The Department of Veterans Affairs’ (VA) pension program is intended to provide economic benefits to wartime veterans with financial need. It is available to low-income wartime veterans who are age 65 and older or who are under age 65 but are permanently and totally disabled as a result of conditions unrelated to their military service. Surviving spouses and dependent children may also be eligible for these benefits. In fiscal year 2012, VA provided about $4.9 billion in pension benefits to about 518,000 recipients (314,000 veterans and 204,000 survivors). About two-thirds of recipients were over age 65.
VA’s pension program is means tested and, therefore, to qualify for pension benefits, claimants’ countable income must not exceed annual pension limits that are set by statute. In assessing financial eligibility for benefits, VA also considers net worth or the total value of claimants’ assets, such as bank accounts, stocks, bonds, mutual funds, and any property other than the claimant’s dwelling, a reasonable lot area, a vehicle, and personal belongings. VA’s policy manual specifically states that the pension program is not intended to protect substantial assets or preserve an estate for a beneficiary’s heirs, and the department’s procedures manual requires claims processors to formally review the eligibility of claimants with assets worth over $80,000. However, the relevant statute does not define thresholds on the value of a claimant’s assets.
See 38 C.F.R. § 3.275. VA also assesses the net worth of the veteran’s spouse to determine financial eligibility.
The relevant statute states that a veteran’s pension shall be denied “when the corpus of the estate of the veteran or, if the veteran has a spouse, the corpus of the estates of the veteran and of the veteran’s spouse is such that under all the circumstances, including consideration of the annual income of the veteran, the veteran’s spouse, and the veteran’s children, it is reasonable that some part of the corpus of such estates be consumed for the veteran’s maintenance.” 38 U.S.C. § 1522(a).
In its May 2012 report, GAO found that despite being a means-tested program, VA’s pension program permitted claimants to transfer assets and reduce their net worth prior to applying for pension benefits. Federal regulations state that for the purpose of evaluating financial eligibility for VA pension benefits, assets gifted to someone who does not reside in the claimant’s household will reduce the claimant’s net worth if all rights of ownership and control of the assets have been relinquished. As a result, prior to applying for VA pension benefits, claimants can transfer excess assets to someone outside their household to meet the financial eligibility criteria and be approved, as long as they no longer retain ownership or control of the assets. For example, GAO identified a case involving a pension recipient who transferred more than $1 million in assets into an irrevocable trust less than 3 months prior to applying for these benefits. VA was aware of the asset transfer when this pension claim was approved and did not count the trust as part of the claimant’s net worth. However, this practice is inconsistent with the pension program’s goal of supporting those with financial need and undermines the integrity of the program.
In contrast, for Medicaid—another means-tested program—federal law explicitly restricts eligibility for coverage for long-term care for certain individuals who transfer assets for less than fair market value prior to applying. As a result, when an individual applies for Medicaid coverage for long-term care, states conduct a look-back review to determine if the applicant transferred assets for less than fair market value prior to applying. Individuals who transfer assets for less than fair market value during the 60 months prior to applying may be denied eligibility for long-term care coverage for a period of time, known as the penalty period. For example, gifting assets within 5 years of applying for Medicaid would generally be considered a transfer of assets at less than fair market value and therefore trigger a penalty period. Also, under Social Security’s Supplemental Security Income program, claimants who transfer assets for less than fair market value prior to applying may become ineligible for these benefits for up to 36 months.
According to VA, the agency supports controls that would prevent the transfer of assets for less than fair market value. Such controls are consistent with VA’s policy that states that the pension program is not intended to protect substantial assets or preserve an estate for a beneficiary’s heirs. Consequently, in response to our 2012 report, the agency stated that it had been working to develop regulations addressing the effects of asset transfers on eligibility for program benefits.
In May 2012, GAO recommended that Congress consider establishing a look-back and penalty period, similar to other means-tested programs. Since this report, various bills have been introduced, but not enacted, that would provide stronger controls for the VA pension program. In the 112th Congress, bills were introduced in both the U.S. House of Representatives and the Senate that included language addressing the eligibility status of claimants who transfer assets at less than fair market value prior to applying for VA pension benefits. However, neither bill was enacted. More recently, during the 113th Congress, H.R. 2189 passed in the House of Representatives containing language to establish a 3-year look-back and penalty period for the VA pension program. Such controls would help ensure that pension benefits are extended exclusively to veterans and survivors with a financial need.
38 C.F.R. § 3.276(b).
Assets gifted to a family member in the pension claimant’s household do not reduce the claimant’s net worth.
An irrevocable trust is one that cannot be terminated by the individual who set up the trust once it is created. Black’s Law Dictionary (8th ed. 2004).
42 U.S.C. § 1396p(c). An asset transfer at less than fair market value would occur when the claimant gifts or sells a resource and receives in return an amount that is less than the value of the resource on the open market at the time of the transfer.
Certain asset transfers are exempt from Medicaid penalty provisions, such as a home transferred to an individual’s spouse or disabled child, or when the state determines that the penalty would result in undue hardship. 42 U.S.C. § 1396p(c).
42 U.S.C. § 1382b(c)(1)(A).
See H.R. 6171, 112th Cong. (2012); S. 3270, 112th Cong. (2012).
See H.R. 2189, 113th Cong. (2013). This bill has been referred to the Senate Committee on Veterans’ Affairs.
To ensure that only those in financial need are granted VA pension benefits, GAO recommended in May 2012 that Congress consider establishing a look-back and penalty period similar to other means-tested programs. While various legislative proposals that would establish the needed controls have been introduced, such as H.R. 2189, legislation has not yet been enacted. Until legislation is enacted that would establish a look-back and penalty period, VA cannot ensure that benefits are extended to only veterans and survivors with a financial need. The Congressional Budget Office estimates that enacting a look-back and penalty period will decrease direct spending by an average of about $4 million per year. Therefore, GAO suggests that Congress should consider the following action:
The information contained in this analysis is based on findings from the products listed in the related GAO products section and additional work GAO conducted. GAO reviewed VA’s Fiscal Year 2014 Budget Submission and the Congressional Budget Office’s Cost Estimate for H.R. 2189, which included a cost savings estimate associated with implementing an asset look-back for VA disability pensions.
Table 17 in appendix IV lists the programs GAO identified that might have opportunities for cost savings.
In commenting on the May 2012 report on which this analysis is based, VA noted that the pension program lacks statutory provisions addressing the effects of asset transfers on eligibility for program benefits. Despite this limitation, VA nonetheless reported that it is working to develop regulations that would address this issue but noted that such regulations would be subject to challenge in the U.S. Court of Appeals for the Federal Circuit. Further, during a congressional hearing on the report’s findings, VA expressed support for the need to address this issue through statute or regulations, and acknowledged that while VA knows such asset transfers have occurred, the department does not know the extent of this practice.
GAO provided a draft of this report section to the Department of Veterans Affairs for review and comment. The department did not provide comments on this report section.
For additional information about this area, contact Daniel Bertoni at (202) 512-7215 or firstname.lastname@example.org.
Proposed regulations have not yet been promulgated in the Federal Register.
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