This is the second of a three-part series on the recently released final regulations that impact the Veterans Aid & Attendance pension benefit. In the prior blog post, I discussed the new net worth regulations, including the new bright-line test for net worth currently set at $123,600, the exclusion of certain assets like the primary residence from net worth and the VA's view on how assets and income can decrease.
The big news coming out of the regulations is that the VA is imposing a 36-month look-back period on asset transfers. For planners, the news is a bit of a mixed bag. As will be discussed, while the imposition of a look-back period and transfer penalty at all is a tremendous change in how veterans plan for the pension benefit, as compared to Medicaid, there are some differences that benefit the veteran - with only certain transfers being subject to penalty, with the penalty period beginning as of the first of the month after the transfer instead of the date of application and a five-year penalty cap (although arguably a well-planned application for Aid & Attendance should never trigger a five-year penalty).
Look-Back Period and Transfer Penalty
Prior to these regulations, veterans were able to transfer assets by gift in any amount on Day 1 and apply for the Aid & Attendance pension benefit on Day 2. This process was unlike Medicaid which imposes a transfer penalty for uncompensated transfers within the look-back period (currently 60 months). The VA did not, however, wholly adopt Medicaid's transfer penalty system and just shorten the look-back period. Not all asset transfers will result in an imposition of a penalty. Only those transfers which, had they not occurred, would cause or partially cause the claimant's net worth to exceed the net worth limit will create a penalty. §§3.276(a)(2) and 3.276(8)(e).1 In other words, if the claimant, at the time of transfer, has a net worth below the net worth limit, no penalty will be applied. The VA's policy is enshrined in the regulations as follows: "VA pension is a needs-based benefit and is not intended to preserve the estates of individuals who have the means to support themselves. Accordingly, a claimant may not create pension entitlement by transferring covered assets." §3.276(8)(b).