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M21-1, Part V, Subpart iii, Chapter 1, Section J – Net Worth, Asset Transfers, and Penalty Periods

Overview


In This Section

This section contains the following topics:
Topic
Topic Name
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1.  General Information on Net Worth


Introduction

This topic contains general information on net worth, including

Change Date

November 19, 2018

V.iii.1.J.1.a.  Impact of the Claimant’s Net Worth on VA Benefits

The claimant’s net worth is a factor in determining eligibility for Section 306 and current-law pension, as well as in establishing parents as dependents on Veterans’ compensation awards.
Note:  Net worth is not a factor in Old-Law Pension and Parents’ Dependency and Indemnity Compensation (DIC) cases.

V.iii.1.J.1.bWhen to Consider the Net Worth of the Spouse

The net worth of the Veteran’s spouse, including separate property, is a factor in Veterans Pension cases

V.iii.1.J.1.cWhen to Consider the Child’s Net Worth 

The net worth of the child of a Veteran or surviving spouse can also be a factor for current-law pension purposes.  However, do not add the child’s net worth to that of the payee.  Evaluate the child’s net worth independently and if the child’s net worth is excessive, remove the child from the award, per 38 CFR 3.274(d), regardless of whether removing the child and his/her income results in a higher rate of pension.  Evaluate the child’s net worth using the applicable net worth rules for dates of claim either before, on or after October 18, 2018.
Example:  A Veteran files an original pension claim on November 25, 2018.  The Veteran has a 13-year-old biological son that inherited $250,000 in stocks during 2015.
Result:  Because the child’s net worth is over $123,600, do not establish the child as a dependent.
Reference:  For more information on the net worth of children, see M21-1, Part V, Subpart iii, J.1.d.

V.iii.1.J.1.d.  Net Worth of a Child Entitled in His/Her Own Right

When surviving children apply for pension in their own right, or they are already receiving Survivors Pension, evaluate their net worth using the applicable rules for net worth.
Note:  A surviving child’s assets include those of his or her custodian unless the custodian is an institution.

V.iii.1.J.1.e.  Net Worth Criteria for Claims Received Before October 18, 2018

For claims received before October 18, 2018, the term net worth means all personal property owned by the claimant, except for personal effects suitable to the claimant’s reasonable mode of life.
For Veterans Pension, a Veteran’s net worth includes the net worth of his/her spouse.
Normal household objects and possessions are not included in a net worth determination.  Likewise, motor vehicles used for family transportation are notincluded in determining net worth, nor is the claimant’s primary residence.
However, personal property that is owned primarily as an investment, for example, an antique automobile or a coin collection, is included in determining net worth.
Note:  The term personal property includes all tangible property that is not land (real property) or fixtures on land.

V.iii.1.J.1.f.  Net Worth Criteria for Claims Received on or After October 18, 2018

Effective October 18, 2018, the Department of Veterans Affairs (VA), changed the net worth criteria for pension claims.
Net Worth on or after October 18, 2018 is the sum of a claimant’s:
  • assets, and
  • income for VA purposes (IVAP), including the income of dependents
Assets do not include the following:
  • the value of a claimant’s primary residence, and
  • the value of personal effects suitable to and consistent with a reasonable mode of life, such as appliances and family transportation vehicles.
Notes:
  • When calculating annual income for net worth, subtract only reasonably predictable medical expenses.
  • If the total value of an annuity or similar financial instrument is used when calculating the asset amount, do not include the monthly income derived from the same annuity or similar financial instrument when calculating income for net worth.
References:  For more information on

V.iii.1.J.1.gDefinition :   Assets

Assets are the fair market value of all property that an individual owns, including all real and personal property, unless excluded under 38 CFR 3.275(b).
Example:  A surviving spouse has a joint bank account with her nephew.
Result:  Count one half of the joint account value as an asset for the surviving spouse.
Note:  If an asset is jointly owned, count only the claimant’s proportional share while calculating net worth.
Reference:  For more information on the definition of assets and exclusions from assets, see 38 CFR 3.275(a) and (b).

V.iii.1.J.1.hDefinition:  Fair Market Value

Fair market value is the price at which an asset would change hands between a willing buyer and seller.
Note:  VA will use the best available information to determine fair market value, such as inspections, appraisals, public records, and the market value of similar property.
Reference:  For more information on fair market value, see

V.iii.1.J.1.i.  Impact of Net Worth of the Veteran and Spouse on Current-Law Pension for a Claim Received Before October 18, 2018

When evaluating net worth on a claim received before October 18, 2018, consider the income and living expenses of the family unit and if it is reasonable, under all the circumstances, for the claimant to consume some of his/her estate for maintenance.  If authorization makes a formal finding that the claimant’s net worth should be consumed for maintenance, deny the pension claim.
Pension entitlement is based on need and that need does not exist if a claimant’s estate is of such size that he/she could use it for living expenses.
Reference:  For more information concerning current-law pension net worth determinations for claims received prior to October 18, 2018, see M21-1, Part V, Subpart iii, 1.J.3.

V.iii.1.J.1.j.  Impact of Net Worth on Section 306 Pension

For Section 306 Pension purposes, consider the net worth of the Veteran or surviving spouse alone.
Reference:  For more information concerning Section 306 Pension net worth determinations, see M21-1, Part V, Subpart iii, 1.J.2.

V.iii.1.J.1.k.  Convertibility of Assets

A factor to consider in making a net worth determination is whether or not the property can readily be converted into cash at no substantial sacrifice.  This means that a claim should not be denied for excessive net worth if the claimant cannot convert assets into significant cash assets because of temporary market conditions or other reasons.
However, if property can be converted into significant cash assets, it is immaterial that the property was worth more in the past or might be worth more in the future.  The sole question to consider is how much money the claimant would receive if the property were sold at this time.
VA’s income-based benefits programs are not intended to insure substantial assets against changes in market conditions.

V.iii.1.J.1.l.  Example 1: Convertibility of Assets

Example:  The Veteran purchased an investment property five years ago for $250,000.  The Veteran demonstrates that, because of depressed land values in the area, the property could be sold today for only $150,000.  The Veteran still owes $150,000 on the property.  The Veteran would have no additional disposable income if the property were to be sold.
Result:  The value of the property for purposes of a VA net worth determination is $0.

V.iii.1.J.1.m.  Example 2: Convertibility of Assets

Example:  The Veteran inherited an invsement propertyfive years ago.  At that time the property was worth $250,000.  The Veteran demonstrates that, because of depressed land values in the area, the property could be sold today for only $150,000.
Result:  The value of the property for purposes of a VA net worth determination is $150,000.  The fact that the property was worth substantially more five years ago or might be worth substantially more in the future is irrelevant.

V.iii.1.J.1.n.  Example 3: Convertibility of Assets

Example:  The Veteran has an Individual Retirement Account (IRA) worth $100,000 and is 53 years old.  If he withdraws any amount prior to age 59 and a half he will incur a 10 percent penalty.
Result:  Until the Veteran reaches age 59 and a half, only 90 percent of an IRA value should be counted as an asset.  In this example, the IRA is valued at $90,000.

V.iii.1.J.1.o.  Example 4: Convertibility of Assets

Example:  The Veteran owns a piece of real estate that was valued last year at $90,000.  However, a recent newspaper story indicated that a piece of land, approximately one mile away, was previously used as a toxic waste dump.  State environmental officials are conducting tests to determine the extent of contamination.  In the meantime, the Veteran’s land could not be sold for more than $10,000.
Result:  The value of the property for net worth determination purposes is $10,000.  However, if it is later determined that the Veteran’s property is uncontaminated and its market value increases, reconsider net worth.

V.iii.1.J.1.p.  Evaluating Net Worth for Claims Received Before October 18, 2018

The basic issue in evaluating net worth for claims received before October 18, 2018 is to determine if the claimant’s financial resources are sufficient to meet the claimant’s basic needs without assistance from VA.
VA’s income-based programs are intended to give beneficiaries a minimum level of financial security.  They are not intended to protect substantial assets or build up the beneficiary’s estate for the benefit of heirs.
If a claimant’s assets are sufficiently large that the claimant could live off these assets for a reasonable period of time, deny pension for excessive net worth.  If net worth is later depleted, the claimant can submit a supplemental pension claim.

V.iii.1.J.1.q.  Evaluating Net Worth on Benefit Eligibility for Claims Received on or After October 18, 2018

The net worth limit for pension entitlement is $123,600 for all effective dates of payment prior to December 1, 2018.  The limit will be increased by the same percentage as the cost-of-living adjustment (COLA) in Social Security benefits.
Deny or discontinue pension if a claimant’s net worth exceeds the net worth limit.
Exception:  If net worth decreases to the limit or below the limit before the effective date of termination do not reduce the pension award based on excessive net worth.
References:  For more information on

V.iii.1.J.1.r.  Discontinuance for Excessive Net Worth

If the net worth of a beneficiary with a running award becomes excessive
  • determine the date from which net worth became excessive, and
  • discontinue the award effective the first of the following calendar year (unless an earlier date of discontinuance is appropriate because of other reasons).

V.iii.1.J.1.s.  Payment of Benefits Based on the Reconsideration of Net Worth

Use the table below to determine when to pay a claimant based on reconsideration of net worth.
If a claim is denied for excessive net worth …
Then …
or an award is discontinued because of excessive net worth
the claimant has one year from the date of notification of denial or discontinuance to submit new evidence or file a notice of disagreement.
and circumstances change so that net worth no longer bars entitlement
benefits can be paid from the date net worth is determined not to bar entitlement, provided the supplemental claim is received before the denial for excessive net worth becomes final.
Notes:
  • This includes supplemental claims submitted after a denial for excessive net worth.
  • If Section 306 Pension benefits are discontinued because of excessive net worth, the new claim must be considered under the criteria for current-law pension.
  • Once the decision becomes final, the earliest entitlement date for a supplemental claim is the date of claim, per 38 CFR 3.660(d).  (38 CFR 3.31) applies to the payment date.).

V.iii.1.J.1.t.  Example 1:  Adjusting Veterans Pension Awards Based on Changes in Net Worth

Example:  A Veteran with a running award owns a painting by a famous artist valued at $30,000.  The artist dies on June 24, 2018, and the value of the painting immediately goes up to $200,000.
The Veteran submits a VA Form 21P-8049, Request for Details of Expenses, and reports that the painting is valued at $200,000 making the Veteran’s net worth excessive effective June 24, 2018.
Result:  Apply the end-of-the-year rule for the effective date and discontinue the award as of January 1, 2019.
Note:  If the claimant fails to disclose asset information and it is later determined that net worth was excessive from the effective date of the award, stop the award from date of inception.  The claimant was never properly entitled to pension.
Reference:  For more information on the effective date for discontinuance due to net worth barring entitlement, see 38 CFR 3.660(a).

V.iii.1.J.1.u.  Example 2:  Adjusting Veterans Pension Awards Based on Changes in Net Worth

Example:  Apply the same facts as Example 1 above, but the Veteran waits until December 28, 2021, to submit a supplemental claim based on reduced net worth.
Result:  The earliest date pension can be awarded is December 28, 2021, subject to 38 CFR 3.31.

2.  Adjusting Section 306 Pension Awards Based on Changes in Net Worth


Introduction

This topic contains information on adjusting Section 306 Pension awards based on changes in net worth, including

Change Date

October 18, 2018

V.iii.1.J.2.aDeveloping for Net Worth in Section 306 Pension Cases

If the issue is raised that net worth may be excessive in a Section 306 Pension case, request all the evidence needed to determine whether the beneficiary is still entitled to pension.  Ask the beneficiary to submit VA Form 21P-8049 to provide information about his/her financial status.
Reference:  For more information on developing for net worth information, seeM21-1, Part V, Subpart i, 3.A.

V.iii.1.J.2.bCriteria for Excessive Net Worth

If the claimant’s financial resources are sufficient to meet personal needs, the intent of the law is that no payments may be authorized.
Apply the criteria in 38 CFR 3.263, taking into consideration the
  • type and amount of property involved
  • age and life expectancy of the claimant
  • number and state of health of persons dependent on the claimant for support, and
  • countable income.
Note:  Section 306 Pension is not subject to the net worth and asset transfer rules that became effective October 18, 2018.

V.iii.1.J.2.cDiscontinuance of Section 306 Pension

When Section 306 Pension is to be discontinued because of excessive net worth, prepare a formal determination for approval by a senior claims processor).
Use VA Form 21-5427Corpus of Estate Determination, for this purpose.  Furnish a full statement of facts concerning the size and composition of the estate and the conclusion reached.
The end-of-the-year rule applies to discontinuances for excessive net worth in Section 306 Pension cases.  Discontinue benefits as of the first day of the calendar year after the calendar year during which net worth became excessive, per 38 CFR 3.660(a)(2).

V.iii.1.J.2.dHandling a $80,000 Estate When Net Worth Is Not a Bar

If a Section 306 Pension beneficiary has a net worth of $80,000 or more and it is determined that net worth is not a bar to entitlement, prepare an administrative decision on VA Form 21-5427.
Note:  Preparation of VA Form 21-5427 is not required if the determination is favorable and the estate is less than $80,000.

3.  Net Worth Determinations for Claims Received Before October 18, 2018


Introduction


Change Date

October 18, 2018

V.iii.1.J.3.aExcessive Net Worth as a Question of Fact 

No specific dollar amount can be designated as excessive net worth for claims received before October 18, 2018.  What constitutes excessive net worth in these claims is a question of fact for resolution after considering the facts and circumstances in each case.  A number of variables must be taken into consideration when making a net worth determination.
Factors to consider include
  • income
  • family expenses
  • claimant’s life expectancy, and
  • convertibility into cash of the assets involved
Note:  In general, the older an individual is, the smaller estate the individual requires to meet his/her financial needs.  The VA pension program is not intended to protect substantial assets or build up a beneficiary’s estate for the benefit of heirs.
Reference:  For more information on evaluating net worth, see M21-1, Part V, Subpart iii, 1.J.1.e.

V.iii.1.J.3.b.  Specific Exclusions From Net Worth   

Certain items are excluded from consideration as net worth, such as
  • the value of the claimant’s dwelling (single family unit), including a reasonable lot area, and
  • personal effects suitable to and consistent with the claimant’s reasonable mode of life.
In addition, unless the evidence of record shows the beneficiary has no intention of using money received as reimbursement for property loss to repair or replace that property, receipt of such funds should not necessarily lead to a conclusion of excessive net worth.  In this case
  • a request for documentation (e.g., a building contract) showing the beneficiary’s commitment to repair or replace the property in question would be appropriate, and
  • a reasonable amount of time to decide how the funds will be used should be afforded the claimant, subject to local market conditions.
References:  For information on the specific exclusions for net worth considerations in

V.iii.1.J.3.cWhen a Formal Net Worth Administrative Decision Is Required for Claims Received Before October 18, 2018

A formal administrative net worth decision is required for claims received before October 18, 2018 if
  • the beneficiary has net worth of $80,000 or more, whether or not net worth bars entitlement, or
  • net worth (of any amount bars entitlement.

V.iii.1.J.3.dPreparing Administrative Decisions

When required, prepare a formal administrative decision for approval by a senior claims processor.
Prepare the administrative decision on VA Form 21-5427.  If the information needed to fully complete VA Form 21-5427 is not of record, initiate development for a completed VA Form 21P-8049.  The administrative decision must be typewritten.
Note:  Ensure documentation of calculations made to determine the rate of benefits (such as calculations of medical expenses, net worth, and waived overpayments) are included in the electronic claims folder (eFolder).  Any document that contains Federal tax information (FTI), must be stored in Legacy Content Manager (LCM).
References:  For information on

V.iii.1.J.3.e.Trusts

VA should include trust assets in net worth calculations if trust assets are available for use for the claimant’s support.
Estate planning preserves assets for heirs while taking advantage of Medicaid and other governmental assistance programs.  When a claimant indicates that they moved assets into a trust or that they benefit from a trust of any kind, a copy of the trust documents is needed to evaluate the effect of the trust on the claimant’s net worth.
A trust is countable as belonging to a claimant if:
  • it is actually owned by the claimant
  • the claimant possesses such control over the property that the claimant may direct it to be used for the claimant’s benefit, or
  • funds have actually been allocated for the claimant’s use.
Such control may be considered a sufficient ownership interest to bring the property within the scope of the pension laws.  If the claimant or someone with legal authority to act on the claimant’s behalf has some control to use property, it can reasonably be expected to be consumed for a claimant’s maintenance and thus be includable in the claimant’s estate.
Notes:
  • Assets transferred by a legally competent claimant, or by the fiduciary of a legally incompetent one, to an irrevocable “living trust” or an estate-planning vehicle of the same nature designed to preserve estate assets by restricting trust expenditures to the claimant’s “special needs,” while maximizing the use of governmental resources in the care and maintenance of the claimant, should be considered in calculating the claimant’s net worth for pension purposes.
  • Disbursements from a trust counted as net worth are not income but a reduction of net worth.
Reference:  For more information on trusts, see

4.  Net Worth Determinations for Claims Received on or After October 18, 2018


Introduction


Change Date

February 28, 2019

V.iii.1.J.4.aBright line Net Worth Limits

The net worth limit for pension entitlement effective October 18, 2018 is $123,600 for all effective dates of payment prior to December 1, 2018.  The net worth limit for pension entitlement is $127,061 for effective dates of payment starting December 1, 2018.  This limit is increased by the same percentage as the COLA in Social Security benefits.
Net worth is assets plus IVAP (assets + IVAP).
Deny or discontinue pension if a claimant’s net worth exceeds the limit.  The net worth calculator must be saved if pension is denied or discontinued due to excessive net worth.
Factors to consider include:
  • the value of assets, and
  • IVAP
Notes:
  • In calculating the IVAP for this purpose, consider only reasonably predictable medical expenses.
  • If the value of an annuity  or similar financial instrument is included in the total asset amount, do not include the monthly income derived from the same annuity or similar financial instrument when calculating income for the net worth.
References:  For more information on

V.iii.1.J.4.b.  Storage of Net Woth Calculator

Net worth calculators that contain no FTI are scanned into the Veterans Benefits Management System eFolder.
Net worth calculators that contain FTI must be scanned into the restricted LCM folder.
Label net worth calculators that contain FTI as CONTAINS FTI.
Reference:  For more information on the definition of FTI, see M21-1, Part X, 9.A.

V.iii.1.J.4.cWhen to Calculate Net Worth

Calculate net worth when VA receives:
  • an original pension claim,
  • a supplemental pension claim after a period of non-entitlement,
  • a request to establish a new dependent, or
  • information that a Veteran’s, surviving spouse’s or child’s net worth has increased or decreased.
Exception:  If the claimant does not meet other factors necessary for pension entitlement, such as military service requirements, VA will deny the claim without calculating net worth.
Reference:  For more information on when VA calculates net worth, see 38 CFR 3.274(e).

V.iii.1.J.4.dExample 1:  Calculating Net Worth

Example:  The net worth limit is $123,600.  A claimant has assets of $116,000, annual retirement income of $8,000, and annual predictable nursing home expenses of $29,000.
Result:  Apply the nursing home expenditure to income, which decreases annual income to $0.  Because income is $0, the claimant’s net worth is $116,000; therefore, his/her net worth is not excessive for VA pension.

V.iii.1.J.4.e.   Example 2:  Calculating Net Worth 

Example:  The net worth limit is $123,600 and the maximum annual pension rate (MAPR) is $13,166.  A claimant has assets of $123,000 and annual retirement income of $10,000.  The claimant pays reasonably predictable annual medical expenses of $9,000.  In this case, medical expenses that exceed $659 (five percent of the MAPR) are deductible from income.
Result:  After applying the expenditures, annual income decreases to $1,659.  Adding income to assets produces net worth of $124,659, which is over the bright line limit.  VA must deny the claim for excessive net worth.
Reference:  For more information on medical expenses, see M21-1, Part V, Subpart iii, 1.G.2.a.

V.iii.1.J.4.f.  How Net Worth Decreases

Net worth can decrease in two ways:
  • Veteran, surviving spouse, child, or someone acting on their behalf, may decrease assets by spending them on products or services for which fair market value is received.  The expenses must be those of the Veteran, surviving spouse, or child, or a relative of the Veteran, surviving spouse, or child.  The relative must be a member or constructive member of the Veteran’s, surviving spouse’s, or child’s household, or
  • the IVAP decreases due to a decrease in income or an increase in prospective medical expenses.
Exception:  A transfer of assets such as a purchase of an annuity or similar financial instrument does not decrease assets.
Reference:  For more information how net worth decreases, see 38 CFR 3.274(f).

V.iii.1.J.4.gExample 1:  Decrease in Assets After a Denial for Excessive Net Worth

Example:  A Veteran with no income and $165,000 in cash assets applies for pension on August 5, 2019.  The claim is denied on September 23, 2019 because assets exceed the bright line limit.  On February 18, 2020, the Veteran spends $60,000 on home improvements to his primary residence.  The Veteran submits a supplemental claim on March 25, 2020 showing assets decreased to $105,000 on February 18, 2020.
Result:  Because the Veteran submitted a supplemental claim within one year of the decision notice, VA can grant benefits from the date net worth is no longer excessive.  The Veteran’s assets decreased by purchasing goods and services at fair market value.
Note:  VA may require receipts or other documentation if there is reason to question an asset reduction.

V.iii.1.J.4.hExample 2:  Decrease in Assets After a Denial for Excessive Net Worth

Example:  A surviving spouse with $40,000 in annual income and no prospective medical expenses and cash assets of $100,000 applies for pension on November 5, 2018.  The claim is denied on November 23, 2018 because net worth (assets + IVAP) exceeds the bright line limit.  On February 18, 2019, the surviving spouse enters a health care facility and prospective medical expenses increase to $45,000 annually.  The surviving spouse submits a supplemental claim on March 25, 2019 showing that IVAP is $0 as of March 1, 2019 and assets remain $100,000.
Result:  Because the surviving spouse submitted a supplemental claim within one year of the decision notice, VA can grant benefits from the date net worth is no longer excessive.  The surviving spouse’s assets decreased in February 2019 because IVAP reduced to $0.

V.iii.1.J.4.i.  Net Worth and FTI

Information about a claimant’s net worth may come from the claimant directly or from VA matching programs with the Internal Revenue Service (IRS) or the Social Security Administration (SSA).  Review information from the IRS and the SSA before paying pension and when re-calculating net worth.
Reference:  For more information on evaluating FTI in conjunction with possible assets, see M21-1 Part V, Subpart iii, 1, J.5.pq.

V.iii.1.J.4.jSpecific Exclusions from Assets

Assets do not include the following:
  • The value of a claimant’s primary residence and,
  • the value of personal effects suitable to and consistent with a reasonable mode of life such as appliances and family transportation vehicles.
Reference:  For information on the specific exclusions from assets in current-law pension cases, see

V.iii.1.J.4.kAnnuities, or Other Similar Financial Instruments as Net Worth

Count the total value of an annuity, trust or other similar financial instrument as an asset if the claimant establishes that he/she has the ability to liquidate the entire balance.
If the claimant cannot liquidate the value of the annuity trust or other similar financial instrument or information about the liquidity of an annuity is unavailable, count the monthly income received as income for net worth purposes and exclude the financial instrument value from assets.
Reference:  For more information about annuities, trusts or other similar financial instrument as net worth. see 38 CFR 3.276(a)(5)(ii).

V.iii.1.J.4.l.  Example:  Excluding Annuity Income from Net Worth Calculation

Example:  The Veteran owns an annuity with a total cash value of $85,000 and he has the ability to liquidate the entire annuity at any time.  The cash value of the annuity is included as an asset for a net worth calculation.  The Veteran receives $550 per month per the annuity contract.
Result:  Do not include the $550 per month in annuity payments when calculating IVAP for the net worth calculation.  If the claimant is approved for pension, the monthly annuity income is countable for VA purposes when calculating the claimant’s IVAP.

5.  Asset Transfers and Penalty Periods for Claims Received on or After October 18, 2018


Introduction

This topic contains information on asset transfers and penalty periods for claims received on or after October 18, 2018, including

Change Date

March 21, 2019

V.iii.1.J.5.aGeneral Policy Statement on Asset Tranfers

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. VA will review the terms and conditions of asset transfers made during the look-back period to determine whether the transfer constituted transfer of a covered asset. However, VA will disregard asset transfers made before October 18, 2018.

V.iii.1.J.5.bDefinition:  Look-Back Period

Look-back period means the 36-month period immediately preceding the date on which VA receives either an original pension claim or a new pension claim after a period of non-entitlement.
Note:  The look-back period starts from the date a formal claim is submitted after a period of non-entitlement.  A look-back period does not start from the date of an intent to file.
Exception:  A look-back period will not include any date prior to October 18, 2018.
Reference:  For more information on the definition of look-back period, see 38 CFR 3.276(a)(7).

V.iii.1.J.5.cTransfers for Less Than Fair Market Value

Transfer for less than fair market value means:
  • selling, conveying, gifting, or exchanging an asset for an amount less than fair market value, or
  • a voluntary asset transfer to, or purchase of, any financial instrument that reduces net worth unless the entire balance of the asset can be liquidated for the claimant’s benefit.
Notes:
  • In a voluntary asset transfer, if a claimant can liquidate the asset, the asset is included as net worth.  Request a copy of any asset documentation, such as a trust or annuity contract if it is needed to make this determination.
  • If a transfer for less than fair market value exists on a claim for pension, the PENALTY PERIOD tab of the Net Worth Calculator must be scanned into eFolder.
Important:  VA presumes that an asset transfer made during the look-back period was for the purpose of decreasing net worth to establish pension entitlement.  However, VA will not consider such an asset to be a covered asset if the claimant establishes through clear and convincing evidence that he or she transferred the asset as the result of fraud, misrepresentation or unfair business practice related to the sale or marketing of financial products or services for purposes of establishing entitlement to VA pension.  Evidence substantiating the application of this exception may include a complaint contemporaneously filed with state, local, or Federal authorities reporting the incident.
References:  For more information on

V.iii.1.J.5.dExample 1:  Transfer for Less Than Fair Market Value

Example:  A Veteran reported the he/she voluntarily purchased an irrevocable annuity on August 19, 2019.  The purchase price of the annuity was $200,000.  The annuity pays $1,000 per month to the Veteran for the life of the contract.  On March 25, 2020, the Veteran applies for pension.
Result:  The Veteran cannot receive a return of his $200,000 annuity purchase because the annuity is irrevocable; therefore, the purchase of the annuity is a transfer for less than fair market value and will be used to calculate a penalty period.
Reference:  For more information on penalty periods, see M21-1, Part V, Subpart iii, 1.J.1.j.

V.iii.1.J.5.eExample 2:  Transfer for Less Than Fair Market Value

Example:  A Veteran voluntarily purchased a trust for his grandson on December 5, 2018.  The purchase price of the trust was $200,000.  The Veteran has total control of the trust and has the ability to liquidate the trust at any time for his own benefit.  On April 11, 2019, the Veteran applies for pension.
Result:  The Veteran can liquidate the trust for his own benefit.  The value of the trust on April 11, 2019, is $197,000.  This is not a transfer for less than fair market value; however, the $197,000 is included in the Veteran’s net worth.

V.iii.1.J.5.f.  How to Determine When Contracts for Personal Services Qualify as Fair Market Value Transfers

The contract must contain the following information:
  • evidence that the
    • fair market value for services is being rendered (rate paid by claimant is the typical rate for services)
    • person who will perform the services is located in geographic proximity to the claimant
    • contract can be liquidated or transferred
    • services to be rendered are outlined in sufficient detail, and
  • the signatures of both parties.
Reference:  For more information on the definition on fair market value, see 38 CFR 3.276(a)(4).

V.iii.1.J.5.g.  Definition:  Covered Asset

A covered asset is an asset that
  • was part of a claimant’s net worth
  • was transferred for less than fair market value during the look-back period, and
  • if not transferred, would have caused or partially caused the claimant’s net worth to exceed the net worth limit.
Exception:  A trust established on behalf of a child of a Veteran that VA rated incapable of self-support should not be included as a covered asset if distributions of the trust cannot benefit the Veteran, Veteran’s spouse or Veteran’s surviving spouse.
References:  For more information on

V.iii.1.J.5.h.  Definition:  Covered Asset Amount

The covered asset amount is the monetary value by which a claimant’s net worth would have exceeded the limit due to covered asset(s) alone if the uncompensated value of the covered asset(s) had been included in net worth.
Reference:  For more information on the covered asset amount, see 38 CFR 3.276(a)(3).

V.iii.1.J.5.i.  Example:  Covered Asset Amount

Example:  The net worth limit is $123,600.  The claimant’s assets total $116,600 and his annual income is $0.  The claimant transferred $30,000 by giving it to his friend (during the look-back period) one year prior to applying for VA Pension
Result:  If the claimant had not transferred the $30,000, his net worth would have been $146,600, which exceeds the net worth limit.  The claimant’s covered asset amount is $23,000, because this is the amount by which the claimant’s net worth would have exceeded the limit due to the covered asset.

V.iii.1.J.5.j.  Penalty Period

penalty period:
  • is a period of non-entitlement due to the transfer of a covered asset(s) during the look-back period
  • cannot exceed 5 years
  • begins on the first day of the month following the date of the last transfer, and
  • is calculated by dividing the total covered asset amount by the monthly penalty rate and rounding down.  The resulting whole number is the number of months VA will not pay pension.
Use the PENALTY PERIOD tab of the Net Worth Calculator to determine any penalty period.  If a penalty period is assessed, or any transfer for less than fair market value is evaluated, scan the penalty period tab into eFolder.
Note:  If a penalty period covers any portion of a liberalized legislation period, the claimant in not entitled to benefits for the entire liberalized legislation period.
References:  For more information on

V.iii.1.J.5.k.  Monthly Penalty Rate

The monthly penalty rate is
  • the MAPR, for a Veteran in need of aid and attendance (A&A) with one dependent on the effective date of payment
  • divided by 12,
  • rounded down to the nearest whole dollar (i.e., drop the cents), and
  • is the same for all pension claimants
Example:  The monthly penalty rate for a claim with an effective date of payment of December 1, 2018 is $2,230 for all claimants.
Reference:  For more information on the monthly penalty rate, see 38 CFR 3.276(e).

V.iii.1.J.5.lEntitlement Upon Ending of Penalty Period

Penalty periods end the last day of the last month of the penalty period.  In accordance with 38 CFR 3.31, the payment date would be the first day of the following month.
Notes:
  • Claimants must apply during the last month of the penalty period to receive benefits with a payment date as of the first day of the month following the penalty period.  If benefits are paid from the first of the month following a penalty period, the initial year also starts on the first of the month following the penalty period.  Claims made after the expiration of the penalty period will be paid based on the date of claim.
  • However, if the penalty period expires before the claim is processed, benefits can be awarded from the first of the month after the penalty period expired.  There is no need for the claimant to resubmit a claim.

V.iii.1.J.5.mExample: Calculating a Monthly Penalty Rate and a Penalty Period

Example:  A Veteran applied for pension on October 25, 2018.  The net worth limit was $123,600 at that time.  The Veteran’s total assets were $116,600 and his annual income was $0.  The Veteran transferred $30,000 by giving it to his friend on October 20, 2018.
Result:  If the Veteran had not transferred the $30,000, his net worth would have been $146,600, which exceeds the net worth limit.  The Veteran’s covered asset amount is $23,000, because this is the amount by which the Veteran’s net worth would have exceeded the limit due to the covered asset.
Use the table below to determine the penalty rate and penalty period.
Step
Action
1
Determine the monthly penalty rate:
  • On November 1, 2018, the MAPR for a Veteran with one dependent at the A&A rate was $26,036.
  • Divide the MAPR by 12.  $26,036/12 = 2,169.66.
  • The monthly penalty rate is $2,169.
2
Determine the penalty period:
  • Divide the covered asset amount ($23,000) by the monthly penalty rate (2,169).
  • 23,000/2,169 = 10.6
  • The penalty period is 10 months, starting the month after the asset transfer.
The penalty period starts on November 1, 2018, and expires August 31, 2019.

V.iii.1.J.5.n.  Example:  Calculating a Penalty Period

Example:  A surviving spouse applied for pension on November 12, 2020.  The claimant’s net worth was equal to the net worth limit.  The claimant transferred covered assets on February 2, 2019, and February 28, 2019, totaling $10,000.
Result:  The total covered asset amount is $10,000, the monthly penalty rate is $2,169 (in this example), and the penalty period would begin on March 1, 2019.  The penalty period begins on March 1 because that is the month following the last transfer.  The penalty period is $10,000/$2,169, which is 4 months.  The penalty period expires on June 30, 2019.  Since the penalty period expires before the date of claim, benefits can still be paid from the original date of claim if the surviving spouse is otherwise entitled.

V.iii.1.J.5.oExample:  Calculating Entitlement After a Penalty Period Ends

Example:  A Veteran transferred covered assets on February 3, 2019 and then applied for pension on February 12, 2019.  The Veteran is assessed a three-month penalty period which includes March, April, and May of 2019.  VA processes the claim on June 20, 2019.  If the claimant did not incur a penalty period, he would have qualified for benefits
Result:  The penalty period ends on May 31, 2019.  Since the Veteran is qualified for benefits effective June 1, 2019, based on the application of record, and VA did not process the application until June 20, 2019, VA can grant benefits effective June 1, 2019 without receiving a new application.

V.iii.1.J.5.p.  Penalty Period Recalculations

Do not recalculate a penalty period unless
  • the original calculation is erroneous; or
  • VA receives evidence no later than 90 days after the date of notice to the claimant concerning the penalty period showing that some or all covered assets were returned to the claimant.  The covered asset(s) must have been returned within 60 days after the date VA notified the claimant of the penalty period for a recalculation to occur.
Reference:  For more information on penalty period recalculations, see 38 CFR 3.276(e)(5) .

V.iii.1.J.5.q.  Definition:  Immediate FTI Year

Immediate FTI year is the most recent year of FTI data available.
Example:  August 8, 2018, is the date of claim.  At the time of claims processing, the most recent FTI data available is from 2017.  In this situation, 2017 is the immediate FTI year.

V.iii.1.J.5.r.  Definition:  Second FTI Year

Second FTI year is the year preceding the immediate FTI year.
Example:  August 8, 2018, is the date of claim.  At the time of claims processing, the most recent FTI data available is from 2017.  In this situation, 2016 is the second FTI year.

V.iii.1.J.5.s.  Definition:  Asset Associated Income

Asset associated income is income that may have an underlying asset.
Examples:  rental income, capital gains, interest, dividends.

V.iii.1.J.5.t.  Evaluating Asset Transfers

Follow the procedures below to evaluate the look-back period and net worth in conjunction with a claim for pension benefits.
Step
Action
1
Did the claimant report transferring assets for less than fair market value during the look back period?
  • If yes, proceed to Step 2.
  • If no, skip to Step 4.
2
Would the asset transfer amount(s) have caused the claimant’s net worth to exceed the limit or further exceed the limit?
  • If yes, proceed to Step 3.
  • If no, skip to Step 4.
3
Use the penalty period tab of the net worth calculator to calculate the penalty period based on the information provided by the claimant.  If the penalty period has not expired before the date of claim, deny the claim and notify the claimant of the penalty period.
If the penalty period expired prior to the date of claim, go to Step 4.
4
Did the claimant report net worth (income + assets) or IVAP that exceed the appropriate limits?
  • If yes, deny the claim for excessive net worth or excessive income.
  • If no, proceed to Step 5.
5
Compare the information on the IRS and SSA screens for the immediate FTI year with the information provided by the claimant on the VA applications.
Does the FTI information show asset-associated-income from the immediate FTI year that was not reported by the claimant?
  • If yes, proceed to the next step.
  • If no, skip to Step 8.
6
Examine the application for benefits.
Did the claimant report that the asset associated income was received last year, including the amount, income payer, and the date it stopped?
Is the explanation reasonable?
  • If yes to both questions, skip to Step 8.
  • If no to either question, proceed to Step 7.
7
There are discrepancies between what the claimant reported on his or her application and what FTI is showing in the immediate FTI year.  Development will be needed.
Review the second FTI year data.  Determine if there is additional asset associated income from the second FTI year that also requires development.
Send a development letter asking for documentation that the income from the immediate FTI year stopped, the date and reason it stopped, the value of any unreported or underreported assets associated with the income and whether or not an asset was transferred for less than fair market value.
If necessary, develop for underreported assets, income and asset transfers for the second FTI year.
8
Review the second year FTI data.  Determine if there is asset associated income from the second FTI year that requires development.
Is development required?
  • If yes, develop for underreported assets, income and asset transfers.  Send a development letter asking for documentation that the income from the second FTI year stopped, the date and reason it stopped, the value of any unreported or underreported assets associated with the income and whether or not an asset was transferred for less than fair market value.
  • If no, continue processing the claim.

V.iii.1.J.5.u.  Procedures to Follow After the Development Time Limit Expires or VA Receives a Response From the Claimant

Follow the table below for procedures to follow after the development time limit expires or VA receives a response from the claimant.
If the claimant …
Then …
  • does not respond, or
  • does not provide a response that satisfies the requirements of the development letter
deny the claim for failure to prosecute.
  • provides evidence showing assets were transferred for less than fair market value, and
  • the assets would have caused net worth to exceed the limit
  • reports income or assets that cause income or net worth to exceed applicable limits, but
  • does not provide evidence showing that covered assets were transferred
deny the claim for excessive income or net worth.
provides the requested documentation, adequately explains the discrepancies, and otherwise qualifies for pension
continue processing the pension claim.

6.   Determining the Value of Property and its Effect on Net Worth


Introduction


Change Date

October 26, 2018

V.iii.1.J.6.a.  Current Value of Property

When evaluating net worth, it may be necessary to determine the value of property.  Claimants who have held parcels of real estate for long periods of time may
  • be unaware of current real estate prices, and
  • greatly underestimate the value of their holdings.
If it appears that a claimant is underestimating the value of real property, ask the claimant to furnish evidence of the current market value of the real estate.

V.iii.1.J.6.bSources of Information About Property Value

Possible sources of information about property value include a
  • formal appraisal of the value of the property
  • statement from a real estate broker in the area as to the value of comparable real estate in the vicinity
  • statement from a county farm agent as to the value of the land or other real estate
  • statement from a local bank loan officer as to the value of comparable real estate in the vicinity, and
  • statement from the local taxing authority as to the value of the real estate.
Note:  Any statement from a taxing authority should show the relationship between assessed value and market value.

V.iii.1.J.6.c.  Excluding the Value of a Primary Residence

In determining net worth, do not include the value of the claimant’s primary residence, including a residential lot area.
VA will not include a claimant’s primary residence as an asset even if the claimant resides in:
  • a nursing home, medical foster home, other care facility, or
  • the home of a family member for health care or custodial care.
However, rental income on the property is countable income and sale of the property is a conversion of assets.
If the claimant owns and resides in a multifamily dwelling, exclude from net worth consideration only the value of the unit actually occupied by the claimant.
Example:  The claimant
  • owns a duplex worth $200,000
  • resides in one of the units, and
  • both units are roughly comparable.
Result:  Consider assets of $100,000.
Reference:  For more information about excluding the value of a primary residence from net worth, see 38 CFR 3.275(b)(1).

V.iii.1.J.6.d.  Determining the Residential Lot Area for Claims Received Before October 18, 2018

The size of the residential lot area that can be excluded from net worth consideration is determined by the degree to which the property is connected to the dwelling and the typical size of lots in the immediate area.
Contiguous land which is closely connected to the dwelling in terms of use, and which does not greatly exceed the customary size of lots in the immediate area, is excluded from net worth consideration.

V.iii.1.J.6.e.  Determining the Residential Lot Area for Claims Received on or After October 18, 2018

For claims received on or after October 18, 2018, residential lot area means the lot on which a residence sits that does not exceed 2 acres, unless the additional acreage is not marketable.  Examine the application to determine the residential lot area.   If the residential lot area is unknown, development is required.
Note:  Accept a claimant’s statement that additional acreage is not marketable as fact, unless there is contradictory evidence of record.

V.iii.1.J.6.f.  Dual-Use of Property

In some instances, a claimant’s place of residence and place of business are the same.
Example:  A farmer may live in a house on the farm or a grocer may live in an apartment over the store.
Result:  In such cases, the value of the residence area must be considered separately from the value of the business area.  The value of the residence area may be excluded.  The value of the business area is considered an asset the same as any other business asset.
If the claimant lives on a farm which is not used for business purposes, exclude the value of the residence area and consider the rest of the farm as an asset.

V.iii.1.J.6.g.  Effect of State Homestead and Exemption Statutes

State laws may provide that certain property is part of the claimant’s homestead or exempt from the claims of creditors.  Such homestead and exemption statutes are of no consequence in determining if the value of the property is to be considered part of a claimant’s estate for VA purposes.

7.  Exhibit 1:  Life Expectancy Table for Net Worth Determinations 


Change Date

October 18, 2018

V.iii.1.J.7.a.  Life Expectancy Table

This exhibit contains the life expectancy table for claimants of ages 30 through 95.
Claimant’s Age
Life Expectancy
Claimant’s Age
Life Expectancy
30
46.0
63
17.8
31
45.1
64
17.1
32
44.1
65
16.4
33
43.2
66
15.7
34
42.2
67
15.1
35
41.3
68
14.4
36
40.4
69
13.8
37
39.4
70
13.2
38
38.5
71
12.6
39
37.6
72
12.0
40
36.7
73
11.5
41
35.7
74
10.9
42
34.8
75
10.4
43
33.9
76
9.9
44
33.0
77
9.3
45
32.1
78
8.9
46
31.3
79
8.4
47
30.4
80
7.9
48
29.5
81
7.5
49
28.7
82
7.0
50
27.8
83
6.6
51
27.0
84
6.2
52
26.1
85
5.9
53
25.3
86
5.6
54
24.5
87
5.3
55
23.7
88
5.0
56
22.9
89
4.7
57
22.2
90
4.4
58
21.4
91
4.1
59
20.6
92
3.8
60
19.9
93
3.5
61
19.2
94
3.2
62
18.5
95 or older
3.0
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