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Since Krause Financial Services successfully merged Veterans Aid & Attendance benefits planning into its array of complimentary services offered to elder law attorneys, I have received numerous inquiries related to the impact of an uncompensated transfer of an asset by a veteran who is already receiving VA benefits.

As most VA practitioners are aware, the VA Program has no look-back period for pre-eligibility uncompensated transfers.  In my quest for an answer, I recently found an opinion published by the Veterans Affairs General Counsel regarding the transfer of an asset and its effect on continued improved-pension eligibility.  The opinion involved a post-eligibility uncompensated transfer, whereby a veteran received a death benefit from a life insurance policy and transferred the proceeds into an irrevocable trust for the sole benefit of his grandchildren.  The questions posed in the case included:

1. How are the proceeds treated for VA purposes for the veteran receiving an improved pension?
2. Do the proceeds, and the subsequent transfer of them, disqualify the veteran from receiving continuing improved-pension benefits?

The opinion stated that for improved-pension purposes, nonrecurring income, such as proceeds from a life insurance policy, would be countable income for the 12-month period which follows the month it was received.  The amount is divided equally among the 12 months.  O.G.C. Prec. 15-89.  Additionally, if the additional income causes the veteran's pension to be reduced, or terminated, the reduction or termination is effective during the same 12-month period as noted above.  38 C.F.R. § 3.660(a)(2); O.G.C. Prec. 15-89.  Since income determinations under the improved-pension program are made on a 12-month basis rather than by calendar year, the veteran could re-apply in month 13, assuming that the veteran has once again met the asset and income criteria.

Meet Billy Smith.

Billy Smith is a veteran, resides in an assisted living facility, and has already established VA eligibility.  Currently Billy has $30,000 in liquid resources, unreimbursed medical expenses of $4,250, monthly pension and social security income of $1,500, and receives a monthly VA pension benefit of $1,644.  Billy's brother passes away, leaving Billy with a $10,000 inheritance.  When Billy receives the inheritance in March 2010, the VA will consider the inheritance countable income for the following 12-month period.  Starting April 1, 2010, for improved-pension income eligibility purposes, Billy will have total monthly income of $2,333.33.

$10,000 ÷ 12 Months  = $833.33
+ Regular Income       = $1,500    
Total Monthly Income  = $2,333.33 < Unreimbursed Medical Expenses of $4,250

In that Billy's total monthly income does not exceed his unreimbursed medical expenses of $4,250, Billy may simply keep the inheritance in his bank account without fear of losing VA benefits.

Meet Sally Johnson.

Sally is a surviving spouse of a veteran, resides in an assisted living facility, and has already established VA eligibility.  Currently Sally has $20,000 in liquid resources, unreimbursed medical expenses of $3,000, monthly pension and social security income of $1,200, and receives a monthly VA pension benefit of $1,056.  Sally's cousin passes away, leaving Sally with $180,000 in life insurance proceeds.  When Sally receives the proceeds in March 2010, the VA will consider the proceeds countable income for the following 12-month period.  Starting April 1, 2010, for improved-pension income eligibility purposes, Sally will have total monthly income of $16,200.

$180,000 ÷ 12 Months  = $15,000
+ Regular Income         = $1,200    
Total Monthly Income   = $16,200 > Unreimbursed Medical Expenses of $3,000

In that Sally's total monthly income exceeds her unreimbursed medical expenses of $3,000, Sally's VA benefits will be terminated for the following 12 months - April 2010 through March 2011.  Should Sally dispose of the proceeds within the 12 month time frame, she may reapply for VA benefits in April 2011 and obtain the monthly pension benefit once again - assuming she is still income and asset eligible.