Recently, the Department of Veteran Affairs (VA) announced some major changes to the VA benefits program. These changes have gone into effect as of October 18, 2018 and have affected several areas.
Net Worth Limit
All claimants must be below the net worth limit in order to qualify for VA benefits. If a person is over this limit, he must decrease his net worth to qualify. Previously, the net worth considered life expectancy, rate of depletion of assets, and other such factors when determining eligibility. Now, the net worth will be determined by considering the individual's total countable assets and annual income. The maximum net worth limit will be the maximum Community Spouse Resource Allowance (CSRA) that is used for Medicaid purposes. For 2018, this amount is $123,600. Having a clear net worth limit will provide consistency and uniformity in determining who receives VA benefits, which should also expedite the application process.
Home and Lot Sizes
The Veteran's homestead is not included in the net worth calculation. However, if the homestead is over 2 acres, then different rules apply and the value of the property in excess of 2 acres may be included in the net worth calculation. If the residence is sold, the proceeds from the sale become an asset unless they are used to purchase another residence in the same calendar year. For example, if a person sold his home in November 2018, he would need to buy a new home or spend down excess funds by the end of December 2018. Also, personal items that are "consistent with a reasonable mode of life" are not included in the asset calculation, such as vehicles or household goods.
Look-Back and Penalty Periods
Previously, the VA did not look at any gifts or transfers made by the applicant. Now, the VA has implemented a look-back and penalty period. The look-back describes how far back the VA will look to see if the claimant made any gift or transfer for less than fair market value. In this case, the look-back is three years prior to the application. The penalty period describes a period of time that the applicant is not eligible for benefits.
Any gifts or transfers of resources for less than fair market value that occur during the look-back period will be subject to a penalty. However, the VA will only review transfers that would have put the applicant over the net worth limit. Also, certain transactions will trigger a penalty period, such as moving funds into an irrevocable trust or an immediate annuity.
There are some exceptions to the penalty period: (1) if the transfer was to a trust established for a child who was incapable of self-support prior to age 18; (2) if the claimant's net worth would have been below the net worth limit already, regardless of the transfer; and (3) if the transfer was the result of fraud, misrepresentation, or unfair business practices related to the sale of financial products.
Due to the implementation of this change, the VA will not look at any gifts or transfers prior to October 18, 2018.
Purchasing an Annuity
Previously, purchasing an annuity was a quick, valid way to spend down net worth to qualify for benefits. Now, annuities are considered a transfer for less than fair market value. Any assets moved into an annuity to help spend down net worth will be penalized and factored into the three-year look-back period if the annuity is incapable of being liquidated. Monthly payments from an annuity will be counted as income. If the annuity can be liquidated, then it will count as an asset.
Note that these rules do not apply to the annuitization of certain employer-based contracts mandated upon retirement.
Income Exclusions
Income exclusions are money that will not be counted towards monthly income, such as compensation or restitution payments, payments to Native Americans, and other payments like child care or student financial aid. The monthly payment a person receives from an annuity will count toward the monthly income. Any payments from an IRA will also be included in the monthly income.
Medical Expenses
Medical expenses are expenses that are medically necessary; that improve a disabled person's functioning; or that prevent, slow, or ease a person's functional decline. This could include health care provider payments, medications, adaptive equipment, transportation expenses, health insurance premiums, and in-home care. Items that do not count toward medical expenses include general health maintenance, cosmetic procedures, meals, and lodging.
Source: Krause Financial Services and NAELA