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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 referred to as 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 made for less than they are worth. The look-back rule is a huge change from how asset transfers were handled in the past. Previously, there was no VA look back period, nor was there a penalization period for gifting/selling assets for less than fair market value. With this rule, the 36-month look back period begins the date of one’s VA pension application, dating back three years, with one exception. The VA does not “look back” at transfers made prior to 10/18/18, the date the rule was implemented. If one is found to be in violation of the look back rule, a period of VA pension benefit ineligibility (up to 5 years) will be the penalty.
The look back rule is intended to prevent veterans and surviving spouses from gifting assets or selling them for less than they are worth in order to meet the net worth (assets + income) eligibility limit of $130,773 (effective Dec 1, 2020 – Nov 30, 2021) for pension applicants.
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 had been no established net worth limit set by the VA. Instead, it was previously 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. As of Dec 1, 2020, this limit is $130,773. This figure, which includes the assets and income of one’s spouse (if married), increases annually as Social Security benefits are increased.
Net worth includes checking, savings, and money market accounts, mutual funds, and stocks. Some assets are not counted towards the net worth limit, and include 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 considered part of one’s net worth. Therefore, one’s monthly income is multiplied by 12 and added to one’s 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 one’s net worth. However, 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?
A violation of 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 is able to get their assets returned to him/her. 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, abbreviated as MAPR, for the Aid & Attendance Pension category for a veteran plus a dependent. As of Dec. 1, 2020 through Nov. 30, 2021 the pension rate is $27,549 / year ($2,295 / month). In simple terms, when an applicant is in violation of the VA look back rule, the value of the transferred or gifted asset(s) is divided by $2,295. This calculation will produce the number of months that a veteran or surviving spouse will be ineligible for VA pension benefits. The penalty period starts the first of the month following the date in which the last asset transfer in violation of the look back rule was made.
As mentioned previously, from Dec 1, 2020 – Nov 30, 2021, applicants are able to have up to $130,773 in net worth for eligibility purposes. This means that 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 $130,773). Jack transferred $20,000 to a relative during the 36-month look back period. Had he not made the transfer, Jack’s net worth would be $140,000. This means that he has violated the look back period by $9,227 ($140,000 – $130,773 = $9,227). The penalty period divisor, at the time of this writing, is $2,295, and therefore, $9,227 is divided by $2,295. This equals a penalty period of VA pension benefit ineligibility of approximately 4 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 $130,773, he/she will not be in violation of the look back rule. For example, say a veteran has $100,000 in net worth (assets + income) and gifts $30,000 to his/her 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 $130,773. However, say a veteran has $145,000 in net worth and gifts $25,000 to a sibling, leaving him/her with $120,000 in net worth. This is in violation of the look back rule since the veteran had a net worth in excess of $130,773 when he/she gifted cash to a sibling.
Another exception to the look back rule is 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 himself/herself prior to the age of 18.
Veterans and surviving spouses are also 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. In order 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 to be turned into an income stream). However, with these newer rules, veterans and surviving spouses no longer have this option. Any transfer of assets into an annuity to “spend down” one’s net worth to meet the asset requirement is in violation of the VA look back period if the annuity cannot be liquidated (cashed out). If it cannot be liquidated, while it will not count towards one’s net worth, the monthly payments are counted towards one’s income. If the annuity can be liquidated, the annuity counts towards one’s net worth, but does not violate the look back period.
Please note: Annuities can 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 130,773, 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. To be very clear, if a veteran or surviving spouse gifted assets or sold them for less than fair market value prior to 10/18/18, they are disregarded even if they fall within the 36-month look back period for an applicant.
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 $130,773, 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 ensure one is doing everything correctly to avoid delaying 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.