Professional Assistance without Financial Product Sales

Major impacts of the final rule are:

1. Maximum $130,773 – the maximum assets a VA pension claimant (whether married or single) can have will be the Federal – which is $130,773
2. Asset Calculation – The claimant’s Assets are defined as the sum of a claimant’s assets and annual income. Assets continue to exclude the claimant’s primary residence, car and personal effects but, the addition of “annual income” is a new wrinkle – basically claimant who, after deducting allowable medical expenses such as their care facility fees from their income, are in a positive income position, will add their positive annual income to their assets for comparison to the $130,773 maximum asset limit.
3. Grandfather Clause for Asset Transfer – The Final rule has an error in it, which we called to the attention of the Acting Assistant Director, Pension and Fiduciary Service this morning – the rule states the VA will not ‘‘look back’’ to transfers before 10/18/2018 but the example in the Rule is for a transfer in August 2018 and September of 2018. Hopefully the example is incorrect and needs to be modified to say 2019 or the VA needs to be clear that they are not looking at asset transfers for applications filed prior to 10/18/2018, which is how the VA generally implements rules – stay tuned.
4. Look Back Period – when assets are transferred or gifted during the 3-year look back period, and the asset would have caused assets to be excessive, a penalty period, not to exceed 5 years, will be calculated based on the portion of the transferred assets that would have made net worth excessive. Note that not all transfers cause a penalty – if the claimant had $100,000 and transferred $90,000 there is no penalty as the claimant was under the $130,773 maximum asset amount with or without the transfer.
5. Purchasing Annuities or Creating a Trust to reduce assets – If the claimant does not have access to the principal after the transfer or purchase, the VA will calculate how much of the purchase of transfer should be used in calculating the penalty period. For purposes of this example, the net worth limit is $130,773. A claimant’s annual income is zero and her total assets are $159,094, which exceeds the net worth limit. If the claimant had transferred $30,000 by purchasing an annuity or transferring it to a trust, the claimant’s assets used in calculating the penalty period is $30,000 (referred to as “covered asset” by the VA) because this is the amount by which the claimant’s net worth would have exceeded the limit due to the purchase or transfer alone.
6. Penalty Period Calculation for Transferring Asset in excess of $130,773 within the Look Back Period –The penalty period will be calculated by dividing the covered asset by the Maximum Annual Pension Rate of a veteran in need of aid and attendance with one dependent, which is $2,295 for 2021. Using the example above, the penalty period would be $30,000 divided by $2,295 for a penalty period of 13.23 months.
7. Restriction on Primary Home Lot – The lot on which a residence sits that does not exceed 2 acres is excluded from Countable Assets, unless the additional acreage is not marketable. In other words, if your home is on a 4 acre lot and 1 acre is marketable, the fair market value of the marketable one acre, less mortgage and encumbrances, will be included in the asset calculation.

Previously the fact that all claims with more than $80,000 had to have an additional level of review was used by some practitioners to make claimants believe they could not have more than $80,000. Under the new regulations, it is clear – claimants cannot have assets in excess of the Federal maximum Community Spouse Resource Allowance defined by Medicaid. Elder Resource Benefits Consulting believes having a clear net worth limit promotes consistency and uniformity in the VA’s claim decisions and is hopeful these changes will reduce the time to award.

As always, Elder Resource Benefits Consulting does not sell or refer to those who sell financial products.