Citation Nr: 19122257

Decision Date: 03/25/19     Archive Date: 03/25/19

DOCKET NO. 17-58 532

DATE: March 25, 2019

ORDER

The appellant's net worth is not a bar to payment of survivors pension benefits; the appeal is granted.
FINDINGS OF FACT

1. The appellant created an irrevocable living trust which designates her children as sole beneficiaries; she is
not a beneficiary of the trust, there is no provision in the trust for using principle or income from the trust
assets to pay for her special needs or to otherwise distribute principle or income to her, and in every wise the
appellant has relinquished all rights of ownership, including the right of control of the property, with respect to
assets held in the trust.

2. Trust assets, which include roughly $200,000 in bank deposits and real property with a market value over
$155,000, are not included in the appellant’s net worth or corpus of estate.

3. The appellant’s net worth during the period under review has been less than $20,000 during the period
under review; her monthly income has been around $2,885.00; and her monthly unreimbursed medical
expenses have been at least $4,000.

CONCLUSION OF LAW

The appellant’s net worth is not a bar to payment of survivors (death) pension benefits. 38 U.S.C. §§ 501,
1541, 1543 38 C.F.R. §§ 3.3, 3.23, 3.262, 3.272, 3.273, 3.274, 3.276 (2018).

REASONS AND BASES FOR FINDINGS AND CONCLUSION

The Veteran served on active duty from January 1948 to January 1951. The appellant is his surviving spouse.

This matter comes before the Board of Veterans’ Appeals (Board) on appeal from a September 2016 decision
of the Department of Veterans Affairs (VA) Pension Management Center (PMC).

Survivors Pension

The PMC denied survivors pension benefits because it found that assets held in a living trust set up by the
appellant were included in her net worth and sufficient to support a finding that it was reasonable that some
part of her estate be consumed for her maintenance. For the following reasons, the Board finds that the trust
assets should not be included in her net worth, and that her income and net worth are not otherwise a bar to
survivors pension benefits.

A. Law

When a veteran had qualifying service during a period of war, nonservice-connected (NSC) death pension
benefits will be paid to the surviving spouse of the veteran who meets certain net worth requirements, subject
to a reduction of pension payments in the amount of the surviving spouse’s countable income. 38 U.S.C. §§
101, 1521(j), 1541, 1543 (2012); 38 C.F.R. §§ 3.3(b)(4), 3.23(a)(5), (d)(5), 3.274 (2018).

Specific to the net worth requirements, pension payable to a surviving spouse shall be denied or discontinued
when the corpus of the estate of the surviving spouse is such that under all the circumstances, including
consideration of the surviving spouse’s income and the income of any child for whom the surviving spouse is
receiving pension, it is reasonable that some part of the corpus of the estate be consumed for the surviving
spouse’s maintenance. 38 U.S.C. § 1543; 38 C.F.R. § 3.274 (c).

The terms “corpus of estate” and “net worth” mean the market value, less mortgages or other encumbrances,
of all real and personal property owned by the claimant, except the claimant’s dwelling (single family unit),
including a reasonable lot area, and personal effects suitable to and consistent with the claimant’s reasonable
mode of life. 38 C.F.R. § 3.275 (b). In determining whether the estate should be used for the appellant’s
maintenance, factors to be considered include whether the property can be readily converted into cash at no
substantial sacrifice, life expectancy, number of dependents, and potential rate of depletion, including unusual
medical expenses. 38 C.F.R. § 3.275 (d).

B. Analysis

The issue here turns on whether assets held in an irrevocable living trust set up by the appellant should be
included in her net worth. The Board finds they should not, and that her net worth is not otherwise a bar to
pension payments.

In 2012, the appellant set up an irrevocable trust. A copy of the trust is of record. The trust names the
appellant’s two surviving children as trustees. They are also the sole beneficiaries of the trust. One provision
of the trust states that the trustee “may not make any distributions of the Trust income or principle for me [the
appellant] or for my benefit, even in the sole and absolute discretion of my Trustee.” The trust further provides
that the trustees “may pay directly to, or apply for the benefit of, any or more of my beneficiaries [of the Trust]
so much of the income of my Trust as my Trustee, in my Trustee’s sole and absolute discretion, deems proper,
including the ability to spray income to one or more beneficiaries unequally, including the Trustees
herself/himself.” The trust contains a similar provision with respect to principal. On the death of the appellant,
the trust provides that the trust income and principle are to be distributed in equal shares, outright and free of
trust, to the beneficiaries.

Bank statements and tax records submitted by the appellant reflect that a bank account in the trust’s name
contained roughly $200,000 in 2016, and that the fair market value of real property (a condominium) in the
trust’s name was over $155,000 in 2016. The PMC concluded that these trust assets were includable in the
appellant’s net worth, and found it was reasonable that at least some of the $200,000 could be consumed for
the appellant’s maintenance, such that the trust assets were a bar to survivors pension payments.

Precedential opinions issued by VA’s Office of General Counsel (OGC) indicate that in determining pension
entitlement, the litmus test for whether property transferred to a trust should be included in a claimant’s net
worth is whether the claimant has relinquished all rights of ownership, including the right of control of the
property, with respect to the assets held in the trust. Cf. VAOPGPREC 15-92 (1992)). As stated in
VAOPGPREC 15-92, “only property over which a claimant has some control for the claimant’s own benefit can
reasonably be expected to be consumed for the claimant’s maintenance pursuant to the net-worth statute.”
Accord VAOPGPREC 33-97 (1997 (“[O]nly property over which a claimant, or someone with legal authority to
act on the claimant’s behalf, has some control to use for the claimant’s benefit can reasonably be expected to
be consumed for a claimant’s maintenance and thus be includable in the claimant’s estate.”).

In VAOPGPREC 72-90 (1990), the OGC stated that “opinions of this office have consistently held that property
and income therefrom, including that held in trust, will not, in basic pension-entitlement and [net worth]
limitation considerations, be countable as belonging to the claimant unless-- (1) it is actually
owned by the Claimant; (2) the Claimant possesses such control over the property that the Claimant may direct
it to be used for the Claimant’s benefit; or (3) funds have actually been allocated for the Claimant’s use.”

In VAOPGPREC 73-91 (1991), the OGC held that where a claimant placed assets into a valid irrevocable trust
for the benefit of the claimant’s grandchildren, with the claimant named as trustee, and where the claimant, in
an individual capacity, retained no right or interest in the property or the income from it and could not exert
control over the trust assets for the claimant’s own benefit, the trust assets would not be counted in
determining his net worth for improved-pension purposes, and trust income would not be considered income of
the claimant.

In VAOPGPREC 33-97 (1997), the OCG distinguished an irrevocable trust from the one addressed in
VAOPGPREC 73-91 in terms of whether its assets should be included in the claimant’s net worth. The
irrevocable trust in VAOPGPREC 33-97 contained a provision directing the trustee to expend trust assets for
various “special needs” of the claimant, such as food, clothing, shelter, and other needs not specifically listed
in the trust document, if other resources, such as government resources, were not available to meet those
needs. The OCG found that such a trust or other 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 government resources in the care and maintenance of the claimant, should be considered in calculating
the claimant’s net worth for improved-pension purposes.

While VA regulation does not explicitly address the issue of transference of property to trusts in terms of its
effect on pension entitlement, it does contain a provision respecting transfer of assets generally. Specifically,
under 38 C.F.R. § 3.276(b), “A gift of property made by an individual 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”
(emphasis added). In VAOPGPREC 73-91, the OCG cited this regulation in support of its finding that property
transferred to an irrevocable trust was not includable in the claimant’s net worth for pension purposes where
the claimant retained no right or interest in the property or the income from it and could not exert control over
the trust assets for the claimant’s own benefit.

The trust at issue here is similar to the trust addressed in VAOPGPREC 73-91. The appellant retains no rights
or control of property held in the trust, as she is neither a beneficiary nor a trustee. The trust contains no
provisions for distributing trust income or principle for her benefit, including “special needs” not covered by
government resources. While it contains boilerplate concerning “special needs,” such special needs concern
those of the beneficiaries of the trust, not the appellant. The provision prohibiting the trustees from distributing
trust income or principle for the appellant’s benefit is superfluous for purposes of this determination. The
determining factor is whether the appellant made a
complete transfer of the property without retaining any rights of ownership of it, or control over it for her own
benefit. She did.

The Board is aware that the trustees of the trust and its beneficiaries are the same. Thus, the trustees, once
they have distributed any trust assets to themselves as beneficiaries of the trust, which the trust allows them to
do in any amount, in any manner, and at any time they wish, may in their personal capacities as beneficiaries
use such assets for the appellant’s maintenance. But that would be entirely up to them, just as it is entirely up
to them to use any other property they own for that purpose. In that light, the arrangement amounts to a
situation in substantive terms no different than if the appellant had simply gifted the property outright to her
children. Her children are adults and do not live with her (she resides in an assisted living facility). Section
3.276(b) of the regulations indicates by negative implication that when it is clear that the grantor of a gift to
someone other than a relative residing in the same household has relinquished all rights of ownership,
including the right of control of the property, such property will not be included in the grantor’s estate for
pension purposes. As noted above, the OCG cited this provision in finding that property transferred to an
irrevocable trust for the benefit of the claimant’s grandchildren was not includable in the grantor’s estate. The
Board sees no reason to distinguish that trust from the one at issue here, as the key factor regarding both
trusts is that the terms of the trust do not provide for distribution of trust property to the claimant, who has
relinquished all ownership rights to such property, including any control of it for the grantor’s own benefit. As
the OCG noted in that opinion, it had held in the past that “the completeness, but not the intent or purpose, of
a transfer of property would be considered for pension purposes.” VAOPGPREC 73-91 (citing VAOPGPREC
30-57).

The transfer of the appellant’s property to the trust at issue here was complete, as it is evident from the terms
of the trust that she exercises no rights of ownership or control of the property held in the trust. While she
continues to pay taxes on the trust income, that is a well-established arrangement for tax and estate purposes
which has no bearing on her ownership of the trust property.

Accordingly, property held in the trust, including the $200,000 in bank deposits and the real property with a
market value of over $155,000 are not includable in the appellant’s estate or net worth.

The record shows that the appellant’s net worth, while it has varied somewhat, has been consistently less than
$20,000 since the June 2016 date of claim. Her yearly expenses, including medical expenses from living in an
assisted care facility, have consistently exceeded $45,000. See June 2016 VA Form 21-534 (Application for
Death Pension by Surviving Spouse); December 2016 Corpus of Estate Determination (VA Form 21-5427);
January 2017 Correspondence. Her monthly income has been around $2,885.00. January 2017 Pension
Eligibility Verification Report. Such income is completely offset by monthly unreimbursed medical expenses of
more than $4,000 a month, including after deducting 5 percent of the maximum annual pension rate (i.e.
$442.00 effective December 2017). See 38 C.F.R. § 3.272(g)(2); see also Survivors Pension Rate Tables -
Effective 12/1/17, available at http://www.benefits.va.gov/PENSION/rates_survivor_pen12.asp (last visited
March 20, 2019).

The PMC did not find the appellant’s income and net worth from property not held in the trust to be a bar to
pension benefits, and the Board, on this record, finds no such bar.

Accordingly, the appellant’s income and net worth are not a bar to survivors pension benefits.

P.M. DILORENZO

Veterans Law Judge

Board of Veterans’ Appeals

ATTORNEY FOR THE BOARD      J. Rutkin, Counsel