Citation Nr: 1704793 Decision Date: 02/16/17 Archive Date: 02/24/17 DOCKET NO. 16-02 867 ) DATE ) ) On appeal from the Department of Veterans Affairs Regional Office and Insurance Center in Philadelphia, Pennsylvania THE ISSUE Whether the Veteran's net worth is a bar to entitlement to nonservice-connected pension benefits and special monthly pension based on the need for regular aid and attendance. REPRESENTATION Veteran represented by: Thomas Rutter, agent ATTORNEY FOR THE BOARD Alexander Panio, Associate Counsel INTRODUCTION The Veteran served on active duty in the United States Navy from March 1943 to April 1946. This matter comes before the Board of Veterans' Appeals (Board) on appeal from a December 2014 determination by the Department of Veterans Affairs (VA) Regional Office (RO) and Insurance Center in Philadelphia, Pennsylvania. 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). FINDINGS OF FACT 1. The Veteran transferred significant monetary assets into an annuity and an irrevocable trust, both of which designate the Veteran as a beneficiary in some capacity, in the months prior to applying for VA pension benefits. 2. For purposes of establishing entitlement to VA non-service connected benefits, the Veteran's net worth includes the amount of a single premium immediate annuity and the amounts deeded to an irrevocable trust wherein the Veteran is an income beneficiary during his lifetime. 3. It is reasonable for the Veteran to consume part of his total net worth, which exceeds $300,000, for maintenance. CONCLUSION OF LAW The corpus of the Veteran's estate precludes the payment of nonservice-connected pension benefits and special monthly pension. 38 U.S.C.A. §§ 1513, 1521, 1522 (West 2014); 38 C.F.R. §§ 2.275, 2.276, 3.3, 3.23, 3.274 (2016). \ REASONS AND BASES FOR FINDINGS AND CONCLUSION The Veteran filed a claim for VA nonservice-connected disability pension benefits in September 2014. He was found to meet the service, age and disability requirements for pension benefits, but pension was denied based on a December 2014 Corpus of Estate determination that the Veteran's net worth was excessive for VA pension purposes. See 38 U.S.C.A. §§ 1521, 1522. The issue on appeal is whether the Veteran's net worth is excessive for purposes of granting VA nonservice-connected pension benefits with special monthly pension. The Veteran contends that VA erred in its calculation of his net worth. Specifically, he asserts that a single premium immediate annuity should not be countable as an asset in determining his net worth, as it has no cash value and no liquidity provision. The Veteran also maintains that cash holdings converted into an irrevocable trust prior to his application for pension should not be counted as assets in determining total net worth. A. Applicable Law 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" 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). B. Relevant Factual Background In the Veteran's September 2014 initial claim for pension benefits he reported, as part of his net worth, interest-bearing bank accounts in the amount of $1,000 and $29,000 and income from the Social Security Administration (SSA) of $2,096 per month (including such income from his wife) along with disbursements from an ELCO annuity amounting to $2,747 monthly. The Veteran reported expenses of $4,785 per month with nearly $1,000 more for medical insurance premiums and Medicare. Attached to the Veteran's claim was a letter from ELCO mutual funds detailing the Veteran's single premium immediate annuity providing the $2,747 monthly. The letter noted that the annuity was purchased with a single premium of $138,306 in July 2014 and that the policy had no cash surrender value. A December 2014 corpus of estate determination found that the Veteran's net worth was $168,306, based on the amount of the ELCO annuity and his bank accounts. This amount was deemed sufficient to supplement the Veteran's income over the course of the next 3 years, the amount of time that would be covered by any grant of pension benefits based on life expectancy. The determination calculated that the Veteran's annual income was $25,176 (SSA income) and his expenses amounted to $81,018 per year. Financial statements received in 2015 show that the Veteran had $144,097 in an individual retirement account (IRA) in 2014 and that he and his wife as joint tenants had $236,757 in a separate IRA in 2014. The Veteran has stated that $138,000 was used to open the ELCO annuity and the remainder of the estate was gifted to an irrevocable trust prior to his application for benefits. Partial financial documents received in July 2015 show that the Veteran established an irrevocable trust in the name of his son at some point. The premium paid to or for the trust was in excess of $100,000. Other financial documents from December 2014 show investment accounts in the name of the trust for $27,217; $58,417; and $57,738. A copy of the irrevocable trust agreement signed July 2014 show that the Veteran's son is named as trustee. The original amount deeded to the trust within the agreement was $10 with future transfers contemplated. The agreement stipulates that the Veteran has no ownership or rights to the principal of the estate deeded to the trust and that the trustee has no authority to distribute any of the principal to the Veteran. However, the agreement also states that the trustee is required to maintain the trust for the benefit of the lifetime beneficiaries. The Veteran is specifically identified as an, (and apparently the only) income beneficiary of the trust while he is alive, which is defined in the agreement as having entitlement to receive any distributions of the income of the trust, whether mandatory or discretionary. C. Analysis and Findings What constitutes excessive net worth is a question of fact, and while no specific dollar amount can be designated as excessive net worth, as a general rule, VBA's adjudication manual directs the rating agency to undertake development action to determine if net worth is excessive for any claimant who has an estate of $80,000 or greater. See VBA Manual M21-1, V.iii.1.J.4.b. A number of variables must be taken into consideration when making a net worth determination including income from other sources, family expenses, claimant's life expectancy, and convertibility into cash of the assets involved. VBA Manual M21-1, V.iii.1.J.4.a. In general, the older an individual is, the smaller estate the individual requires to meet his/her financial needs. Thus, the basic issue in evaluating net worth is to determine whether or not the claimant's financial resources are sufficient to meet his or her basic needs without assistance from VA. VA's income-based programs are intended to give beneficiaries a minimum level of financial security. They are not intended to protect substantial assets or build up the beneficiary's estate for the benefit of heirs. VBA Manual M21-1, V.iii.1.J.1.g. It is VA policy to deny pension for excessive net worth if a claimant's assets are sufficiently large that the claimant could live off these assets for a reasonable period of time. Id. Essentially, pension entitlement is based on need and that need does not exist if a claimant's estate is of such size that he/she could use it for living expenses. VBA Manual M21-1, V.iii.1.J.1.h. The Veteran has stated in his December 2014 notice of disagreement that given his life expectancy, $91,504 in net worth would be required to meet his obligations. As the amount allocated to both the trust and the annuity are well in excess of $100,000 each, the question before the Board is twofold, namely whether the amount of the Veteran's annuity should count as part of his net worth and whether the amount of the irrevocable trust should be counted as part of the Veteran's net worth. The Veteran maintains that because the ELCO policy, which he has described as similar to a pension, has no cash surrender value and cannot be liquidated, that it should not be counted as an asset or as part of his net worth. The applicable VA regulation "implicitly considers investment instruments to be personal property in the calculation of the corpus of estate and net worth." Osborn v. Nicholson, 21 Vet. App. 223, 226 (2007) (citing 38 C.F.R. § 3.275(b) and VA Form 6, Improved Pension Eligibility Verification Report (including as net worth real property and investments (stocks, bonds, mutual funds, etc.)). Moreover, VA's Office of General Counsel (OGC) has opined that personal property includes incorporeal property, such as personal annuities, stocks, shares, patents, and copyrights. See VAOPGCPREC 1-93 (1993) ("[p]ersonal property consists of '(1) corporeal personal property, which includes movable and tangible things, such as animals, furniture, merchandise, etc.; and (2) incorporeal personal property, which consists of such rights as personal annuities, stocks, shares, patents, and copyrights.' " (quoting Black's Law Dictionary 1217 (6th ed.1990))). The Board may not take a position inconsistent with opinions from OGC. See also 38 U.S.C. § 7104(c) ( "The Board shall be bound in its decision by the ... precedent opinions of the chief legal officer of the Department."); Theiss v. Principi, 18 Vet.App. 204, 210 (2004) (noting that the Board is bound by VA General Counsel precedent opinions); see also Osborn v. Nicholson, 21 Vet. App. 223, 226 (2007). Thus, investment funds such as the Veteran's annuity should indeed be counted for net worth purposes. Internal VA directives concerning valuation of annuities such as the Veteran's are not entirely clear, but some are directed at valuating the income received from the annuity rather than valuating the annuity as a part of net worth. For instance, rating agencies are instructed to count only the amount of interest received from a non-retirement annuity or similar instrument if the beneficiary purchased the annuity using funds VA already considered as a part of net worth, or a conversion of assets from a property sale and in all other situations, to count the entire amount received as income. VBA Manual M21-1, V.iii.1.I.1.d. However, the directives also state that when an individual retirement account (IRA) or similar instrument starts paying benefits, the rating agency is instructed to count the entire amount for income purposes even though it represents a partial return of principal. VBA Manual M21-1, V.iii.1.I.1.c. Thus, even if the Veteran's annuity were to be counted only for income, the entire amount and not just the monthly distribution should be used in determining pension eligibility. In such a case, the Veteran would be disqualified from VA pension eligibility based on his income, which would include the full amount of the annuity in the year it began paying benefits. See 38 C.F.R. §§ 3.23, 3.271, 3.272, 3.273. As such, the Veteran's annuity is a bar to non-service connected pension in the year that pension was claimed, regardless of whether it was counted as net worth or income. With regard to the assets deposited into the irrevocable trust, the Veteran maintains that he does not have the ability to use any of said assets for his personal benefit and that therefore the assets deeded to the trust should not be counted as part of his net worth. VA policy is to include trust assets in net worth calculations if trust assets are available for use for the claimant's support. VBA Manual M21-1, V.iii.1.J.4.f. In establishing this policy, VA notes that estate planning frequently preserves assets for heirs while taking advantage of Medicaid and other governmental assistance programs. Id. VA guidance instructs that when a claimant indicates that they moved assets into a trust or that they benefit from a trust of any kind a trust is countable as belonging to a claimant if: it is actually owned by the claimant, the claimant possesses such control over the property that the claimant may direct it to be used for the claimant's benefit, or funds have actually been allocated for the claimant's use. Id. VA adjudication policy also directs that if the claimant or someone with legal authority to act on the claimant's behalf has some control to use property, it can reasonably be expected to be consumed for a claimant's maintenance and thus be includable in the claimant's estate. Id. Finally, the manual instructs that disbursements from a trust counted as net worth are not income but a reduction of net worth and that assets transferred by a legally competent claimant 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 pension purposes. Id. In considering whether assets that are placed in an irrevocable special needs trust includable in the claimant's net worth for purposes of determining eligibility for improved pension, OGC noted that VA regulations do not establish specific criteria governing when trust assets are to be considered in net worth determinations. VAOPGCPREC 33-97 (1997). OGC also noted that the applicable regulation dictates that certain gifts and transfers to relatives should not, for VA pension purposes, be considered to reduce the size of an estate. See 38 C.F.R. § 3.276(b). Although the regulation does not address the situation of transfer of assets to a trust, the regulation does reflect VA's interpretation that the circumstances of a transfer of property may be considered in determining eligibility for pension. The fact that the claimant transferred property to a trust, as opposed to a friend or relative, would not be conclusive on the issue of whether the claimant has relinquished all rights of ownership in the property. OGC ultimately determined that VA should include trust assets in net-worth calculations if trust assets are available for use for the claimant's support and held that assets transferred 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." VAOPGCPREC 33-97. OGC had previously considered that property and income therefrom, including that held in trust, will not, in basic pension-entitlement determinations, 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. See VAOGCPREC 73-91 (1991) (only property over which the veteran has some control to use for the veteran's own benefit can reasonably be expected to be consumed for the veteran's maintenance); VAOGCPREC 72-90 (1990). However, OGC had also found that is essential to the creation of an express trust that the settlor, (creator of the trust), presently and unequivocally make a disposition of property by which he divests himself of the full legal and equitable ownership. VAOGCPREC 73-91. OGC thus held that if a veteran is receiving benefit from expenditures from the trust, a determination must be made under the facts of the particular case whether the veteran is exercising such control and use of the trust assets that the trust may be considered invalid for purposes of determining pension eligibility. Id. Here, no "special needs" exception was made in the trust agreement. Nevertheless, the Veteran is specifically identified as an income beneficiary of the trust while he is alive and is entitled to receive any distributions of the income from the trust principle. Moreover, it is the duty of the trustee to maintain the trust "for the benefit of the lifetime beneficiaries." Thus, while the principal assets are not directly available for the Veteran's support, the income generated from that principle is, and the trustee is required to maintain the trust for this purpose. Thus, it is reasonable to assume that the Veteran would receive some benefit from the trust and that therefore some portion of the trust is available for use for the Veteran's support. Based on the foregoing, and VA's general policy to consider trust assets in net worth calculations if those assets are available for use for the claimant's support, the Board finds that the single premium immediate annuity account and the Veteran's income beneficiary interest in the irrevocable trust estate are both countable as part of the corpus of the Veteran's estate for purposes of determining pension eligibility. 38 C.F.R. § 3.275; VBA Manual M21-1, V.iii.1.J.4.f. VA has specifically acknowledged situations where estate planning preserves assets for heirs while taking advantage of governmental assistance programs and has instructed that where those assets are available for the claimant's benefit they are to be considered as part of net worth. VBA Manual M21-1, V.iii.1.J.4.f. VA's pension program is intended to give beneficiaries a minimum level of financial security; it is not intended to protect substantial assets or build up the beneficiary's estate for the benefit of heirs. VBA Manual M21-1, V.i.3.A.1.e. Pension entitlement is based on need and that need does not exist if a claimant's estate is of such size that he/she could use it for living expenses. In this case, both the annuity and trust were created to provide some measure of benefit to the Veteran. Based on financial the value of the assets in question, which, as noted above, amount to over $300,000 and the Veteran's own assessment of his financial needs, the Board finds that it is reasonable that some part of the Veteran's estate be consumed for his maintenance and that therefore, entitlement to pension should be denied. 38 C.F.R. § 3.274(a). ORDER The Veteran's net worth is a bar to entitlement to nonservice-connect pension benefits and special monthly pension based on the need for aid and attendance. ____________________________________________ S. BUSH Veterans Law Judge, Board of Veterans' Appeals Department of Veterans Affairs