Citation Nr: 19109669

Decision Date: 02/07/19      Archive Date: 02/06/19
DOCKET NO. 17-43 195

DATE: February 7, 2019

ORDER

The Veteran’s family’s net worth is not a bar to entitlement to nonservice-connected pension benefits and special monthly pension based on the need for regular aid and attendance; the appeal is granted.

FINDING OF FACT

The Veteran does not retain an ownership interest in or control over assets that are held by the Irrevocable Trust, and its assets are not part of the corpus of his estate; the Veteran is also not an income beneficiary.

CONCLUSION OF LAW

The corpus of the Veteran’s estate held in irrevocable trust does not preclude the payment of nonservice- connected pension benefits and special monthly pension. 38 U.S.C. §§ 1513, 1521, 1522 (2012); 38 C.F.R. §§
3.3, 3.23, 3.274-76 (2018).

REASONS AND BASES FOR FINDING AND CONCLUSION

The Veteran served on ative duty from December 1943 to May 1946. He was awarded the American Theater and World War II Victory Ribbons for his service. This matter come before the Board of Veteran’s Appeals (Board) on appeal from an October 2016 decision.

Here, the Agency of Original Jurisdiction (AOJ) determined the Veteran’s net worth was a bar for VA disability pension purposes, because his income and his assets were sufficient to meet his basic living expenses. See October 2016 Corpus of Estate Determination. The Veteran contends the AOJ made an error because he retains no control over property transferred into the Irrevocable Trust created in March 2015.

Pension is payable to veterans of a period of war because of nonservice-connected disability or age. Basic entitlement exists if the veteran: (1) served in the active military, naval or air service for ninety (90) days or more during the period of war; (2) is permanently and totally disabled from nonservice-connected disability not due to his own willful misconduct, or is 65 years of age or older; and (3) meets the specified net worth requirements and does not have an annual income in excess of the applicable maximum annual pension rate.  38 U.S.C. §§ 1513, 1521; 38 C.F.R. §§ 3.3, 3.23, 3.274. Special monthly pension is warranted if a veteran is in need of regular aid and attendance. 38 U.S.C. § 1521 (d).


There is no specific dollar limitation on net worth (as opposed to income) that bars an otherwise eligible claimant from receiving pension benefits. Entitlement to pension will be denied, however, when the corpus of a veteran’s estate (and that of any spouse) is such that, under all circumstances, including consideration of the annual income of the veteran, his spouse, and any cohabitating children, it is reasonable that some part of the corpus of such estates be consumed for the veteran’s maintenance. 38 C.F.R. § 3.274 (a). The terms “corpus of estate” and “net worth” are used interchangeably in VA regulations and mean the market value, less mortgages or other encumbrances, of all real and personal property owned by the claimant except the claimant’s dwelling and personal effects. 38 C.F.R. § 3.275 (b).

In determining whether some part of a veteran’s estate should be consumed for maintenance, consideration will be given to the amount of the claimant’s income together with the following: whether the property can be readily converted into cash at no substantial sacrifice; life expectancy; number of dependents who meet the definition of a member of the family; and potential rate of depletion, including unusual medical expenses for the claimant and the claimant’s dependents. 38 C.F.R. § 3.275 (d). A gift of property to someone other than a relative residing in the grantor’s household will not be recognized as reducing the corpus of the grantor’s estate unless it is clear that the grantor has relinquished all rights of ownership, including the right of control of the property. 38 C.F.R. § 3.276 (b).

Thus, the essential question for consideration in this appeal is whether the value of the Veteran’s Irrevocable Trust should be included in the Veteran’s net worth. Current VA regulations do not specifically address the issue of trusts in the context of net worth determinations; however, several VA General Counsel Opinions have addressed questions involving trusts and whether the assets held therein should be considered as income or net worth to a claimant. See VAOPGCPREC 33-97, 73-91, 72-90; see also 38 U.S.C. § 7104 (c); 38 C.F.R. § 14.507 (indicating VA General Counsel Opinions are binding on the Board).

In July 1990, the VA General Counsel addressed whether trust property should be considered part of a claimant’s countable income and net worth. The VA General Counsel held “the property held in a discretionary trust, and income therefrom, is not countable until it is actually allocated for the claimant’s use, unless the claimant possesses such control over the property that the claimant may direct it to be used for the claimant’s benefit.” In December 1991, the VA General Counsel issued another opinion specifically addressing assets held in a trust and determined that “generally where a veteran places assets into a valid irrevocable trust for the benefit of the veteran’s [family members], with the veteran named as trustee, and where the veteran, in an individual capacity, has retained no right or interest in the property or the income therefrom and cannot exert control over these assets for the veteran’s own benefit, the trust assets would not be counted in determining the veteran’s net worth for improved-pension purposes, and trust income would not be considered income of the veteran.” The Board finds these two opinions, when read together, indicate that it is permissible under current VA regulations to transfer assets to a trust for the benefit of others to establish pension eligibility, so long as the claimant does not retain control over the assets for his or her benefit.

In August 1997, the VA General Counsel addressed the question of whether assets which are placed in an irrevocable special needs trust are includable in the claimant’s net worth for purposes of determining eligibility for improved pension. The VA General Counsel held “[a]ssets 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 improved-pension purposes.” Thus, the Board finds the central question in this appeal remains whether the Veteran retains an ownership interest in or control over the trust’s assets.

In this case, the trust documents clearly show that the Veteran retains no ownership interest in the assets held by the trust in question. The Irrevocable Trust was established as a Non-Grantor trust with no distribution of income or principal to the Veteran. The Veteran’s principal residence was held by the trust. While he was required to pay all expenses of maintenance of the property, if the Veteran ceased to use the property, the trust could hold the property as an investment or sell it. Upon sale, the proceeds of the residence became
property of the Non-Grantor Trust and no proceeds were distributed to the Veteran. Moreover, the proceeds were not accumulated for future distribution to the Veteran and none of the proceeds could be applied to payment of premiums on life insurance policies. In addition, trust assets were not to be used for the Veteran’s maintenance.

The Board notes the Irrevocable Trust was established the year prior to the adjudication of the Veteran’s pension claim. VA has proposed a regulation that specifically addresses factual scenarios like those involved in the present appeal. See 80 FR 3840-01 (Jan. 23, 2015). In January 2015, VA published a notice in the Federal Register signaling its intent “to amend its regulations governing entitlement to VA pension to maintain the integrity of the pension program and to implement recent statutory changes.” Id. VA explained its “proposed regulations would establish new requirements pertaining to the evaluation of net worth and asset transfers for pension purposes and would identify those medical expenses that may be deducted from countable income for VA’s needs-based benefit programs.” The proposed changes include, among other things, a three-year look back window for pre-application asset transfers, to include those made to trusts. However, this proposed rule has not been finalized; therefore, its provision cannot be considered in the analysis of the current appeal. Nevertheless, the apparent need for this proposed regulation further suggests that it is permissible under current VA regulations for a veteran to transfer assets to an irrevocable trust prior to a pension application to establish pension eligibility, so long as the veteran does not retain an ownership interest in or control over the trust’s assets.

Upon review of the record, after resolving any reasonable doubt in favor of the Veteran, the Board finds the Veteran does not retain an ownership interest in or control over assets that are held by the Irrevocable Trust, and its assets are not part of the corpus of his estate. Thus, the Board finds the denial of nonservice- connected pension benefits with a special monthly pension, was improper because the assets held by the Irrevocable Trust should not have been considered when analyzing the Veteran’s net worth. See 38 U.S.C. § 5107; 38 C.F.R. § 3.102.

As such, his appeal is granted.

E. I. VELEZ

Veterans Law Judge

Board of Veterans’ Appeals

ATTORNEY FOR THE BOARD      K. L. Wallin, Counsel