Let’s say that you have a Veteran pension client that has been receiving pension for over three years now. They sell their house in February of 2020, which puts their assets way above the maximum amount allowed (129k).  They don’t have to report the sale to the VA until January of 2021.  Does that mean they can continue to receive the benefit until January of 2021?

The short answer is yes, but the VA has been known to tell Veterans that they will have lost their benefits all the way back to the day of the sale.  This penalization can be avoided. So, how do you reference this change in order to give your client time to move assets and/ or purchase a home?

Prior to the implementation of the October 18, 2018 changes to pension regulations, the VA released a 135 page explanation of those forthcoming changes. On page 24 of that document ( see attached at the bottom of this posting), the VA states the following:

“For residential sales after pension entitlement is established, the rule provides that the residences need to be sold and purchased within the same calendar year because 38 U.S.C. 5112(b)(4) provides that the effective date of reduction or discontinuance of pension due to a change in net worth is the end of the year in which net worth changes.”

For example, if an individual is receiving pension and in February 2020 receives proceeds from the sale of a residence which make net worth excessive, the statutory effective date of discontinuance is December 31, 2020, and VA would discontinue pension as of January 1, 2021. However, if the claimant spends down the funds or purchases another residence before the effective date, VA would not discontinue pension.

Regarding spend-down regulations or purchase of a home in the following year after a sale, the VA goes on to state on page 25:

“We note that if an individual sells his or her residence in December 2017, and spends down the net worth or purchases a new residence in February 2018, VA would discontinue pension as of January 1, 2018, and resume pension as of March 1, 2018, assuming entitlement factors continue to be met and the claimant informs VA of the spend-down or purchase before VA’s decision regarding the discontinuance becomes final.”

VA’s basis for this explanation is found in 38 U.S.C. 5112(b)(4):

(b) The effective date of a reduction or discontinuance of compensation, dependency and indemnity compensation, or pension-
(4) by reason of-
                                  (B) change in corpus of estate shall be the last day of the calendar year in which the change occurred;

38 C.F.R. 3.274(f) regulates how assets can be decreased; thereby, decreasing total net worth:

(f) How net worth decreases. Net worth may decrease in three ways. Assets can decrease, annual income can decrease, or both assets and annual income can decrease.

(1) How assets decrease. A veteran, surviving spouse, or child, or someone acting on their behalf, may decrease assets by spending them on any item or service for which fair market value is received unless the item or items purchased are themselves part of net worth. See § 3.276(a)(4) for the definition of “fair market value.” 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.”

Obviously, gifts or transfers, or purchases of a product that would itself be a countable asset would not be allowed in decreasing total net worth.

2018 VA Explanation of New Regulations

Thank you to Karen McIntyre, LS Manager for contributing to this article.