Q.  I hear that the VA is now proposing a “look back” rule to make it more difficult for disabled veterans to qualify for an Aid and Attendance pensionDo you know anything about this?

A.  Yes. As you may know, veterans who served during wartime and have either a non-service-connected disability or are over age 65 can receive a “Veterans Pension” to help pay for long-term care.  Some refer to this pension as an “Aid and Attendance” (A&A) pension. However, in order to qualify, the Veteran or surviving spouse must meet certain income and Net Worth requirements.

The Department Of Veterans Affairs (VA) recently issued proposed regulations that would heavily penalize veterans who made asset transfers within a 36 month “look back” period in order to qualify.

The announced purpose of the proposed regulations is to protect veterans from predatory sellers of financial products.   However, in operation the proposed rules would, instead, severely punish deserving veterans and their dependents:  Gift transfers of excess assets, or the purchase of annuities, if made within 36 months of application in order to reduce Net Worth would potentially disqualify the veteran or surviving spouse from a pension for a term up to 10 years.

This proposal represents a sea change for the VA.  Historically, gift transfers to reduce Net Worth were perfectly fine.  Likewise using excess assets to purchase an annuity to create an income stream was also an accepted strategy.  Both strategies helped many wartime veterans qualify for a VA Pension so that they could afford care to remain at home, rather than a nursing facility.

Under the proposed new rules, veterans who made these disqualifying transfers would be denied a disability pension for a term based on a formula: the value of the excess assets transferred would be divided by the monthly A&A benefit rate and the result would be the number of months of disqualification.

Example: an applicant who transferred $100,000 in excess assets would be disqualified for pension for the following number of months if the application were made in 2015:

Married Veteran:                     $100,000 / $2,120 = 47 months

Single Veteran:                        $100,000 / $1,788 = 55 months

Surviving Spouse:                   $100,000 / $1,149 = 87 months

There are a number of troubling aspects about the proposed rules: (1) there is no effective date given in the regulations, raising the risk that the rules could be retroactive; (2) there is no “grand-fathering” of existing claims; (3) there is no exception for innocent transfers such as birthday gifts to family members or donations to charity or church; and (4) the duration of the penalty would depend upon the marital status of the claimant. Example: the penalty for a surviving spouse would be approximately double what it would be for a married veteran.

The regulations are not yet final and the VA has invited comments through March 24, 2015, before issuing final regulations.

My advice: until the regulations are clarified in regard to their effective date and grand-fathering, Veterans and their surviving spouses — who might be considering application for a pension within the next 36 months — should refrain from making significant gifts or using excess assets to purchase an annuity.  For more on this topic, see the separate article on this website, designed for attorneys.