After years of false-starts and deliberation, the Department of Veterans Affairs finally implemented significant rule changes to their pension program. Commonly referred to as aid and attendance, the pension benefit underwent important and major changes effective October 18th, 2018.
This article will not be an exhaustive report of all rule changes to the aid and attendance pension program. If you would like to read the full rule changes, they can be found here. However, after reading this article, you will understand how the most important changes impact aid and attendance pension eligibility.
Change #1 – Net Worth
Prior to October 18, 2018, the VA didn’t have a “bright-line” net worth threshold for pension eligibility. No one, not applicants and not the VA, knew exactly how much in assets a claimant could have before they would be considered ineligible because of excessive net worth.
This created a variety of problems as applicants and the VA employees deciding claims didn’t know how much money an applicant could have and still be eligible for aid and attendance pension. This caused guessing and unfair treatment as two applicants with the exact same net worth could be treated differently: one might be awarded benefits while the other denied benefits.
Thankfully, the VA fixed this problem be creating a single number that everyone could look at and understand.
If an applicant’s net worth is $138,488 or less, their net worth won’t disqualify them for aid and attendance benefits. However, if net worth exceeds that number, the applicant is ineligible.
But What exactly is Net Worth?
Under the new aid and attendance regulations, net worth = assets plus gross income.
The definition of an asset is reasonably intuitive. Bank accounts, CD’s, IRA’s, and brokerage accounts are all assets. The primary residence, final expense policies, vehicles, and personal belongings are not assets. If the primary residence is sold, however, the money from the sale is an asset and may disqualify the applicant unless proper planning is done before the house is sold.
Income means gross income (before insurance premiums and taxes are withheld) minus unreimbursed medical expenses (the cost of an assisted living facility, home care, most independent living facilities, adult day care, and health insurance premiums).
For most applicants, their income will be “zeroed out” by off-setting unreimbursed medical expenses. For example, if an applicant’s income is $24,000 annually and the cost of their assisted living facility is $36,000, they will have no income for VA purposes.
For most families applying for aid and attendance pension, the net worth requirement is really an asset requirement because, for VA purposes, their income will be $0.00. However, if medical expenses are LESS than income, the surplus income is part of the applicant’s net worth.
For a simple example, consider the following: an applicant has assets of $60,000 (money in a bank account), gross annual income of $36,000 (Social Security and pension) and annual home care costs of $30,000. This applicant has net worth of $66,000 because the “extra” $6,000 in income (the difference between income end medical expenses) is added to the net worth calculation.
Change #2 – Look Back Period
The VA implemented a 36 month look back period effective October 18, 2018. Prior to the rule changes, a claimant could transfer or “gift” as much money as they wanted one day and apply for benefits the next day. The new 36 month look back period eliminates this gifting strategy and gifts completed during the 36 months before a claim for aid and attendance benefits is submitted could result in a penalty period (i.e. a period of ineligibility).
Under the new rules and new application, the claimant is obligated to report transfers of assets for less than fair market value during the last 36 months. If an applicant has gifted assets, then various forms of documentation will be required along with the application for pension benefits.
The VA’s 36 month look back period is similar to Medicaid’s 60 month look back period. However, there is a crucial difference between the two government benefits look back periods that is favorable to applicants applying for aid and attendance pension.
For Medicaid eligibility, the penalty period that results from gifting doesn’t start until the latter of the following: 1) an application is submitted or 2) the applicant is otherwise eligible for Medicaid benefits.
For VA benefits, the penalty period starts on the first day of the month that follows the date of the transfer. This a significant and favorable difference to the Medicaid rules. The nexus between VA pension benefits and Medicaid benefits is important to understand yet also complex. We suggest you speak with one of our VA accredited elder law attorneys to understand the different VA and Medicaid asset protection strategies.
Are all gifts penalized?
No – only certain gifts completed during the 36 month look back period are penalized.
Any gifting done before October 18, 2018 will be reviewed and treated under the pension rules that were effective before the rule change. These gifts still need to be reported (if they occurred within the last 36 months) but shouldn’t result in a penalty period.
The VA uses the term covered asset to help define which transfers of assets for less than fair market value result in a penalty period and which do not. The most important point to understand is this, however: a gift that caused the claimant’s net worth to drop below $138,488 will trigger a penalty period.
A claimant that didn’t have net worth exceeding $138,488 at any point during the 36 months prior to submitting an application can never be assessed a penalty period for gifting assets. This means that an applicant with a net worth of $138,488 or less for the last 36 months can give away all their money and not receive a penalty. Such a gift would need to be reported but would result in a period of ineligibility.
Read this article for a more in-depth article on how the VA determines the penalty period.
What about annuities and trusts?
The new VA rules implemented October 18, 2018 treat the purchase of annuities and the transfer of assets into most irrevocable trusts unfavorably.
If a claimant purchases an annuity with a covered asset (assets above $138,488), the VA will either: 1) count the annuity as part of net worth if it has a cash surrender value, or 2) implement a penalty period if the annuity does not have a cash surrender value. Either option will likely result in a period of ineligibility.
The unfavorable treatment of income annuities, or SPIA’s, is especially unfavorable to those applicants that own their primary residence. Before the new rule changes, an applicant could sell their home and convert the new asset into an income stream by purchasing a single premium income annuity. By using this strategy, the applicant could sell their home and continue to receive VA benefits.
This strategy is no longer viable. Fortunately, transferring the primary residence doesn’t trigger a penalty period under the new VA regulations if the transfer is done correctly. Speaking with a VA accredited attorney about this strategy could potentially save the applicant over $80,000 in VA benefits as well as offer valuable Medicaid asset protection.
Unless an irrevocable trust is established for the benefit of a disabled child or to protect the primary residence, covered assets transferred into an irrevocable trust will trigger a penalty period if the application for pension is submitted during the look back period.
Change #3 – Increased Paperwork
New rules inevitably result in more paperwork, especially when the federal government is involved. The applications for disability pension and death pension are both longer, more complicated, and less intuitive. Whether the new rules and increased paperwork result in a more efficient and timely decision-making process remains to be seen.
The New Worksheets
The VA only has one form to report caregiver expenses. Unfortunately, that form is specifically for those living in a skilled nursing facility. Most people applying for aid and attendance pension benefits are not living in a skilled nursing facility. You can see the problem already. The VA provides standardized for many functions but, somehow, they don’t have a standard form to report assisted living or home care expenses on.
Instead the VA created worksheets for home care, assisted living, adult day care, and independent living facilities. These worksheets are part of the 534 EZ and 527 EZ. The first issue is that these forms are confusing. Unless you work with VA pension benefits on a regular basis, you will likely be guessing on the proper way to complete the new worksheets. Fortunately, the EaZy App technology takes the guess-work away.
The second issue is that despite adding a new form to document care needs, the VA still requires a second form to report the cost of care and the specifics of the care provided. And, to repeat ourselves, the VA doesn’t provide a standardized form. Fortunately, EaZy Apps knows what the VA wants to see and how they want to see it.
VA Form 21P-0969
VA Form 21P-0969 is a new 11-page form that most applicants applying for aid and attendance pension will need to complete. The old VA applications had dedicated sections to report income and net worth. The new pension applications, however, only ask for social security income. The VA has moved the old income and net worth sections onto a new form.
The good news is that most of the questions on the 0969 won’t apply to you. However, the questions that do apply to the applicant are complicated and not easy to intuit. If you’ve given away assets, the section on the 0969 dealing with asset transfers is logically inconsistent.
The Supporting Documentation for VA Form 21P-0969
The 0969 can be difficult to complete properly on its own. But, in line with the new VA rules regarding look back period and penalty periods, the VA now requires financial documentation.
Before the October 18, 2018 rule changes, a claimant wasn’t required to submit a single piece of financial documentation with an original application for pension.
The new rules and VA Form 21P-0969 require the claimant to submit gross income documentation for pensions and IRA’s. The applicant now must submit proof of interest income and dividends as well as documentation of assets.
Without knowing what the VA wants to see, an applicant can submit documentation that results in a request for more information letter from the VA. These delays and letters can result in a denial letter. Our knowledge base provides examples of documentation the VA will accept.