically necessary items and services like hospitalizations and medications are typically straightforward and easy to identify. However, there has been confusion over whether the VA allows the cost of certain types and aspects of long-term care, specifically custodial care, instrumental activities of daily living (IADLs), and meals and lodging, to be excluded from claimants’ net income.

Custodial Care and ADLs

Previously, the VA defined activities of daily living (ADLs) as basic self-care, including bathing or showering, dressing, eating, transferring (getting in or out of bed or a chair), and using the toilet. Assistance with two or more ADLs counts as custodial care in the VA’s eyes, but this recent update expands the scope of custodial care. Assistance with “ambulating within the home or living area” has been added to the VAs list of approved ADLs.

Another significant milestone is the expansion of custodial care to include “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 his or her daily environment.” For example, this means that a senior with dementia who may be still able to complete all but one of their ADLs but requires constant supervision could now deduct the costs of custodial care from their net worth, whether the care is provided in the home or in a long-term care facility.

IADLs and Room and Board

Instrumental activities of daily living (IADLs) are tasks that a person must be able to complete unassisted to live independently. The VA defines IADLs as shopping, food preparation, housekeeping, laundering, managing finances, handling medications, using the telephone and transportation for non-medical purposes. Because assistance with IADLs is not considered medically necessary, the VA does not generally consider them deductible medical expenses. However, in many scenarios, the line between assisting with ADLs and IADLs can be very blurry. Therefore, under the new rules, if an individual is receiving custodial care and/or health care from a care provider or care facility, then IADLs can be added as a deductible expense. The same rule applies for the exemption of room and board costs as medical expenses at care facilities

Navigating VA Rule Changes

VA benefits are tricky to navigate, but there are numerous resources available for veterans and surviving family members who need assistance with filing claims. Help can be found online, through national organizations, or from local and community-based groups and charities. For more articles, questions and answers on veterans pensions and other VA benefits, visit the Veterans Benefits topic page.

You can peruse the updated regulations in their entirety on the U.S. Government Publishing Office website.