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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 asset requirements that must be met. Generally, one’s home is considered an exempt (non-countable) asset, but what happens if one sells his or her home after being approved for VA benefits? Will the proceeds from the sale result in 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 his/her home, the home and land on which it sits is considered exempt, or said another way, it is not counted as an asset towards VA pension eligibility. If a veteran does not live in his/her 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 is intending 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 is exempt.
The VA published several new rules that were effective on 10/18/18. While a look back rule was proposed back in 2015, up until 2018, it was never implemented. Therefore, 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. However, the new VA look back rule no longer allows this. In simple terms, this is a period of 36-months immediately preceding one’s VA application in which the VA “looks back” to ensure no assets were given away or sold for less than fair market value in order to meet the asset limit. If one is found to be in violation of the look back period, there is a period of VA ineligibility, which can be as long as 5 years. (Also note: Gifting one’s home or selling it under fair market value can also result in disqualification for Medicaid benefits due to Medicaid’s 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, if a veteran’s assets do not make his / her net worth (the combined total of an applicant’s annual income plus total assets) greater than the net worth limit of $129,094 (effective December 2019), gifting assets or selling them for less than they are worth does not violate the look back rule.
Another new rule released by the VA in September of 2018, established a 2-acre limit on which the home sits, with the exception that any extra acreage is not sellable. Reasons the extra acreage would be exempt include that it is just slightly over the 2-acre limit, there is an inaccessibility issue, and zoning limits prevent the land from being sold. Stated another way, if a veteran has a home on 6-acres of land and the extra acreage is sellable, under the new rule, he/she would have 4-acres of land that is not 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 his/her home while receiving VA pension benefits. Instead, it is usually suggested that the home be sold after the death of the veteran. As mentioned previously, 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.
In the event that a veteran sells his/her 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. As mentioned above, the VA has an asset limit, or in VA speak, net worth limit, of $129,094 (in 2020). This net worth limit remains the same regardless of a veteran’s marital status. Prior to this new rule, it was generally advised that a single applicant not have more than $50,000 in net worth and married couples not have more than $80,000.
In most cases, unless a veteran has very few assets and his/her home is worth very little, the proceeds from selling it would put him/her over the new net worth limit. That said, the addition of assets from the sale of one’s home generally result in disqualification for VA benefits. However, there is one exception for veterans currently receiving VA benefits. In order to avoid the proceeds of one’s home sale 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. (Learn more about asset protection in the next section). 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 his/her 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
In the situation that 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 his/her bank account, the money from the sale is considered to be a countable asset. This most likely will result in the individual being disqualified for VA pension benefits. That said, the veteran can use the proceeds of the home to cover the cost of assisted living and upon depleting the funds, can apply once again for pension benefits.
Married Couple at Home
For a married couple that 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 in time. 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. In the event that 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 his/her home, it is best to sell it prior to applying for VA pension benefits. Again, veterans are encouraged to keep their home while receiving benefits, as it is a non-countable asset and will not affect their eligibility. That said, 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 new 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 of time. (This is also referred to as an immediate annuity). In past years, the income stream had been exempt and did not affect a veteran’s eligibility for pension benefits as far as net worth was concerned. (But it could have potentially resulted in a veteran having too much income, as veterans who had income that exceeded the amount of the pension benefit were ineligible for benefits.)
However, with the new VA rules, moving assets into an annuity to lower one’s net worth is in violation of 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, with the new VA rules, annuities no longer serve as a good vehicle to reduce one’s net worth.
In very simple terms, a promissory note allows a veteran to give a loan to a third party (this person could be a spouse, but it could be an adult child), effectively lowering the veteran’s net worth without jeopardizing the veteran’s eligibility for benefits. Both the veteran (the lender) and the third party (the borrower) would sign the promissory note (the loan document). Once it is signed, the assets were considered to belong to that of the borrower, not the veteran. In the signed document, the borrower promises to pay the veteran an agreed amount of money, including interest, each month for a preset period of time. Therefore, like an annuity, the assets are turned into an income stream for the veteran. However, with the new look back rules, we believe promissory notes are a violation of the look back period.
Irrevocable trusts (meaning it cannot be changed or terminated), sometimes called VA asset protection trusts, are another asset protection strategy that has sometimes been used to protect the proceeds from the sale of a veteran’s home. In simplified terms, a trust is created, and the veteran no longer has ownership of the money. Rather a trustee, who was named by the veteran, is considered the owner of the money. Since the veteran no longer has ownership of the money in the trust, it no longer counts towards his/her net worth. However, with the new VA rules, a trust violates the look back rule if it cannot be liquidated. If it can be liquidated, the trust counts towards one’s net worth. (The only trust that is allowed without violating the look back rule is one established for one’s child who is not able to support himself/herself).
Words of Caution / “Spending Down” Assets
In the past, annuities and promissory notes have provided a way to turn net worth 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 new 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 highly recommended one seek out a professional VA advisor, particularly given the dramatic change in VA pension rules, and because future financial planning strategies are not yet entirely clear.
Professional VA Planning Assistance
It is highly recommended that a veteran’s home not be sold until after he or she passes away. The home is considered exempt regardless of if the veteran lives in it or not. 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.