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New VA Pension Transfer Penalty

As of October 18, 2018, the VA is imposing substantial new changes to the pension program. The pension program, very frequently referred to as "aid and attendance" by the public, can be very helpful in paying for the veteran's long-term care, which includes helping the veteran's surviving spouse. Up until now, the VA pension program did not have a transfer penalty.

First, the VA allows a pension applicant to have some $123,600 in countable assets, which is similar to the spousal asset limit for Florida Medicaid benefits. Basically the new rules create a penalty for gifts/transfers that were made during three years prior to the application for VA pension benefits. The transfer penalty is similar to the Medicaid transfer penalty.  When a uncompensated transfer of assets (i.e., a gift) is made during the three years before someone applies for pension benefits, the VA will assess a transfer penalty. The penalty will then provide a number of months that will make the applicant ineligible for Pension benefits.  The VA will divide the gift by the maximum monthly pension rate (the "MAPR"), which is currently $2,230/month (2019).  An example of calculating the VA Pension transfer penalty is as follows:

Mom, age 80, is worth $200,000.  She knows she want so to protect her assets from the nursing home so she gives her children a gift of $100,000.  Two years later, mom has a stroke and looks to apply for VA benefits.  Because a gift was made during the 3 year look-back period, the VA will need to calculate a transfer penalty. Because the applicant is allowed to have $123,600, the VA will only apply a penalty to the assets gifted above that amount, meaning the VA will penalty by the amount given above $123,600, some $76,400 ($200,000 minus $123,600 = $76,400).  Next, the VA will divide the $76,400 transferred amount by $2,230, which equals 34 months (rounded down).  Here, mom will not be eligible for VA Pension benefits for some 34 months from the date of the application.

In this scenario, the family would not have wanted to applied for VA benefits until the end of the three year transfer penalty.

What is a transfer or gift?

  • selling, conveying, gifting, or exchanging an asset for an amount less than fair market value, or
  • a voluntary asset transfer to, or purchase of, any financial instrument that reduces net worth unless the entire balance of the asset can be liquidated for the claimant’s benefit.

One way to protect assets in the past, besides giving money away, was to purchase an immediate annuity. It is now clear that purchasing an annuity to reduce the asset value will result in a transfer penalty.

What does all this mean?

The changes to the rules were well thought out and are very clear. It provides a firm amount of money a veteran (or their surviving spouse) is allowed to own in order to get pension (a/k/a aid and attendance). It will also mean if someone wants pension benefits and their assets exceed the asset cap, he or she would probably want to set up an irrevocable asset protection trust, even for their homestead property, in order to access VA benefits and Medicaid benefits down the road. These trusts cannot be set up, of course, unless the applicant does not apply for VA benefits within three years or five years for Medicaid benefits.

If you want to learn more:

 

 

 

 

D. Rep DeLoach III
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Estate Planning and Board Certified Elder Law Attorney
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