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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 Basic Veterans, Survivors (also called the Death Pension), Aid & Attendance, and Housebound pensions. 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 called a look back period, established a period of 36-months (3 years) in which the VA “looks back” on all asset transfers. This is a huge change from how asset transfers were previously handled. Before, assets could be gifted or sold for less than their fair market value at any time 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 $150,538 (effective Dec 1, 2022 – Nov 30, 2023). Violating the look back rule results in a penalty 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 in October 2018, a firm net worth limit became effective. Prior to 10/18/18, the VA had no established net worth limit. Instead, it was advised that a single veteran or surviving spouse have assets limited to $50,000, and a married veteran, have assets limited to $80,000. The firm net worth limit, effective Dec. 1, 2022 – Nov. 30, 2023, is $150,538. This figure increases annually as Social Security benefits are increased. The net worth limit not only includes one’s countable assets, but it also includes their countable annual income. Furthermore, if one is married, the net worth limit includes the assets and income of their spouse.
Assets include checking, savings, and money market accounts, mutual funds, and stocks. Some assets are exempt; they 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, one’s annual income is included in their 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 rule. If one gets 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, with the return of assets. Candidates concerned that 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 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, 2022 through Nov. 30, 2023 the pension rate is $31,714 / year ($2,642 / 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 $2,642. 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, 2022 – Nov 30, 2023, applicants are permitted a net worth up to $150,538 for eligibility purposes. Only the portion of transferred assets that are in excess of $150,538 violate the look back rule and are counted towards the penalty period.
Jack is a single veteran with a net worth of $140,000 when he submits his VA pension application. (The net worth limit is $150,538). Jack gave $25,000 to a relative during the 36-month look back period. Had he not done this, Jack’s net worth would be $165,000. He has violated the look back period by $14,462 ($165,000 – $150,538 = $14,462). The penalty period divisor is $2,642, and therefore, $14,462 is divided by $2,642. This equals a penalty period of VA pension benefit ineligibility of 5.47 months which is rounded down to 5 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 $150,538, 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. 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 a net worth over the limit of $150,538. However, say a veteran has $155,000 in net worth and gifts $25,000, leaving them $130,000 in net worth. This violates the look back rule since the veteran had a net worth greater than $150,538 when the cash was gifted.
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. 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 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.
Annuities only violate the look back rule if applicants have excessive net worth; If one created an annuity, but never had a net worth over $150,538, it does not violate 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 the net worth limit for VA pensions. If you have net worth greater than the set limit of $150,538 (valid Dec 1, 2022 – Nov 30, 2023), 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.