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M21-1, Part V, Subpart iii, Chapter 1, Section C – Section 306 Pension and Old-Law Pension

Overview


In This Section

This section contains the following topics:
Topic
Topic Name
1
2
3
4
5
6
7

1.  Determination of Countable Income for Section 306 or Old-Law Pension


Introduction

This topic contains information on income determinations for Section 306 or Old-Law Pension, including

Change Date

May 6, 2015

V.iii.1.C.1.a.  Continuity of Entitlement

Claims for Section 306 Pension must be denied unless continuous entitlement from December 31, 1978, can be established.

V.iii.1.C.1.b.  Calendar Year IVAP

Income for Department of Veterans Affairs purposes (IVAP) for Section 306 Pension and Old-Law Pension is calculated on a calendar year basis.  That is, IVAP is based on income received and expenses paid during the period January 1 through December 31 of the same year.
If IVAP for any calendar year exceeds the applicable limit shown in the Appendix B rate charts, the beneficiary loses entitlement to Section 306 Pension or Old-Law Pension.
Note:  Pensioners have until the end of the following calendar year to submit income information to establish continuing entitlement per 38 CFR 3.660(b).

V.iii.1.C.1.c.  Section 306 Pension Countable Income

The following types of income constitute countable income for Section 306 Pension purposes:
  • total income from employment, business (minus operating expenses), interest or rents
  • income of a Veteran’s spouse in certain circumstances
  • inheritances and gifts of money, including contributions from adult children
  • unemployment compensation
  • retirement type benefits, at 90 cents on the dollar
  • life insurance proceeds and the proceeds of commercial annuities, counted at 90 cents on the dollar, and
  • compensation for injury or death.
Exception:  Proceeds of cashed-in life insurance policies are not countable for Section 306 Pension.
Notes:
  • Social Security, Railroad Retirement, Civil Service Annuity, military retired pay, and other public or private retirement benefits are all counted at 90 cents on the dollar, per 38 CFR 3.262(e)(2).  10 percent is automatically deducted when entered into the awards systems.  Therefore, gross amounts should be entered.
  • The beneficiary may deduct medical expenses and legal expenses incident to the recovery.
  • However, 38 CFR 3.262(e)(2) will generally no longer apply to elderly beneficiaries of Section 306 or Old-Law Pension.
Reference:  For specific inclusions for Section 306 Pension (but not current-law pension) countable income, see 38 CFR 3.261 and 38 CFR 3.262.

V.iii.1.C.1.d.  Section 306 Pension Not Countable Income

The following types of income are not countable income for Section 306 Pension purposes:
  • income of children
  • inheritances and gifts of property, as opposed to money
  • the value of maintenance by a relative, friend, or organization
  • Welfare and Supplemental Security Income (SSI)
  • Department of Veterans Affairs (VA) pension, compensation, and Dependency and Indemnity Compensation (DIC) benefits
  • United States Government Life Insurance (USGLI) and National Service Life Insurance (NSLI) proceeds
  • fire insurance proceeds
  • proceeds of cashed-in life insurance policies
  • proceeds of cashed-in savings bonds
  • any payment excluded by statute
Exceptions:  Unearned income of a child who is the claimant is countable when determining that child’s entitlement to VA benefits.
Notes:
  • Some savings bonds, such as Series HH U.S. Savings Bonds and some State or municipal bonds, pay interest to the holder without requiring the holder to redeem the bond.  If interest is paid without redemption of the bond, the interest is countable income.
  • The USGLI and NSLI exclusion applies only when the claimant is the beneficiary under the policy.  If the policy is payable to the Veteran’s estate and the claimant inherits the estate assets, the proceeds are countable.
  • Other casualty insurance proceeds, other than fire insurance proceeds, are countable.
  • Part of a child’s income may be countable for surviving spouse Survivors Pension if it is paid to the surviving spouse.  For more information, see 38 CFR 3.252(e)(3).
References:  For more information on

V.iii.1.C.1.e.  Old-Law Pension Countable Income

The following types of income constitute countable income for Old-Law Pension purposes:
  • total income from employment, business, interest or rents
  • proceeds of cashed-in savings bonds
  • inheritances of property or money
  • welfare and SSI
  • retirement type benefits, counted at 90 cents on the dollar
  • life insurance proceeds and the proceeds of commercial annuities are counted at 90 cents on the dollar
  • compensation for injury or death is countable at 90 cents on the dollar after deducting any medical, legal, or other expenses incident to the recovery, and
  • gifts of property or money including contributions from adult children.
Notes:  Social Security, Railroad Retirement, Civil Service Annuity, military retired pay, and other public or private retirement benefits are all counted at 90 cents on the dollar, per 38 CFR 3.262(e)(1).
Exception:  Railroad Retirement is countable for surviving spouse beneficiaries only.  Railroad Retirement is not countable income for Old-Law Pension Veterans.
References: For more information on
  • specific inclusions for Old-Law Pension countable income, see
  • income from cashed-in savings bonds constituting countable income for Old-Law Pension purposes, see VAOPGCPREC 02-10.

V.iii.1.C.1.f.  Old-Law Pension Not Countable Income

The following types of income are not countable income for Old-Law Pension purposes:
  • income of the Veteran’s spouse or children
  • the value of maintenance by a relative, friend, or organization
  • VA pension, compensation and DIC benefits
  • USGLI and NSLI insurance proceeds
  • fire insurance proceeds, and
  • any payment excluded by statute.
Notes:
  • Other casualty insurance proceeds, other than fire insurance proceeds, are countable.
  • Railroad Retirement is not counted for Veterans but is counted for surviving spouses at 90 cents on the dollar.
References:  For more information on

V.iii.1.C.1.g.  General Information on Determining of Net Countable Income

Calendar-year countable income is determined under 38 CFR 3.261 and 38 CFR 3.262.  38 CFR 3.260 provides the rules for calculating Old-Law, Section 306, and Parents’ DIC payment rates.  (However, proportional computations no longer apply to Section 306 or Old-Law Pension, unless there is a change in a Veteran’s marital status).
Only the dollar amounts of annual income from specific sources are used for these calculations.  Drop all cents, including those resulting when applying the 10 percent deduction from payments of annuities or endowments.

V.iii.1.C.1.h.  Determining the Countable IVAP

Follow the steps in the table below to determine the countable IVAP.
Step
Action
1
Determine the total sum of the beneficiary’s annual income in dollars from
  • Social Security, and
  • any other retirement or annuity.
2
Add 90 percent of this total to the dollar amounts of annual income from earnings and all other countable income.
3
Add in any countable income of a Section 306 Pension Veteran’s spouse.
4
Calculate any deductible expenses and remove allowable expenses from otherwise net countable income.
Result:  The remaining balance is the claimant’s IVAP.

V.iii.1.C.1.i.  Income Segment Does Not Audit Against Award Line IVAP

Complete income data must be entered through the financial screen.  Normally, the income segment reflects actual current year IVAP.  However, if a future discontinuance is scheduled, the income segment should support the future discontinuance.
Award line IVAP should be the protected 1978 IVAP which supports
  • the current rate, or
  • in the event of a scheduled discontinuance.
The system does not audit income segment data against award line IVAP for Section 306 Pension and Old-Law Pension awards.

V.iii.1.C.1.j.  Scheduling Future Reductions

For Section 306 Pension eligibility, the protected 1978 income data is the basis for payment for all periods during which actual or estimated income is within the income limitation.
The award shows the future reduction to the Veteran or surviving spouse alone rate based on the protected 1978 IVAP provided current year IVAP is within the current income limit.

V.iii.1.C.1.k.  Scheduling Future Discontinuances Because the Income Will Exceed the Limit

If the claimant’s next year IVAP exceeds the applicable income limit, the award provides for discontinuance January 1 of the next year.
The discontinuance line shows the current or expected IVAP that is the basis for the discontinuance, as opposed to the protected 1978 IVAP.
The complete income data for entry are those that support the discontinuance award line IVAP.
Note:  Future increases in income for any year beyond the immediate next year, when reasonably anticipated, are incorporated as a future date discontinuance.  Establish a diary control to verify that future income is in fact excessive and to verify that timely discontinuance of the award is accomplished.

V.iii.1.C.1.l.  Scheduling Future Discontinuances Due to the Loss of the Last Dependent

Discontinue the award if
  • a loss of the claimant’s last dependent is anticipated at the time an award is prepared, and
  • the claimant’s actual IVAP (as opposed to the protected 1978 IVAP) exceeds the current income limitation for a Veteran or surviving spouse alone.
The discontinuance line shows the current or expected IVAP that applies to the year of discontinuance.  Do not use the 1978 IVAP in this situation.
The complete income data for entry produces IVAP consistent with the income amount entry on the discontinuance award line.

2.  Counting the Income of a Spouse for Section 306 or Old-Law Pension


Introduction

This topic contains information on counting the income of a spouse for Section 306 or Old-Law Pension, including

Change Date

February 13, 2007

V.iii.1.C.2.a.  Impact of Spouse’s Income on Section 306 Pension

A spouse’s countable income may be a factor in determining the rate payable to a Section 306 Pension beneficiary per 38 CFR 3.262(b).
Note:  A spouse’s income is not a factor for purposes of Old-Law Pension.

V.iii.1.C.2.b.  Establishing a Spouse for Section 306 Pension Purposes

Once the marriage between the Veteran and spouse has been established, use the criteria in the table below to determine if the spouse can be established for Section 306 Pension purposes, under 38 CFR 3.252(d).
If …
Then for Section 306 Pension purposes, the spouse …
the Veteran and spouse live together
can be established.
the Veteran and spouse live apart, but are not estranged
can be established regardless of whether or not the Veteran contributes to the support of the spouse.
  • the Veteran and spouse live apart and are estranged, but
  • the Veteran makes reasonable contributions to the support of the spouse
can be established.
  • the Veteran and spouse live apart and are estranged, and
  • the Veteran does not make reasonable contributions to the support of the spouse
cannot be established.

Note:  If the spouse of a Veteran receives Social Security benefits based on the Veteran’s Social Security earnings record, the spouse’s benefits may not be considered a contribution from the Veteran since the spouse has separate entitlement to these benefits.  Reasonable contributions may be found if payments are made from the Veteran’s income in any amount consistent with the Veteran’s income.


V.iii.1.C.2.c.  Estrangement

For purposes of this chapter, a Veteran and spouse are estranged if they live apart because of marital discord.
A Veteran and spouse are not considered estranged if the Veteran demonstrates that there are other reasons for the separation.  For example, the spouses live apart because of family obligations or for medical reasons.

V.iii.1.C.2.d.  Establishing a Spouse for Old-Law Pension

A Veteran’s legal spouse can be established for Old-Law Pension purposes if the requirements described in M21-1, Part III, Subpart iii, 5.AL, are met.
The Veteran does not have to be living with or contributing to the support of the spouse.  However, the Veteran must be able to furnish the spouse’s current mailing address.
Note:  The spouse’s income does not count for Old-Law Pension.

V.iii.1.C.2.e.  Exceptions to Counting Spouse’s Income in Determining a Veteran’s IVAP

Under 38 CFR 3.262(b)(2), a spouse’s income is countable in determining a Veteran’s IVAP unless one of the following conditions exists:
  • the Veteran and spouse do not live together
  • the spouse’s income is not available to the Veteran, or
  • counting the spouse’s income against the Veteran would cause the Veteran hardship as discussed in M21-1, Part V, Subpart iii, 1.C.2.h.

V.iii.1.C.2.f.  When the Veteran and Spouse Do Not Live Together

Under 38 CFR 3.262(b)(2), a spouse’s income is countable in determining a Veteran’s IVAP for Section 306 Pension unless one of the following conditions exists:
  • the Veteran and spouse do not live together
  • the spouse’s income is not available to the Veteran
  • counting the spouse’s income would cause the Veteran hardship as discussed in M21-1, Part V, Subpart iii, 1.C.2, or
  • the spouse’s income is earned income (wages), or less than the spouse income exclusion.

V.iii.1.C.2.g.  When the Spouse’s Income is Not Available to Veteran

Whether or not the spouse’s income is available to the Veteran is a question of fact.
If the Veteran and spouse are living together, it is presumed that the spouse’s income is available to the Veteran.  The presumption may be rebutted by evidence of unavailability.
Example:  The Veteran’s spouse receives Social Security but a garnishment order directs that the spouse’s Social Security be paid to support a child from a previous marriage.  The spouse’s Social Security is not available to the Veteran.

V.iii.1.C.2.h.  When Counting  a Spouse’s Income Would Cause the Veteran a Hardship

Counting a spouse’s income would cause a Veteran hardship if income of the spouse is actually used to pay expenses which are beyond the ordinary and usual family requirements, but which the spouse is under a legal or moral obligation to pay.
In this category, there are expenditures for such reasons as
  • prolonged illness of a member of the family
  • child care necessitated by the spouse’s employment, and
  • special training for a handicapped child.
Note:  If a spouse’s income is excluded under the hardship provision because it is needed to pay unusual medical expenses, the same expenses cannot be considered deductible medical expenses under 38 CFR 3.262(l).

V.iii.1.C.2.i.  38 CFR 3.262(b)(2) Income Exclusion

Under 38 CFR 3.262(b)(2), the greater of the following income can be excluded from a Section 306 Pension Veteran’s spouse’s income:
  • all earned income of the spouse, or
  • the spouse income exclusion amount in the Section 306 Disability Rate Charts in the protected pensions rate tables.
Note:  The spouse’s income cannot be reduced by both amounts.
The spouse income exclusion amount can include both earned and unearned income.
Exception:  If the spouse’s earnings are from a business enterprise, VA must determine if
  • this is a return on investment and, thus, not earned income, or
  • the spouse’s labor or services are substantial and, therefore, earned income.
The 38 CFR 3.262(b)(2) spouse income exclusion amount is increased each year by the cost-of-living adjustment (COLA) factor at the time of the pension COLA adjustment.  Historical spouse income exclusion amounts are in the protected pensions rate tables.

V.iii.1.C.2.j.  Example:  38 CFR 3.262(b)(2) Income Exclusion

Situation:  A Section 306 Pension Veteran’s spouse has
  • retirement income of $4,000 during calendar year 2006, and
  • earned income of $3,500 during calendar year 2006.
Effective December 1, 2005, the spouse income exclusion amount from the protected pensions rate tables, is $3,840.  (This applies to calendar-year 2006 IVAP.)
Calculation:  Since $3,840 exceeds $3,500, $3,840 should be excluded.  The table below outlines the calculation for determining the spouse’s countable income.
Step
Calculation
Description
1
$4,000
Spouse’s retirement income
x0.9
90 percent
$3,600
Spouse’s retirement income
2
$3,600
Spouse’s retirement income
+$3,500
Earned income
$7,100
Total
3
$7,100
Total
-$3,840
Spouse’s income exclusion
$3,260
Spouse’s countable income

V.iii.1.C.2.k.  10 Percent Reduction on Spousal Retirement

The 10-percent exclusion of income from annuities and retirement benefits also applies when calculating the individual income of a spouse.

Reduce the spouse’s retirement type income by 10 percent under 38 CFR 3.262(e)(2) before deducting the spouse income exclusion amount from 38 CFR 3.262(b)(2).


V.iii.1.C.2.l.  Handling a Veteran’s Spouse’s Income for Section 306 Pension

Consider the questions in the table below when determining how to handle a Veteran’s spouse’s income for Section 306 Pension.
If …
Then …
the spouse does not live with the Veteran
exclude the spouse’s income.
the spouse’s income is not available to the Veteran
exclude the spouse’s income.
the spouse’s income is used to pay expenses beyond the ordinary and usual family requirements
exclude the income on the grounds that to count it would cause the Veteran hardship.
the spouse has countable retirement/annuity income
reduce the income by 10 percent.
the spouse has earned income that exceeds the spouse income exclusion from the protected pensions rate tables.
exclude all earned income of the spouse.
the spouse income exclusion from the protected pensions rate tables exceeds the spouse’s earned income
exclude the spouse income exclusion amount.
Note:  When you have arrived at the spouse’s countable income, add it to the Veteran’s basic countable income. Deductible expenses to arrive at IVAP can further reduce this amount.

3.  Deductible Expenses


Introduction

This topic contains information on deductible expenses, including

Change Date

October 18, 2018

V.iii.1.C.3.a.  General Information on Deductible Expenses

Any deductible expense, which was applicable to the calendar year ending December 31, 1978, becomes a part of the protected 1978 income for Section 306 Pension cases.
Deductible expenses paid after 1978 cannot increase a beneficiary’s protected rate.  However, deductible medical and final expenses paid during a calendar year subsequent to 1978 can be used to keep IVAP within the applicable income limit and preserve continued entitlement to Section 306 Pension.
Note:  Medical expenses and final expenses are not a factor for Old-Law Pension cases.

V.iii.1.C.3.b.  Definition:  Reported Annual Income

Reported annual income refers to all countable family income before the 10-percent reduction for retirement income and the spouse’s income exclusion of 38 CFR 3.262(b)(2).
Reported annual income does not include any income that is not countable for Section 306 Pension purposes, per 38 CFR 3.261.

V.iii.1.C.3.c.  Medical Expenses Under Section 306 Pension Only

Unreimbursed medical expenses that exceed 5 percent of reported annual income, can be deducted under 38 CFR 3.262(l).
Example:
Situation:  A Section 306 Pension Veteran has retirement income of $4,000 per year and reports paying unreimbursed medical expenses of $4,000.  The Veteran’s spouse has retirement income of $2,000 per year and earned income of $5,000 per year.
Calculation:  The table below outlines the calculation for the deductible medical expenses.
Step
Calculation
Description
1
$4,000
Veteran’s retirement
$2,000
Spouse’s retirement
+$5,000
Spouse’s earned income
$11,000
Total income
2
$11,000
Total income
x0.05
Five percent
$550
Five percent deductible
3
$4,000
Gross medical expenses
-$550
Five percent deductible
$3,450
Deductible medical expenses

V.iii.1.C.3.d.  Allowable Medical Expenses

Allow all unreimbursed medical expenses for items or services that are medically necessary; that improve a disabled individual’s functioning; or that prevent, slow, or ease an individual’s functional decline.  In general, the principles concerning current-law pension medical expenses are equally applicable in determining if a specific claimed medical expense can be allowed for Section 306 Pension purposes.
Note:  Do not show medical expenses or enter them into the financial screen unless
  • there are continuing medical expenses, and
  • expected year income would be excessive without the continuing medical expenses.
Reference:  For more information about allowable medical expenses, see

V.iii.1.C.3.e.  Using Medical Expenses to Maintain Eligibility

VA cannot increase Section 306 Pension benefits because of the payment of medical expenses, but medical expenses can be used to keep income within the limit for continued eligibility.  It is permissible to allow the exclusion during the current year if
  • the claimant’s income is static, and
  • the claimant reports substantial unreimbursed expenses actually paid early in the year.
Do not allow prospective medical expenses in the absence of evidence indicating a clear and reasonable expectation that they will occur.
Example:  If the claimant is in need of regular aid and attendance or nursing home treatment or there is a history of substantial recurring expenditures for medical conditions, the anticipated medical expenses may be prospectively excluded.
If prospective medical expenses were allowed but actual calendar year expenses were not sufficient to bring IVAP below the income limit, discontinue the award “effective” the end of the calendar year (that is, on the first day of the month that follows the year in which IVAP exceeds the limit).
Rationale:  Unless the claimant submits additional evidence showing that IVAP was below the income limit, entitlement to Section 306 Pension is lost.

V.iii.1.C.3.f.  Final Expenses Under Section 306 Pension Only

VA allows the deduction of the following amounts actually paid for final expenses:
  • payments by a surviving spouse or child for the last illness, burial, and just debts of the deceased Veteran, per 38 CFR 3.262(m), and
  • payments by a Veteran, surviving spouse, or child for the expenses of last illness or burial of the Veteran’s deceased spouse or child, per 38 CFR 3.262(n).
Note:  Final expenses are deducted on a dollar-for-dollar basis.  There is no deductible.

V.iii.1.C.3.g.  Year of Exclusion

Deductible expenses can be applied against income received for the year during which the expenses are actually paid by the beneficiary.
Example:  A Veteran’s child died in 2005.  The child was in the surviving spouse’s custody and the surviving spouse paid for the child’s funeral in 2006.  The amount paid in 2006 can be deducted from 2006 income for the purpose of keeping calendar year 2006 IVAP within the income limit and preserving the surviving spouse’s continued entitlement to Section 306 Pension.

V.iii.1.C.3.h.  Income From Operation of a Business

Do not enter expenses excluded under 38 CFR 3.262(a)(2) to arrive at income from rentals, business, or a profession as a deductible expense.
Instead, enter the net profit as under the financial screen.

V.iii.1.C.3.i.  Compensation for Injury or Death

Under 38 CFR 3.262(i), consider medical, legal, and other expenses incurred prior to an award of and incident to compensation based on permanent and total disability or death from any of the following sources as deductible expense:
  • the Office of Workers’ Compensation
  • the Department of Labor
  • the Social Security Administration
  • the Railroad Retirement Board (RRB), or
  • any workers’ compensation or employers’ liability statute or commercial insurance.
Use VA Form 21P-8416b, Report of Medical, Legal or Other Expenses Incident to Recovery for Injury or Death, to develop the amounts the beneficiary has actually paid during the calendar year for which the beneficiary has not been and will not be reimbursed by insurance or another agency.
Note:  38 CFR 3.262(i) refers to the Bureau of Employees’ Compensation; this bureau was abolished in 1974.
Reference:  For the most recent statutory income and net worth exclusions that apply to all VA income-based benefits, see M21-1, Part V, Subpart iii, 1.I.11.

V.iii.1.C.3.j.  Disability Retirement Expenses Under Section 306 Pension

For Section 306 Pension cases, the exclusion applies only one time; that is, when the disability retirement or other compensation is initially awarded.  The legal as well as medical expenses are deductible from the specific disability retirement benefit under 38 CFR 3.262(i)(1).
After this one-time exclusion, any medical expense deductions in these cases are governed by 38 CFR 3.262(1).
The amount deducted may not exceed the total (annual) disability retirement or compensation payments to which the expenses are incident.  When calculating countable income, only the balance, if any, remaining after deducting these expenses is subject to the 10 percent reduction for retirement type expenses.

V.iii.1.C.3.k.  Disability Retirement Expenses Under Old-Law Pension

For Old-Law Pension cases, in addition to the first year exclusion, unreimbursed medical expenses paid during any succeeding year which are related to the disability for which the individual retired can be used to reduce countable disability retirement income.

4.  Adjustments Based on Changes in Income


Introduction

This topic contains information on adjustments based on changes in income, including

Change Date
May 6, 2015

V.iii.1.C.4.a.  Effective Date of Reductions or Discontinuances

After entering an award at a rate based on anticipated or expected income, if a reduction or discontinuance is required because there is an increase in annual income, the effective date of reduction or discontinuance is the first day of the year following the year during which the increase occurred, per 38 CFR 3.660(a)(2).
Note:  Although 38 CFR 3.660(a)(2) states that such reductions and discontinuances are effective the end of the year (called the “end-of-the-year rule”), VA pays benefits for that last day and therefore the actual date of reduction or discontinuance (“no-pay” date) is the first day of the following year.

V.iii.1.C.4.b.  Restoring Section 306 or Old-Law Pension

Discontinuances due to income that exceeds the limit are final.  However, if expenses are later reported and the expenses reduce the income below the limit (restoring continuity), payment of Section 306 or Old-Law Pension may be authorized from the date it was discontinued.
Reopened awards that provide only for continuity of entitlement to Section 306 Pension or Old-Law Pension are not affected by the provisions of 38 CFR 3.31.  That is, payment will be restored from the date of discontinuance.

V.iii.1.C.4.c.  Time Limit to Amend Income Information

Under 38 CFR 3.660(b), a Section 306 Pension or Old-Law Pension beneficiary can amend an income report any time within the calendar year for which income is reported or the following calendar year.  However, an amended income report would be significant only if the income previously reported exceeded the income limit.
Example:  A Section 306 Pension Veteran without dependents reports 2005 IVAP of $12,780.  Since the 2005 income limit for a Veteran without dependents is $12,034, the award is discontinued effective January 1, 2006.  The Veteran has up to and including December 31, 2006, to submit satisfactory evidence that 2005 calendar year income did not exceed $12,034.
Notes:
  • The income limits and spouse income exclusion, although effective in December, actually apply to that calendar year.  For example, an income limit effective December 1, 2005, applies to income for calendar-year 2005 for Section 306 and Old-Law Pension purposes.
  • If VA does not receive the evidence before January 1, 2007, the Veteran must be considered under the current-law pension law.

V.iii.1.C.4.d.  Considering
Current-law Pension Entitlement

If discontinuance is required because of excessive income or net worth, determine if the income information of record supports an immediate award of current-law pension.  If it does, award current-law pension effective the date the Section 306 or Old-Law Pension payment is discontinued.
An immediate award of current-law pension after loss of Section 306 or Old-Law Pension entitlement is not an election, and is not subject to 38 CFR 3.31.
Example:
Situation:  A Section 306 Pension Veteran’s award is discontinued effective January 1, 2006, because calendar year 2005 IVAP exceeds the Section 306 Pension income limit.  The evidence shows that calendar year 2005 income is below the current-law pension maximum annual pension rate (MAPR).
Results:
  • Award current-law pension from January 1, 2006, if possible
  • disregard 38 CFR 3.31, and
  • inform the payee that restoration of Section 306 or Old-Law Pension may be in order if expenses are submitted for the period during which income exceeded the Section 306 or Old-Law Pension income limit.

V.iii.1.C.4.e.  Veteran Entitled to Compensation

If the Veteran is also entitled to disability compensation and payments of pension are to be discontinued or reduced to a lesser rate, as the result of the loss of a dependent, amend the award to authorize payment of compensation.

V.iii.1.C.4.f.  Waiver of Retirement Income Under  Current-law Pension and Section 306 Pension

For purposes of current-law and Section 306 Pension, retirement income which has been waived by the recipient, is counted as income as if it had been received under 38 CFR 3.276(a) and 38 CFR 3.262(h).

V.iii.1.C.4.g.  Waiver of Retirement Income Under Old-Law Pension

For purposes of Old-Law Pension, retirement benefits from the following sources which have been waived pursuant to Federal statute will not be considered as income:
  • Civil Service Retirement and Disability Fund
  • RRB
  • District of Columbia (paid to firemen, policemen, or public schoolteachers), and
  • former United States Lighthouse Service.
An Old-Law Pension beneficiary may prospectively adjust the amount waived for the purpose of keeping annual income for the current or expected year within the applicable income limitation.
Note:  Railroad Retirement benefits to Veterans are excluded from income for Old-Law Pension purposes, per 38 CFR 3.262(g)(2).

V.iii.1.C.4.h.  Applying the End-of-the-Year Rule

The “end-of-the-year rule” does not apply for the year in which a claimant cancels or reduces such a waiver.  If a change in the amount waived makes the beneficiary’s income excessive, stop the award effective the date of the change in the waiver.
If an additional amount of retirement is received solely as the result of a legislated increase (or COLA) and not by reason of a change in the amount waived, apply the end-of-year rule, and discontinue benefits effective the first day of the following year if the additional income causes IVAP to exceed the limit.
If the payee reports that a waiver of retirement income has been established or amended, ask the payee to furnish a copy of the communication from the retirement source which reflects the gross retirement amount before the waiver and the net amount after the waiver.

V.iii.1.C.4.i.  Determining the Waived Amount of Old-Law Pension

Follow the steps in the table below if the claimant requests advice in determining the amount to be waived.
Step
Action
1
Calculate net countable income, exclusive of the retirement benefit.
2
Subtract this net countable income from the applicable Old-Law Pension income limit.
Result:  This is the amount of retirement to be paid after waiver.
3
  • Multiply the gross amount of the retirement benefit by 0.9
  • subtract the amount obtained in Step 2, and
  • round the result to the next higher even $10.
Result:  This is the minimum amount to waive from the annual retirement benefit.
4
Calculate the IVAP after the waived amount from Step 3 is determined.
5
Once the amount to be waived has been determined
  • enter the total retirement amount in the financial screen, and
  • perform a GENERATE AWARD OVERRIDE (GAO) command to enter the calculated IVAP to determine the monthly Old-Law Pension rate.

V.iii.1.C.4.j.  Example:  Determining the Waived Amount

Situation:  A Veteran with a dependent is entitled to $10,080 Civil Service retirement pay annually.  The Veteran also received $4,400 Social Security, $960 wages, and $2,400 stock dividends.
Result:  The resulting calculations below use the income limit in effect on December 1, 2003.
Step
Calculation
Description
1
$960
Earnings
$3,960
Social Security with 10 percent deducted
+$2,400
Dividends
$7,320
Total
2
$14,205
Maximum Old-Law Pension Limit
-$7,320
Deduction Income after 10%
$6,885
Difference
3
$10,080
Civil Service retirement pay
-$1,008
10 percent deduction
$9,072
Total
4
-$6,885
Deduction (from Step 2)
$2,187
Waived amount

V.iii.1.C.4.k.  Example:  Determining Old-Law Pension IVAP with Waived Retirement

Below is an example of determining Old-Law Pension IVAP with waived retirement.
Step
Gross Income
Income countable for Old-Law
Description
1
$960
$960
Earnings
$4,400
$3,960
Social Security (10-percent deduction)
$10,080
$9,072
Civil Service retirement pay (10-percent deduction)
+$2,400
+$2,400
Other income (dividends)
$17,840
$16,392
Subtotal
2
-$2,187
Waived Retirement Expense
3
$14,205
IVAP
Enter IVAP of $14,205 under GAO.
Note:  IVAP of $14,205 consists of
  • $960 earnings
  • $3,960 Social Security
  • $6,885 Civil Service retirement pay, and
  • $2,400 dividends.

V.iii.1.C.4.lAdjusting Prospective Discontinuances

To make an award which continues payment for the balance of the current year, and discontinues payment as of the first of the following year, because of excessive actual or estimated income
  • make the first award line on the amended award effective as of the first of the current month using the 1978 IVAP upon which the protected rate was based
  • reinsert any other previously-scheduled award lines for the balance of the year with existing reason codes and the protected rate
  • enter the current IVAP that exceeds the income limit and requires discontinuance.
Note:  If there is already a scheduled discontinuance established in the master record for a date before the end of the year, annotate the revised income estimate on the award.  No additional award action is required.

5.  Changes in Marital and Dependency Status


Introduction

This topic contains information on changes in marital and dependency status, including

Change Date

February 13, 2007

V.iii.1.C.5.a.  General Information on Changes in Marital and Dependency Status

Changes in marital or dependency status require award adjustments.
If there is an indication that a change in income may have also occurred, determine entitlement based on income for the full calendar year and
fully develop the current income situation, per 38 CFR 3.260(f).

V.iii.1.C.5.b.  Removing a Veteran’s Spouse Due to Death, Divorce, or Annulment

If a Veteran with a running or suspended award loses a spouse due to death, divorce, or annulment, reduce or discontinue the award effective the first day of the year following the year during which the death, divorce, or annulment occurs per 38 CFR 3.660(a)(2).

V.iii.1.C.5.c.  Removing a Veteran’s Spouse Due to Estrangement

Remove the spouse from the award effective the date of separation if the spouse of a Section 306 Pension Veteran ceases to be a dependent because the
  • spouse is estranged from the Veteran, and
  • Veteran is not making reasonable contributions to the spouse’s support.
Do not apply the end-of-the month rule.
Note:  Estrangement has no effect on an Old-Law Pension award.  As long as the Veteran and spouse are legally married, the higher Veteran and spouse income limitation applies.

V.iii.1.C.5.d.  Removing a Veteran’s Spouse Due to Cessation of Contributions

If an estranged spouse of a Section 306 Veteran ceases to be a dependent because the Veteran stops making reasonable contributions to the spouse’s support, remove the spouse from the award effective the day after the date the Veteran made the last contribution to the support of the estranged spouse.
Do not apply the end-of-the month rule.

V.iii.1.C.5.e.  Removing a Child Due to Death or Marriage

If a child dies or marries, reduce or discontinue the Veteran’s or surviving spouse’s  running or suspended award effective the first day of the year following the year of death or marriage, per 38 CFR 3.660(a)(2).
However, if the child was scheduled to be removed from the award from an earlier date, use the previously scheduled removal date.

V.iii.1.C.5.f.  Marriage of Schoolchild

If a schoolchild marries and stays in school, continue to pay benefits until the first of the year after the year of marriage.
However, if the child discontinues school attendance before marrying, reduce the award effective the first day of the month following the date the child last attended school.
Note:  For purposes of Section 306 Pension or Old-Law Pension, an out-of-custody child can be a dependent even if the Veteran or surviving spouse is not contributing to the child’s support.  Therefore, cessation of contributions to an out-of-custody child does not affect the status of a child as a dependent for Section 306 Pension or Old-Law Pension purposes.

V.iii.1.C.5.g.  Loss of Last/Only Dependent When IVAP Is Within the Section 306 Pension Limit

Once the effective date to remove a dependent has been established, make a determination as to the Veteran’s or surviving spouse’s IVAP on that date.
Use the table below to determine the IVAP in cases when the claimant’s current IVAP (or expected income for an end-of-year adjustment) is within the income limit for a Veteran or surviving spouse alone.
If the last dependent was a …
Then …
  • spouse who had nocountable 1978 income, or
  • child
reduce the award to the Veteran or surviving spouse alone rate based on protected 1978 income.
If the protected 1978 income exceeds $3,770, reduce the award to a $5 per month or special aid and attendance benefit rate.
Note:  If the Veteran reached age 78 prior to December 3l, 1978, the Veteran alone rate includes a 25-percent increase.
spouse who hadcountable 1978 income
establish an adjusted protected 1978 income by dropping the spouse’s income from the protected 1978 income.
Example:  The protected 1978 IVAP consists of $150 interest for the spouse and $200 interest for the Veteran. Drop the spouse’s $150, leaving an adjusted protected 1978 income of $200.
Note:  If medical expenses were a factor in determining the protected 1978 income, do not attempt to exclude the spouse’s share of the medical expenses. Continue to use the same 1978 medical expenses (assume they all belonged to the Veteran), but base the five percent exclusion on the Veteran’s income only.

V.iii.1.C.5.h.  Determining Income After Loss of Last/Only Dependent When IVAP Is Within the Section 306 Pension Limit

Compare the Veteran alone rate, based on the adjusted protected 1978 IVAP (without the spouse’s income) to the protected 1978 rate the Veteran was receiving before the loss of the dependent.  Adjust the award to pay the lower of the two rates.
Use the table below to determine the adjustment.
If …
Then …
the Veteran alone rate is lower
make the award line IVAP the adjusted protected 1978 income
the loss of the spouse and the spouse’s income does not reduce the Veteran’s benefit
Example: The Veteran alone rate without the spouse’s income would be greater than the rate the Veteran was receiving while married.
  • continue the married rate
  • amend the award, effective the day following the date of the spouse’s death, with a fictitious award line IVAP that supports the
    • protected rate, and
    • the protected (married) rate
  • enter actual current income on the financial screen, and
  • annotate the award as follows: “Spouse removed [date]; Veteran protected at married rate.
Note:  If the Veteran loses a spouse who had countable 1978 income, but the spouse is not the last or only dependent, that is, there is still a child on the award
  • continue to use the protected 1978 IVAP (including the spouse’s income), and
  • pay at the rate for a Veteran with the appropriate number of children.
Do not re-calculate an adjusted protected 1978 IVAP. If the child subsequently goes off the award, continue to use the protected 1978 IVAP.

V.iii.1.C.5.i.  Loss of Last/Only Dependent When IVAP Exceeds the Section 306 Pension Limit

If the beneficiary’s income exceeds the income limit for a Veteran or surviving spouse alone, discontinue the award effective the end of year, that is, the first day of the following year.

Exception:    For Section 306 or Old-Law Pension, the end-of-the-year rule applies to dependents lost due to marriage, annulment, divorce, or death.  If the dependent is lost for a different reason, the effective date is the date of the event that caused dependency to cease.

When discontinuing the award the

  • first award line reflects current payments based on the protected 1978 IVAP
  • discontinuance award line shows the current or expected (as opposed to protected 1978) IVAP that supports the discontinuance, and
  • complete income data for entry is the current income that supports the discontinuance.

Note:  A Veteran cannot maintain continuity of entitlement by acquiring a new dependent during the same calendar year that the last dependent is lost.  Only payment of current-law pension is for consideration effective January 1 of the following year.


V.iii.1.C.5.j.  When a Dependent Is Established Prior to January 1, 1979

Additional benefits under Section 306 Pension may be paid and a higher income limit for Old-Law Pension is applicable only for dependents established with an effective date on or before December 31, 1978.
Child beneficiaries of Section 306 Survivors Pension must have been determined incapable of self support before December 31, 1978.  (For Old-Law Pension, the applicable date is June 30, 1960.)  However, a Veteran could have adopted a dependent child after December 31, 1978.

V.iii.1.C.5.k.  Handling a Dependent Established After December 31, 1978

Additional benefits may not be paid for dependents established from an effective date after December 31, 1978.
However, if a Veteran marries or acquires a child
  • the higher (claimant with dependent) income limit becomes applicable, and
  • the spouse’s income, if any, must be considered in determining a Veteran’s continued entitlement to Section 306 Pension.

V.iii.1.C.5.l.  Handling a Veteran With Dependents

The Veteran claimant is considered to be a Veteran with dependents for all purposes, including hospital adjustments.
Amend the award to show the new dependency code and the protected rate.  Use a fictitious award line IVAP to support the protected rate.  An SL code is not required.
If a Veteran marries, income received by the spouse on or after the date of marriage is a factor in determining the Veteran’s current (as opposed to protected 1978) income.  Enter the current income on the financial screen.
The amount of the exclusion from the spouse’s income after marriage is determined under 38 CFR 3.262(b)(2).  Exclude one of the following amounts, whichever is applicable:
  • the current spouse income exclusion amount from the Section 306 Pension rate charts in the protected pensions rate tables, or
  • the full amount of the spouse’s earnings.
For the year that the spouse is established, exclude the greater of either all earned income received on or after the date the spouse is established or a proportionate amount of the current spouse income exclusion amount from the Section 306 Pension rate charts in the protected pensions rate tables.
To calculate the amount
  • divide the number of days from the date the spouse is established to the end of the calendar year by 365
  • round to two decimal places
  • multiply the result by the spouse income exclusion amount for the calendar year during which the spouse is established, and
  • drop the cents.
As a result of establishing a spouse, if the Veteran’s re-calculated current IVAP exceeds the current Section 306 Pension income limit (for a Veteran with a dependent), discontinue the award effective the first day of the year following the marriage.

V.iii.1.C.5.m.  Handling a Case in Which the Status of Spouse Is Unresolved

If notice is received that a Section 306 Pension Veteran has acquired a spouse, fully develop the spouse’s income and dependency status.
If the Veteran fails to cooperate in furnishing this information, discontinue the award under 38 CFR 3.652.
For purposes of 38 CFR 3.652(a)(1), the “month in which the eligibility factor was last shown by the evidence of record to have existed” is the last month during which it can definitely be shown by the evidence of record that the Veteran was unmarried.  The effective date of discontinuance would be the first day of the month following that month.

6.  Handling Another Beneficiary’s Award When a Surviving Spouse’s or Child’s Award Is Discontinued


Introduction

This topic contains information on handling another beneficiary’s award when a surviving spouse’s or child’s award is discontinued, including

Change Date

February 13, 2007

V.iii.1.C.6.a.  Surviving Spouse’s Award Discontinued With Children in Custody

When a surviving spouse’s award is discontinued, the only entitlement for children in custody of the surviving spouse is current-law pension.
When considering current-law pension entitlement for the children, the surviving spouse’s income must be considered.
Reference:  For information on countable income for current-law pension, seeM21-1, Part V, Subpart iii, 1.I.

V.iii.1.C.6.b.  Surviving Spouse’s Award Discontinued With Children Out of Custody/ Apportionees

If a surviving spouse’s Section 306 or Old-Law Pension benefit must be discontinued, the discontinuance has no effect on apportionments to children of that surviving spouse’s pension.  Section 306 or Old-Law Pension awards of surviving children who are not in the custody of that surviving spouse may continue.
The children’s continued entitlement to Section 306 Pension or Old-Law Pension is determined based on the income limits for children alone under Section 306 Pension or Old-Law Pension.

V.iii.1.C.6.c.  Child’s Award Discontinued

If there is no surviving spouse and a child’s award is discontinued, defer adjustment of the awards for any other children under 38 CFR 3.651, pending the expiration of the period within which the discontinued award may be reinstated and entitlement re-established for a retroactive period.
The awards to the remaining children are adjusted, when in order, from the date of discontinuance of the child’s award, at the rate payable excluding that child.
The provisions of 38 CFR 3.31 do not apply as the total benefit payable has been reduced due to loss of a dependent.

7.  Sale or Transfer of Real Estate or Personal Property


Introduction

This topic contains information on the sale or transfer of real estate or personal property, including

Change Date

February 13, 2007

V.iii.1.C.7.a.  Impact of the Sale or Transfer of Real Estate or Personal Property on Old-Law Pension

Profit from the sale of real estate or personal property is considered income for purposes of Old-Law Pension, per 38 CFR 3.262(k)(3).
In this respect, Old-Law Pension is different from Section 306 and current-law pension.

V.iii.1.C.7.b.  Exclusion of Profit for Old Law Pension Purposes

Profit from the sale of the beneficiary’s principal residence may be excluded from income calculation for the calendar year of sale if the profit is applied within the same or next calendar year to the purchase of another residence, per 38 CFR 3.262(k)(4).
The report that profit from the sale of the residence has been applied to purchase of another residence must be received by VA within one year of the later of the two following dates:
  • the date the profit is applied, or
  • one year from the date of sale.
Exception:  This exclusion does not apply if the net profit from the sale of home A is applied to pay for home B, where home B was purchased earlier than the calendar year preceding the calendar year of the sale of home A.
The purchase of a lifetime residence in a senior citizen’s home is considered equivalent to purchasing another principal dwelling.

V.iii.1.C.7.c.  Calculating Net Profit for Old-Law Pension Purposes

Under 38 CFR 3.262(k)(3), the net profit from the sale of property is the difference arrived at by subtracting from the sales price
  • the purchase price or value of the property on the date the property was acquired by the beneficiary, or
  • the value of the property on the date of entitlement to VA pension, if the property was owned by the beneficiary prior to the date of entitlement to VA pension.

V.iii.1.C.7.d.  Profit From Sale of Property for Old-Law Pension Purposes After a Veteran’s Death

Profit from the sale of property after the Veteran’s death which was purchased with the individual funds of both the Veteran and spouse, should be considered in proportion to the amounts each contributed in the purchase.
The surviving spouse is entitled to recover fully his/her share of the investment, including appreciation of his/her share, before charging the surviving spouse with any income from the inherited share of the property.

V.iii.1.C.7.e.  Installment Sales for Old-Law Pension Purposes

An installment sale, for the purposes of this chapter, is any sale in which the seller receives more than the sales price over the course of the transaction.  The actual number of installments is irrelevant.
If a beneficiary sells property and receives payment in installments, count as income any amounts received over and above the sales price, but not until an amount equal to the sales price has been received by the seller, per 38 CFR 3.262(k)(5).
Example:
Situation:  A Veteran sells his/her house for $80,000.  The Veteran receives a cash payment of $40,000 and a cash payment of $45,000.
Result:  This is an installment sale for VA pension purposes and $5,000 is countable as interest income when the Veteran receives the $45,000.

V.iii.1.C.7.f.  Counting Installment Payments as Income for Old-Law Pension Purposes

If payment for a sale of property, occurring on or after the date of entitlement to VA pension, is received in installments, the payments are not considered income until the claimant has received amounts equal to the
  • value of the property at the date of entitlement to VA pension, if the property was owned by the beneficiary prior to the date of entitlement to VA pension, or
  • purchase price paid by the beneficiary if the property was acquired on or after the date of entitlement to VA pension.
Note:  There is no need to distinguish between principal and interest payments in the installment sales context.

V.iii.1.C.7.g.  Payments Received Prior to Entitlement to Old-Law Pension

When installments are received as payment on a sale made prior to the date of entitlement to VA pension, count only the interest payments as income.  It is necessary to secure from the claimant a copy of the amortization schedule or similar document distinguishing between interest and principal.

V.iii.1.C.7.h.  Income From the Sale of Property for Section 306 Pension Purposes

Income received from the sale of property is viewed as a conversion of assets and is not countable income for Section 306 Pension purposes, except where
  • property is sold in the course of operating a business, or
  • income from the sale of property is received by the claimant in installments.

V.iii.1.C.7.i.  Sales in the Course of Business for Section 306 Pension Purposes

If a beneficiary who operates a business sells property or merchandise in connection with the business, add any profit received from the sale of the property to other income of the business.

V.iii.1.C.7.j.  Ensuring Recorded Information for Section 306 Pension

Ensure the following information is on record before attempting to calculate countable income from sale of property for Section 306 Pension:
  • sales price
  • amount of the down payment
  • date the first installment payment is received
  • frequency of installment payments
  • amount of each installment payment, and
  • date the last installment payment is received.

V.iii.1.C.7.k.  Principal Versus Interest for Section 306 Pension

For Section 306 Pension, it is not necessary to distinguish between payment of principal and interest in the installment sale context.  As soon as the down payment and installment payments received by the beneficiary equal the sales price, all subsequent installment payments constitute countable income.
Example:
Situation:  A Veteran reports the sale of a house for $100,000 on January 1, 2006.  The Veteran received $35,000 down and will receive installment payments of $620 per month.
Result:  Establish a diary for September 2014, the month during which the Veteran’s return from the sale of property will exceed $100,000.  Charge income of $1,860 ($620 x 3) during calendar year 2014 and $7,440 during calendar year 2015.
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