If approved, new applicants would be limited to annual income and assets of $119,220, regardless of age or medical needs, be prohibited from transferring assets to reach that limit in the three years before applying and be restricted from reapplying for up to 10 years if they transferred funds.
Both the House and Senate proposed but failed to pass bills with similar intent in the past two legislative sessions. Those failed bills were offered in response to a 2012 Government Accountability Office report that recommended improved guidance to ensure that only qualified veterans and survivors received benefits.
According to the report, insufficient guidelines resulted in individuals in similar situations receiving different outcomes.
The proposal purports to streamline the process by imposing a new net worth limit and limiting the number of factors considered to establish excessive net worth. The proposal would implement a three-year look-back period to determine if applicants transferred assets to qualify for the needs-based program and would set a penalty of up to 10 years for those who do.
The VA estimates fewer than 1 percent of applicants transfer funds to qualify for the pension program.
The National Academy of Elder Law Attorneys (NAELA), in its response to the VA’s proposal, said the VA does not have the authority to impose a look-back period or penalty period as these are subject to legislative approval.
Further, NAELA noted that the Congressional Budget Office estimated in a 2013
report that implementing a three-year look-back period would cost the VA $7 million a year in additional hiring and training and would only save the agency $5 million a year.
The additional research requirements would likely delay the application process, which averages about nine months, but can take up to two years. Sadly, some veterans die before receiving their VA pension.
Currently, excessive net worth is determined on a case-by-case basis taking into consideration the applicant’s income, liquidity of assets, life expectancy, potential rate of asset depletion, unusual medical expenses and family expenses.
Current regulations do not penalize applicants for transferring assets. The proposal would penalize any asset transfer including gifts to children, church or charity under the assumption that all such gifts were made to deplete assets.
The proposal consistently refers to current Medicaid law as justification for change but, as NAELA noted in its response, there are several areas where the proposal is much harsher than current Medicaid regulations.
For instance, the VA proposed linking the net worth limit to the Medicaid maximum community spouse resource allowance (currently $119,220 and indexed for inflation). Net worth would be determined by adding the assets and annual income of the veteran, spouse and children.
Medicaid, on the other hand, does not include the spouse’s or children’s income in its net worth limit. Secondly, Medicaid allows the healthy spouse to acquire assets in excess of the limit after need has been established without his or her spouse losing eligibility.
Unlike Medicaid, the VA proposal disproportionately punishes surviving spouses more than veterans for equal asset transfers. Instead of using an average benefit rate as the divisor to determine the penalty (as Medicaid does), the proposal would penalize applicants based on their maximum monthly benefit rate.
For example, if a married veteran transferred $10,000 to a trust or made a gift to a child, that veteran would be disqualified from applying for the pension benefit for 4.7 months (10,000/$2,120). But a spouse who made the same transfer would be denied the benefit for 8.7 months (10,000/$1,149).
The proposal would only allow a primary residence and up to two acres as exempt assets. This might be reasonable in urban areas, but this regulation would disproportionately affect rural veterans who may have larger lots that would still be considered average size in their areas.
We hope the VA will genuinely consider the unwarranted difficulties and unintended consequences these new regulations may impose on ailing veterans and will propose a final set of rules that is fair and equitable.
Michael Smith and Richard Barid are co-founders of Savannah-based Smith Barid LLC, which specializes in estate planning and special needs planning. They can be reached at 912-352-3999 or richard@smithbarid.com or msmith@smithbarid.com.