Written by William & Mary law student Justin Pierce

A population of aging veterans, combined with the skyrocketing costs of assisted living facilities, means that some veterans will need assistance from the Department of Veterans Affairs (VA) to receive the care they need. The increased demand may stress current programs, such as the VA Pension or Aid and Attendance.[1] As with any compensation program, administrators must determine which applicants qualify for assistance and which should not. New regulations proposed by the VA seek to better target veterans who truly need financial support for their care.[2] One particular change would require “look-back” provisions to prevent veterans from transferring assets within the three years prior to applying for benefits.[3] On the surface, this makes sense. But do look-back provisions unfairly prejudice veterans who must sell their homes to pay for costly assisted living facilities?

Background

VA pension is available to veterans who (1) were discharged from service under other than dishonorable conditions; (2) served 90 days or more of active duty with at least one day during a period of war time; (3) are either age 65, permanently disabled, or receiving Social Security Disability Insurance or Supplemental Security Income; (4) meet an income threshold; and (5) meet an asset threshold.[4] In addition to the pension, veterans may also be eligible to receive Aid and Attendance, which raises the base pension amount.[5] Aid and Attendance applies to veterans who require the aid of another person in order to perform personal functions required in everyday living.[6] It also applies to veterans who are patients in a nursing home due to mental or physical incapacity.[7]

Currently, the VA does not set a rigid number for determining the asset threshold, but there seems to be a general consensus that applicants should have less than $80,000.[8] A primary residence is not considered an asset, but, once sold, the proceeds would be included in the income/asset computation.[9] Therefore, once a veteran sells her home—even if sold to pay for living expenses—she would probably no longer be eligible for a VA pension.

Under the current structure, a veteran who moves from her home to an assisted living facility could attempt to transfer her home to a family member or to a trust to avoid counting the proceeds of sale as an asset.[10] Many attorneys that specialize in estate planning and veterans compensation offer these services.[11] Such tools could allow veterans to “keep” the value of their primary residence, while still remaining eligible for VA assistance.

Proposed Regulations

All of that could change very soon. The VA has proposed regulations to prevent asset transfers.[12] The relevant changes are designed to prevent wealthy veterans from hiding assets to qualify for VA pensions. According to the VA, the current rules are “not effective in proscribing transfers of significant assets for the purpose of creating pension entitlement.”[13] Manipulating assets raises particular concern for VA programs because the pension is a needs-based benefit.[14] Allowing some individuals to unjustly qualify could prevent others from receiving much-needed assistance.[15]

Given this reality, the proposed regulations would establish a three-year look-back period.[16] Asset transfers made within three years of a claimant’s application would be subject to a penalty provision that would bar the veteran from receiving compensation.[17] The VA would “presume[] that an asset transfer made during the look-back period was for the purpose of decreasing net worth.”[18] The duration of the penalty would vary based on the value of the asset transfer, with a maximum length of ten years.[19]

Primary Residence

The proposed look-back provisions would properly limit some veterans who do not need the benefits of the VA pension. However, the look-back provisions should not apply to the transfer of a primary residence.[20] Alternatively, proceeds from the sale of a primary residence should not be included in the income/asset calculation.

The VA would argue that all liquid assets should be included in the income/asset calculation because the VA pension is a need-based program.[21] But, treating the sale or transfer of a primary residence as an asset creates strange results. Here are two examples. First, suppose a veteran lives in her residence and collects a VA pension. If that veteran sold her residence and moved to a less expensive home, she could risk losing her VA compensation by generating too much income. So, even if she needs the money (or wants a smaller home), the incentive is to keep her investment tied up in the house. Keeping the house would permit her to continue to collect VA pension. Second, suppose a veteran lives in an assisted living facility, but wants to maintain her home. Perhaps she plans to return, or perhaps she wants to save the home for her children. Either way, rather than sell the property where she no longer resides, she decides to keep the asset. As with the example above, this would be permissible.[22]

In either situation, the veteran may retain the benefit of her home as an asset without consequence, unless she needs to sell the home for her care. Once she sells the home, the asset counts against her. Many veterans, especially those entering assisted living facilities, need to draw on the value of their home to support themselves. Under the VA’s rules, that would make them ineligible to receive aid until that resource was depleted. Treating the home differently when owned versus when transferred or sold advantages those who can afford to store their wealth in their residence and hurts those who cannot—a perverse outcome for a needs-based program.

Excluding the transfer of a primary residence from the proposed look-back provisions would allow veterans to exercise a right to keep their home or to sell it for their care. It is possible that this would leave the door open for predatory estate planners seeking to take advantage of veterans,[23] and some veterans who truly do not need financial assistance could still use their home as a way to store wealth.[24] But, even excluding the primary residence, the proposed look-back provisions would combat the majority of these concerns. The few cases in which veterans improperly store assets using a primary residence would be outweighed by the benefit to those who are not trying to game the system.

[1] Bonnie Laiderman, The Demand for Home Care is Increasing for Aging Veterans, Veterans Home Care (Feb. 13, 2015), http://www.veteranshomecare.com/the-demand-for-home-care-is-increasing-for-aging-veterans; see also Thomas Day, Veterans Aid and Attendance Pension Benefit and Long Term Care Benefits for Veterans, Nat’l Care Planning Council, http://www.longtermcarelink.net/eldercare/long_term_care_benefits_for_veterans.htm (last visited Apr. 12, 2016).

[2] See generally Net Worth, Asset Transfers, and Income Exclusions for Needs-Based Benefits, 80 Fed. Reg. 3840 (proposed Jan. 23, 2015) (to be codified at 38 C.F.R. pt. 3) [hereinafter Proposed Rule].

[3] Id. at 3848.

[4] Veterans Pension, U.S. Dep’t of Veterans Aff., http://www.benefits.va.gov/pension/vetpen.asp (last visited Apr. 12, 2016).

[5] Aid & Attendance and Housebound, U.S. Dep’t of Veterans Aff., http://www.benefits.va.gov/pension/aid_attendance_housebound.asp (last visited Apr. 12, 2016).

[6] Id.

[7] 38 C.F.R. 3.351(c)(2); M21-1MR, Part V, Subpart iii, Chapter 2, Section A.1.b.

[8] Understanding the Veterans Pension Benefit and the Aid and Attendance Allowance, Senior Veterans Serv. Alliance,

http://www.veteransaidbenefit.org/aid_and_attendance_pension_benefit.htm (last visited Apr. 12, 2016).

[9] 38 C.F.R. 3.262(k).

[10] 38 CFR 3.276(b); U.S. Gov’t Accountability Office, GAO-12-540, Veterans’ Pension Benefits: Improvements Needed to Ensure Only Qualified Veterans and Survivors Service Benefits 17-19 (2012) [hereinafter Veterans’ Pension Benefits].

[11] Veterans’ Pension Benefits at 15-17.

[12] Proposed Rule at 3860-61.

[13] Id. at 3848.

[14] Id.

[15] Id.; M21–1MR, Part V, Subpart iii, Chapter 1, Section J.67.h (“Pension entitlement is based on need and that need does not exist if a claimant’s estate is of such size that he/she could use it for living expenses.”).

[16] Proposed Rule at 3860; see also Veterans’ Pension Benefits at Executive Summary.

[17] Proposed Rule at 3860-61.

[18] Id. at 3860.

[19] Id. at 3861.

[20] There could be other repercussions for transferring a property, such as capital gains taxes for the grantee or penalties for the grantor from look-back provisions in other federal aid programs. See Veterans’ Pension Benefits at 19-20.

[21] See supra notes 13-15 and accompanying text.

[22] M21–1MR, Part V, Subpart iii, Chapter 1, Section J.5.c (“The primary residence of a claimant is not countable as net worth for pension when the claimant is not residing in the home due to the beneficiary residing in  a nursing home, assisted living, or independent living facility.”).

[23] Veterans’ Pension Benefits at 15-19.

[24] See id. at 8-9 (describing cases in which veterans did not report trusts with assets totaling $575,000 and $612,000).