Overview
In This Section |
This section contains the following topics:
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1. General Information on Net Worth
Introduction |
This topic contains general information on net worth, including
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Change Date |
November 19, 2018
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V.iii.1.J.1.b. When 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
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V.iii.1.J.1.c. When 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.
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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 do not include the following:
Notes:
References: For more information on
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V.iii.1.J.1.g. Definition : 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).
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V.iii.1.J.1.h. Definition: 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
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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.
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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.
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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
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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.
Notes:
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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).
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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.
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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
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Change Date |
October 18, 2018
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V.iii.1.J.2.a. Developing 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.
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V.iii.1.J.2.b. Criteria 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
Note: Section 306 Pension is not subject to the net worth and asset transfer rules that became effective October 18, 2018.
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V.iii.1.J.2.c. Discontinuance 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 21-5427, Corpus 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).
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V.iii.1.J.2.d. Handling 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.
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3. Net Worth Determinations for Claims Received Before October 18, 2018
Introduction |
This topic contains information on net worth decisions for claims received before October 18. 2018, including
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Change Date |
October 18, 2018
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V.iii.1.J.3.a. Excessive 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
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.
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V.iii.1.J.3.b. Specific Exclusions From Net Worth |
Certain items are excluded from consideration as net worth, such as
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
References: For information on the specific exclusions for net worth considerations in
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V.iii.1.J.3.d. Preparing 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
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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:
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:
Reference: For more information on trusts, see
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4. Net Worth Determinations for Claims Received on or After October 18, 2018
Introduction |
This topic contains information on net worth determinations for claims received on or after October 18, 2018, including
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Change Date |
February 28, 2019
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V.iii.1.J.4.a. Bright 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:
Notes:
References: For more information on
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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.
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V.iii.1.J.4.c. When to Calculate Net Worth |
Calculate net worth when VA receives:
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).
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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.
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V.iii.1.J.4.f. How Net Worth Decreases |
Net worth can decrease in two ways:
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).
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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.p–q.
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V.iii.1.J.4.j. Specific Exclusions from Assets |
Assets do not include the following:
Reference: For information on the specific exclusions from assets in current-law pension cases, see
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V.iii.1.J.4.k. Annuities, 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).
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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
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Change Date |
March 21, 2019
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V.iii.1.J.5.b. Definition: Look-Back Period |
A 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).
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V.iii.1.J.5.c. Transfers for Less Than Fair Market Value |
Transfer for less than fair market value means:
Notes:
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
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V.iii.1.J.5.d. Example 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.
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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:
Reference: For more information on the definition on fair market value, see 38 CFR 3.276(a)(4).
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V.iii.1.J.5.g. Definition: Covered Asset |
A covered asset is an asset that
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
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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).
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V.iii.1.J.5.j. Penalty Period |
A penalty period:
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
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V.iii.1.J.5.k. Monthly Penalty Rate |
The monthly penalty rate is
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).
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V.iii.1.J.5.l. Entitlement 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:
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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.
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V.iii.1.J.5.o. Example: 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.
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V.iii.1.J.5.p. Penalty Period Recalculations |
Do not recalculate a penalty period unless
Reference: For more information on penalty period recalculations, see 38 CFR 3.276(e)(5) .
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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.
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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.
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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.
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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.
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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.
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6. Determining the Value of Property and its Effect on Net Worth
Introduction |
This topic contains information on determining the value of property and its effect on net worth, including
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Change Date |
October 26, 2018
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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
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.
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V.iii.1.J.6.b. Sources of Information About Property Value |
Possible sources of information about property value include a
Note: Any statement from a taxing authority should show the relationship between assessed value and market value.
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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:
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
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).
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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.
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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.
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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.
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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.
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7. Exhibit 1: Life Expectancy Table for Net Worth Determinations
Change Date |
October 18, 2018
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V.iii.1.J.7.a. Life Expectancy Table |
This exhibit contains the life expectancy table for claimants of ages 30 through 95.
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Historical_M21-1V_iii_1_SecJ_11-19-15.doc | May 20, 2019 | 171 KB |
Historical_M21-1V_iii_1_SecJ_04-22-2015.doc | May 20, 2019 | 133 KB |
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2-26-19_Key-Changes_M21-1V_iii_1_SecJ.docx | May 20, 2019 | 80 KB |
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10-18-18_Key-Changes_M21-1V_iii_1_SecJ.docx | May 20, 2019 | 112 KB |
Historical_M21-1V_iii_1_SecJ_11-01-2016.docx | May 20, 2019 | 57 KB |
Historical_M21-1V_iii_1_SecJ_9-10-18.docx | May 20, 2019 | 56 KB |
Historical_M21-1V_iii_1_SecJ_4-16-18.docx | May 20, 2019 | 53 KB |
10-26-18_Key-Changes_M21-1V_iii_1_SecJ.docx | May 20, 2019 | 81 KB |
2-28-19_Key-Changes_M21-1V_iii_1_SecJ.docx | May 20, 2019 | 81 KB |
9-10-18_Key-Changes_M21-1V_iii_1_SecJ.docx | May 20, 2019 | 54 KB |
Transmittal-Sheet-02_13_07.doc | May 20, 2019 | 75 KB |
Change-April-22-2015-Transmittal-Sheet-M21-1MRV_iii_1_SecJ_TS.docx | May 20, 2019 | 39 KB |
4-16-18_Key-Changes_M21-1-V_iii_1_SecJ.docx | May 20, 2019 | 65 KB |
in Chapter 1 The Effect of Income and Net Worth on Pension and Parents Dependency and Indemnity Compensation (DIC), Part V Pension and Parents Dependency and Indemnity Compensation (DIC), Subpart iii Authorization issues
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