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In order to be eligible for the Department of Veterans Affairs (VA) pension benefits, such as the basic, aid & attendance, and housebound pensions, there are income and net worth (assets plus income) limits that must be met. Generally, one’s home is an exempt (non-countable) asset, but what happens if the home is sold after approval for VA benefits? Will the proceeds from the sale cause disqualification of benefits? Is there a way to protect the proceeds of the sale and still qualify for benefits?
VA Pensions & Home Ownership / Sales Rules
If a veteran lives in their home, the home and land on which it sits (up to 2 acres) is exempt. This means it is not counted as an asset towards VA pension eligibility. If a veteran does not live in their home and rents it out, rent payments are counted as income, and the value of the home is generally considered an asset. However, if a veteran does not live in the home, does not rent it out, and intends to return to the home, it is considered an exempt asset. For VA purposes, when a veteran has moved into a care facility, such as an assisted living facility, a memory care unit, or a nursing home, it is assumed there is “an intent” to return home. Therefore, the home remains exempt.
Should you or your loved one be applying for a VA Pension and want to sell your home, it is recommended you consult with a VA Pension Planner prior to doing so. In some cases, the proceeds from a sale will make the applicant ineligible. A VA Pension Planner may be able to help qualify the applicant and preserve their home sale proceeds. Connect with a VA Pension Planner here.
A VA look back rule was implemented on 10/18/18. Before this, a veteran could realistically sell their home prior to applying for VA pension benefits, give the proceeds to their child, and still be eligible for benefits. This is no longer allowed. In simple terms, the “look back” is a period of 36-months immediately preceding one’s VA application in which the VA scrutinizes all asset transfers to ensure no assets were given away or sold for less than fair market value. If this has been done, it is assumed it was done to meet the VA’s net worth limit. Violating the look back period causes VA benefit ineligibility for as long as 5 years. As a side note, gifting one’s home or selling it under fair market value can also disqualify one from Medicaid long-term care benefits due to Medicaid’s 60-month look back period.
Any asset transfers made prior to the implementation of the VA look back rule on 10/18/18 does not violate the look back rule. Furthermore, effective 12/1/21 – 11/30/22, if a veteran’s assets do not make their net worth exceed $138,489, gifting assets or selling them for less than they are worth does not violate the look back rule.
Also implemented in October of 2018, the VA established a 2-acre limit on which the home sits. An exception exists if any extra acreage is not sellable. Reasons it may not be sellable include it being only slightly over the 2-acre limit, there is an inaccessibility issue, and zoning limits prevent the land from being sold. This means if a veteran has a home on 6-acres of land and the extra acreage is sellable, under the new rule, 4-acres of land is non-exempt. Therefore, it would count towards the veteran’s net worth.
What Happens to My VA Benefits If I Receive Cash from a Home Sale?
It is not usually recommended that a veteran sell their home while receiving VA pension benefits. Instead, it is usually suggested that the home be sold after the death of the veteran. Remember, one’s home is considered to be an exempt asset by the VA. This is true even when the individual resides in a nursing home or assisted living facility, as there is an assumption the veteran has “intent” to return to the home.
If a veteran sells their home while receiving VA pension benefits, the proceeds from the sale will count as assets as soon as the money is deposited in the bank. This will count towards the VA’s net worth limit of $138,489. If a veteran is married, the net worth limit also includes the income and assets of their spouse. Prior to an established net worth limit implemented in October of 2018, it was generally advised that a single applicant be limited to $50,000 in net worth and married couples limited to $80,000. This suggested net worth limit did not include one’s annual income, only assets. While annual income is now calculated towards one’s net worth, eligible unreimbursed medical expenses can be deducted from one’s income, lowering the amount counted towards one’s total net worth. Learn more about countable income and the VA’s net worth limit.
Unless a veteran has very few assets, none to minimal countable income, and their home is worth very little, the proceeds from selling it would put them over the net worth limit. The “excess” net worth in turn results in disqualification for VA benefits. However, there is one exception for veterans currently receiving VA benefits. To avoid the proceeds from counting as assets, veterans can purchase another home within the same calendar year. If another home is not purchased within this timeframe, the sale proceeds will be counted as assets if asset planning strategies are not utilized. Without asset protection or purchasing a new home within the same calendar year, the scenarios below may all result in ineligibility.
Single Person at Home
When a single person lives at home and sells their home (for example, if they are moving to residential care), the proceeds of the sale will count as assets once they have been deposited in the veteran’s bank account. This addition of assets most likely will cause the veteran to be disqualified from receiving VA pension benefits. However, the veteran can use the proceeds of the sale to pay for long-term care and once the extra assets have been “spent down”, the veteran can re-apply for pension benefits.
Single Person in Assisted Living / Nursing Home
When a single person lives in assisted living, their primary home is considered an exempt asset, as there is an assumed “intent” of the individual to return home. However, as soon as the individual sells their home and the proceeds are deposited into their bank account, the money from the sale is considered a countable asset. This most likely will result in disqualification of VA pension benefits. The veteran can use the proceeds of the home to cover the cost of assisted living and upon depleting the funds, re-apply for pension benefits.
Married Couple at Home
When a married couple lives in their home and sells it, the proceeds from the sale will count as assets once they are in the couple’s bank account. This addition of assets will likely disqualify the couple from receiving VA pension benefits. If, and when this happens, the couple can “spend down” their assets on care assistance and then re-apply for VA benefits.
Married Couple in Assisted Living or Nursing Home
When a married couple lives in assisted living or a nursing home facility, their primary home is considered to be a non-countable asset. This is because it is assumed that the couple plans to return to the home at some point. However, once the home has been sold and the proceeds deposited into their bank account, the proceeds are not exempt, meaning they are counted as part of their net worth. This will, in all likelihood, disqualify the couple from receiving VA pension benefits. If this happens, the couple can use the proceeds from the home to pay for their assisted living or nursing home fees and once the funds have been depleted, they can re-apply for VA benefits.
What Can Be Done to Protect the Proceeds from the Home?
If a veteran wishes to sell their home, it is best to sell it prior to applying for VA pension benefits. While veterans are encouraged to keep their home while receiving benefits, there are asset planning strategies, also called estate planning, for veterans who want to sell their home before receiving VA approval of pension benefits. However, with the newer VA rules implemented in October of 2018, the way assets had previously been restructured to lower one’s net worth also changed. Below are some examples of asset planning strategies that had previously been utilized, as well as how the new rules impacted them.
An annuity is an insurance product that takes assets and turns them into an income stream. In very simplified terms, a lump sum of cash is paid, and in return, monthly income is received for a specified period. Also called an immediate annuity, the income stream was previously exempt from a veteran’s net worth (assets). It did, however, count as income and could have potentially caused a veteran to have too much income. Veterans who have income that exceeds the amount of the pension benefit are ineligible for benefits.
With the newer VA rules, moving assets into an annuity to lower one’s net worth violates the look back rule, given the annuity cannot be liquidated (cashed out). Remember, violating the look back rule can result in a period of VA pension ineligibility. If the annuity can be liquidated, the annuity in its entirety is counted towards one’s net worth. In addition, the VA counts income (minus eligible unreimbursed medical deductions) towards one’s net worth. Unfortunately, annuities no longer serve as a good vehicle to reduce one’s net worth.
A promissory note also takes assets and turns them into a monthly income stream. Prior to the newer rules, a promissory note allowed a veteran to give a loan to a third party, effectively lowering their net worth (assets) without jeopardizing their eligibility for VA pension benefits. The assets were no longer considered owned by the veteran, but instead owned by the borrower. In the loan document, the borrower (i.e., an adult child or family friend) promises to pay the veteran an agreed amount of money, including interest, each month for a preset period of time. Unfortunately, promissory notes are a violation of the look back period unless the veteran can get their money back. If the veteran can get their money back, it counts towards their net worth.
An irrevocable trust, sometimes called a VA asset protection trust, is another asset protection strategy that was previously used to protect the proceeds from the sale of a veteran’s home. Irrevocable means the terms of the trust cannot be changed or terminated. Essentially, a trust is created, the proceeds deposited, and the veteran is no longer considered the owner of the money. Rather a trustee, who was named by the veteran, is considered the owner. Therefore, the money does not count towards the veteran’s net worth. However, with the newer VA rules, a trust violates the look back rule if it cannot be cashed out. If it can be liquidated, the trust counts towards one’s net worth. The only trust that does not violate the look back rule is one established for one’s disabled child. The child must be determined unable to support themself before the age of 18.
Words of Caution / “Spending Down” Assets
In the past, annuities and promissory notes have provided a way to turn net worth (assets) into an income stream, and therefore, provide a means to lower one’s net worth. Trusts, although extremely tricky and generally not recommended, were also a method that was occasionally used to lower one’s net worth. However, it cannot be stressed enough that with the change of VA rules on 10/18/18, these past methods of lowering one’s net worth are no longer advisable.
With the newer VA changes, it still isn’t entirely clear what asset planning strategies are ideal. However, one such option is to “spend down” excess assets on exempt (non-countable) services or items that are purchased at fair market value. Examples include paying for care assistance, purchasing a pre-burial plan, and even using extra assets to take a vacation. Furthermore, if Veterans can put promissory notes or trusts in place well in advance of the projected need for VA benefits (at least 3 years after implementation, missing the look-back period), these planning strategies might still be viable options.
If one has excess assets, it is strongly encouraged a professional VA advisor be contacted. This is of particular importance given the dramatic change in VA pension rules and future financial planning strategies still not entirely clear.
Professional VA Planning Assistance
It is highly recommended that a veteran’s home not be sold until after they pass away. The home is considered exempt regardless of where the veteran lives. Therefore, selling it doesn’t generally make financial sense, given the proceeds of the home can disqualify one from receiving VA pension benefits. If you are a veteran thinking about selling your home, seek professional VA assistance, as these professionals are well versed in strategies for protecting the proceeds from the sale of one’s home. In addition, each veteran’s case is different and there are a lot of variables that are considered when determining VA benefit eligibility, making professional VA assistance all the more valuable.
Find a VA benefits planner here.