Citation Nr: 1752061	
Decision Date: 11/14/17    Archive Date: 11/22/17

DOCKET NO.  15-04 142	)	DATE
	)
	)

On appeal from the
Department of Veterans Affairs Regional Office and Insurance Center in Philadelphia, Pennsylvania

THE ISSUE

Whether the termination of nonservice-connected pension benefits with a special monthly pension, effective November 1, 2010, was proper.


REPRESENTATION

Veteran represented by:	Jeffery M. Murphy, Attorney


WITNESSES AT HEARING ON APPEAL

The Veteran, A.J.G., and B.T.G.


ATTORNEY FOR THE BOARD

L. S. Kyle, Associate Counsel

INTRODUCTION

The Veteran served on active duty from October 1942 to December 1945.

This matter comes before the Board of Veterans' Appeals (Board) on appeal from an August 2014 decision of the Pension Management Center at the Department of Veterans Affairs (VA) Regional Office (RO) in St. Paul Minnesota.  Original jurisdiction for the appeal was transferred to the Pension Management Center at the VARO in Philadelphia, Pennsylvania, prior to certification to the Board.

This matter was previously before the Board in March 2016, when it was remanded for further development.  The Veteran appeared at a hearing before the undersigned in December 2015.  

This appeal has been advanced on the Board's docket pursuant to 38 C.F.R. § 20.900(c) (2016).  38 U.S.C.A. § 7107(a)(2) (West 2014).


FINDING OF FACT

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


CONCLUSION OF LAW

The termination of nonservice-connected pension benefits with a special monthly pension, effective November 1, 2010, was improper.  38 U.S.C.A. §§ 1513, 1521, 1522, 5107 (West 2014); 38 C.F.R. §§ 3.3, 3.23, 3.102, 3.271, 3.272, 3.273, 3.274, 3.275, 3.276 (2016).


REASONS AND BASES FOR FINDING AND CONCLUSION

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.A. §§ 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.A. § 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).

Here, the Agency of Original Jurisdiction (AOJ) initially determined the Veteran was eligible for nonservice-connected pension benefits with a special monthly pension, effective October 8, 2010; however, in August 2014, the AOJ terminated his eligibility, effective November 1, 2010, resulting in a $67,471 debt, after it discovered the Veteran transferred a substantial amount of assets to a trust prior to his pension application.  Although it acknowledged the Veteran's excludable expenses exceeded his monthly income, the AOJ determined the assets held by the trust should be considered part of the corpus of his estate with his net worth making him ineligible for pension benefits.  Thus, the essential question for consideration in this appeal is whether the value of the Mendez 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.A. § 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."  The Board notes the August 1997 VA General Counsel Opinion initially appears to be more restrictive in the context of the factual scenario presented in this appeal; however, comparison of the trust provisions in that case with the case at bar reveal a fundamental difference that weighs heavily in the Veteran's favor.  The August 1997 VA General Counsel analyzed a "special needs trust" that indicated "some or all of the income and principal of the trust fund may be paid by the trustee to or for the benefit of the surviving spouse only for the surviving spouse's 'special needs for health, safety and well being when such requisites are not presently being provided by any public entity, office or department of the beneficiary's state of residence, or of any other state, or of the United States.'"  The trust documents in that case further provided that the trustee had "no discretion . . . in distribution of income and principal for special needs."  Comparatively, the trust documents in this case establish that the distribution of any of the trust's net income or principal for the Veteran's health, support or maintenance is at the sole discretion of the trustee.  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, there are facts that weigh both for and against a finding that the Veteran retains an ownership interest in the assets held by the trust in question.  For instance, the Mendez Irrevocable Trust was established as a grantor trust, requiring the Veteran to pay federal income taxes on the trust's income, which suggests an ownership interest in the trust.  The Board also notes one of the trustees, A.J.G., is the Veteran's appointed fiduciary for VA purposes, which indicates she has the authority to act on the Veteran's behalf; however, the Board finds it relevant that the Mendez Irrevocable Trust was established prior to the appointment of A.J.G. as the Veteran's fiduciary.  Further, it is clear from the record that there are instances when trust assets have been used for the Veteran's maintenance.  Yet, the record establishes the Veteran maintains no control over the trust's assets since all distributions are at the "sole and absolute discretion" of the trustee, which strongly suggests the Veteran has divested himself of an ownership interest in the trust with its assets being held for its named beneficiaries.  Additionally, past distributions made during the period when the Veteran was awaiting adjudication of his pension claim were characterized as loans even before pension eligibility was terminated and were repaid to the trust from retroactive benefits when the Veteran's pension claim was initially granted, which further suggests the Veteran has divested himself of an ownership interest in the trust's assets.

The Board also finds it notable 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 Mendez Irrevocable Trust, and its assets are not part of the corpus of his estate.  Although some evidence of record suggests a possible ownership interest, there is substantial evidence that suggests that the Veteran does not maintain any control over the trust's assets.  Most notably, the Veteran does not have the authority to authorize distributions from the trust, and the trust's provisions do not establish any parameters that would necessitate automatic distributions to the Veteran.  To the contrary, the trust provisions establish distributions from the trust are at the "sole and absolute discretion" of the trustee.  While the transfer of assets to the trust may be in conflict with the policy considerations that underlie the VA pension program, there is nothing that suggests the arrangement was impermissible under the regulations currently in effect, which is underscored by the proposed changes to the pension program that are not yet in effect.  Thus, the evidence is in at least relative equipoise as to the material issue in this appeal.  Resolving reasonable doubt in the Veteran's favor, the Board finds the termination of nonservice-connected pension benefits with a special monthly pension, effective November 1, 2010, was improper because the assets held by the Mendez Irrevocable Trust should not have been considered when analyzing the Veteran's net worth.  See 38 U.S.C.A. § 5107; 38 C.F.R. § 3.102.  As such, restoration of entitlement to nonservice-connected pension benefits with special monthly pension, effective November 1, 2010, is warranted.


ORDER

Restoration of entitlement to nonservice-connected pension benefits with special monthly pension, effective November 1, 2010, is granted.



____________________________________________
M. HYLAND
Veterans Law Judge, Board of Veterans' Appeals

Department of Veterans Affairs