On Friday, January 23, 2015 (see Federal Register), the V.A. issued proposed new Veterans Administration regulations that would penalize wartime veterans up to ten years for making gifts of assets for less than fair market value. The V.A. is trying to stop what they perceive as lawyers and financial advisors from “taking advantage of veterans” when helping them strategically plan to preserve assets and qualify for the Improved Pension benefit.

The proposed changes in regulations would:

  • Establish a 3 year look back for gifts
  • Impose penalties for up to 10 years
  • Create a bright-line liquid asset standard of $120,000+/-, which includes annual income
  • Deny any expenses related to independent living facilities as care costs
  • Deny Veterans benefits if their home is on a lot of more than 2 acres.

How will this work?  When a veteran (or widow of a veteran) applies for the Improved Pension,  Aid and Attendance, the VA will ask if any transfers of assets for less than fair market value have been made in the three years prior to the application.  If so, the VA will presume it was for the purpose of meeting the VA eligibility standards.

Penalized gifts may include gifts of money or assets to children or others, including churches and charities, establishing estate plans with the use of trusts, and establishing retirement plans through the use of annuities which can provide a life-time income stream.

When a gift has been determined to have happened during the look back period, the V.A. will calculate the penalty by dividing the value of the gift by the claimant’s pension rate with Aid and Attendance. Each classification of claimant varies; thus, the penalty periods will be different depending on who makes the claim.

Also, because the “net worth” standard will include income, high income earners will be allowed to have low to no savings for emergency items; whereas, very low income earners will be permitted to keep much more in savings.  Because of the strict ruling on how the V.A. plans to define “medical care,” veterans who have dementia, Alzheimer’s Disease or other degenerative diseases and live in independent living facilities (because they no longer drive and need a safe environment in which to live) will not be eligible for the benefits because they may not yet need the hands-on care for bathing, dressing, eating, toileting or transferring (Activities of Daily Living or ADL’s).  Although they are unsafe to live at home due to their health care condition of cognitive decline, the V.A. refuses to consider any expenses of care for a facility as deductible from the claimant’s income unless the claimant needs assistance with no less than 2 ADL’s.

Hold your breath. This is already past the comment period and just waiting for the V.A. hammer to fall.  In addition, per the regulations, this VA benefit will be tied to the Medicaid rules. Hooray for the V.A.

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