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In September of 2018, the Department of Veterans Affairs (VA) released new rules for non-service connected disability pensions. These pensions include the following: the Basic Veterans Pension, Survivors Pension (also called the Death Pension), Aid & Attendance Pension, and Housebound Pension. These VA rules, which include a look back rule and a set net worth limit, became effective October 18, 2018. While these rules were first proposed back in 2015, unlike with Medicaid, the VA had never previously had a look back rule or set net worth limit.
What is the VA Look Back Rule?
The VA look back rule, also referred to as a look back period, established a period of 36-months (3 years) in which the VA “looks back” on all asset transfers. The look-back rule is a huge change from how asset transfers were handled in the past. Previously, assets could be gifted or sold for less than their fair market value without any repercussions.
The 36-month look back period is intended to prevent veterans and surviving spouses from gifting assets or selling them for less than they are worth. The “look back” period immediately precedes the date of one’s VA pension application. The VA does not, however, “look back” at transfers made prior to 10/18/18, the date the rule was implemented.
If one has violated the look back rule (transferred assets for less than fair market value), it is assumed it was done in order to meet the VA’s net worth (assets + income) eligibility limit of $138,489 (effective Dec 1, 2021 – Nov 30, 2022). Violating the look back rule results in a period of VA pension benefit ineligibility (up to 5 years).
How the Look Back Rule Impacts the Net Worth Limit
With the implementation of the look back rule, another newer rule is very important to mention. In previous years, there also had been no established net worth limit set by the VA. Instead, it was advised that a veteran or surviving spouse have assets no greater than $50,000, and a married veteran have assets limited to $80,000. However, on 10/18/18, the VA set a firm net worth limit. This figure, which includes the assets and income of one’s spouse (if married), increases annually as Social Security benefits are increased. As of Dec. 1, 2021, it is $138,489.
Assets, which are part of net worth, include checking, savings, and money market accounts, mutual funds, and stocks. Some assets are not counted towards the net worth limit. This includes one’s primary home on up to 2 acres of land (acreage in excess of 2 acres will be counted towards one’s net worth), household goods, a personal vehicle, and personal items, such as clothing.
As mentioned above, income is included in one’s net worth. Therefore, one’s monthly income is multiplied by 12 and added to their net worth. For example, if a veteran or surviving spouse receives $1,200 / month in income, $14,400 ($1,200 x 12 = $14,400) will be added to their net worth. However, some unreimbursed medical expenses (meaning they are not paid for by insurance) can be deducted from one’s income, effectively lowering the amount of income applied towards the net worth. Examples of unreimbursed medical expenses include insurance premiums, in-home care, and assisted living / nursing home costs.
What if I Have Violated the Look Back Rule?
Violating the 36-month look back period can result in a penalty period of VA pension ineligibility of up to 5 years. However, there is a loophole for those who have violated the look back period. If they are able to get their assets back prior to pension application, or within 60 days of VA determination that the penalty period was violated, the penalty period can be reconsidered. Even a partial recuperation of assets can result in recalculation of the penalty period. This means that the penalty period can be reversed, either fully or in part, when an applicant gets their assets returned. Candidates concerned they may have violated the look back rule may wish to consult with a VA pension planner.
How is the Penalty Period Determined?
The penalty period for violating the look back period is calculated using the Maximum Annual Pension Rate(MAPR) for the Aid & Attendance Pension category for a veteran plus a dependent. As of Dec. 1, 2021 through Nov. 30, 2022 the pension rate is $29,174 / year ($2,431 / month). In simple terms, when an applicant violates the VA look back rule, the value of the transferred or gifted asset(s) is divided by $2,431. This calculation produces the number of months that a veteran or surviving spouse is ineligible for VA pension benefits. Note that the calculation is rounded down when determining the months of ineligibility. For instance, a calculation of 4.5 months is rounded down to 4 months. The penalty period starts the first of the month following the date of the last asset transfer that violated the look back rule.
From Dec 1, 2021 – Nov 30, 2022, applicants are permitted up to $138,489 in net worth for eligibility purposes. Only the portion of transferred assets that are in excess of this amount are counted towards the penalty period.
Jack is a single veteran with a net worth of $120,000 when he submits his VA pension application. (Recall that the net worth limit is $138,489). Jack transferred $25,000 to a relative during the 36-month look back period. Had he not made the transfer, Jack’s net worth would be $145,000. This means that he has violated the look back period by $9,227 ($145,000 – $138,489 = $6,511). The penalty period divisor, at the time of this writing, is $2,431, and therefore, $6,511 is divided by $2,431. This equals a penalty period of VA pension benefit ineligibility of 2.67 months which is rounded down to 2 months.
Exceptions to the Look Back Period
If a veteran or surviving spouse gifted assets or sold them for less than they are worth, but never had net worth over the established limit of $138,489, they did not violate the look back rule. For example, say a veteran has $100,000 in net worth (assets + income) and gifts $30,000 to their adult daughter. This leaves the veteran with $70,000 in net worth. This transaction does not violate the VA’s look back rule, as the veteran never had net worth over the limit of $138,489. However, say a veteran has $145,000 in net worth and gifts $25,000 to a sibling, leaving them $120,000 in net worth. This violates the look back rule since the veteran had a net worth greater than $138,489 when the cash was gifted to a sibling.
Another exception to the look back rule exists when veterans or surviving spouses transfer assets in order to set up a trust for their disabled child. Please note, the child must have been deemed disabled and unable to support themselves before age 18. Furthermore, the assets cannot be made available to benefit the Veteran, their spouse, or a surviving spouse.
Veterans and surviving spouses are able to “spend down” their excess net worth without violating the look back period by spending assets on services and other items valued at fair market value. To reduce one’s net assets, purchases must be for non-countable assets. Examples include paying medical bills prior to qualification for VA benefits, pre-paying for a burial policy, buying a new vehicle, or even spending funds on a vacation.
What About Annuities?
Prior to the establishment of these VA rules effective 10/18/18, annuities were used as a means to lower a veteran or surviving spouse’s net worth to qualify for VA pensions. Annuities provide a way for assets (a lump sum of cash) to be turned into an income stream. With these newer rules, veterans and surviving spouses no longer have this option. Any transfer of assets into an annuity that reduces one’s net worth violates the VA look back period if the annuity cannot be liquidated (cashed out). Furthermore, while the assets will no longer count towards one’s net worth, the monthly payments will count as income and be applied to one’s net worth. If the annuity can be liquidated, the entire value of the annuity counts as an asset and is calculated towards one’s net worth. It does not, however, violate the look back period.
Please note: Annuities only violate the look back rule if applicants have excessive net worth. Said another way, if a veteran or surviving spouse created an annuity, but never had assets in excess of $138,489, it is not a violation of the look back rule. Another exception is the requirement of annuities upon retirement from employment. While this type of annuity will not violate the look back rule, the monthly income from the annuity will still be counted as income. Read about annuities impact on Medicaid eligibility.
What if I Have a Pension Application Currently Pending?
Veterans and surviving spouses who have a VA pension application pending prior to the implementation of the look back rule on 10/18/18 will not be impacted. Only asset transfers and gifts made AFTER the effective day of 10/18/18 violate the look back rule. This means if a veteran or surviving spouse gifted assets or sold them for less than fair market value before 10/18/18, they are disregarded even if they fall within the 36-month look back period.
Professional VA Planning Assistance
With the newer VA rules, there is still some uncertainly regarding planning strategies that can be used to lower one’s net worth without violating the look back rule. This page will be updated as greater details become available. There are workarounds that can assist veterans and surviving spouses in meeting net worth eligibility requirements for VA pensions. If you have net worth greater than the set limit of $138,489 (valid Dec 1, 2021 – Nov 30, 2022), or have questions about applying for a VA pension, do not hesitate to contact a professional VA planner. Applying for benefits is a complicated, and often times, confusing process. Working with a planner can be extremely instrumental in avoiding delay of benefits, denial of benefits, or violating the VA’s rules. Find a professional VA planner here.
Alternatively, if you wish to apply immediately, it is strongly recommended to take a VA Pension Eligibility Test prior to doing so.