Citation Nr: 21028110 Decision Date: 05/10/21 Archive Date: 05/10/21 DOCKET NO. 17-19 507 DATE: May 10, 2021 ORDER Entitlement to non-service-connected (NSC) pension benefits with special monthly pension (SMP) prior to October 18, 2018 is denied. FINDING OF FACT For the period prior to October 18, 2018, with consideration of the Veteran's life expectancy and the potential rate of depletion of the corpus of his estate, net worth was excessive for the receipt of pension benefits. CONCLUSION OF LAW The criteria for entitlement to payment of NSC pension benefits with SMP for the period prior to October 18, 2018 were not met. 38 U.S.C. §§ 1513, 1521, 1522 (2012); 38 C.F.R. §§ 3.3, 3.23, 3.274, 3.275, 3.276 (2018). REASONS AND BASES FOR FINDING AND CONCLUSION The Veteran served on active duty in the United States Army from November 1951 to October 1953. This matter comes to the Board of Veterans' Appeals (Board) on appeal from an October 2016 determination by a Department of Veterans Affairs (VA) Pension Management Center (PMC). The PMC found that the Veteran's net worth was a bar to the receipt of VA NSC pension benefits. In February 2019, the Veteran testified at a Board video-conference hearing before the undersigned Veterans Law Judge. A transcript of that hearing has been associated with the record. In a May 2019 decision, the Board denied the Veteran's claim. The Veteran appealed to the United States Court of Appeals for Veterans Claims (Court). In a March 2020 memorandum decision, the Court set aside the Board's May 2019 decision and remanded the matter for readjudication. In November 2020, the Board remanded the case to the agency of original jurisdiction (AOJ) for additional development. In February 2021, after taking further action, the AOJ granted NSC with SMP effective October 18, 2018 (the date of a change in the law pertaining to the calculation of net worth). The prior denial as to the period before October 18, 2018 was confirmed and continued and that portion of the case was returned to the Board. See February 2021 supplemental statement of the case. Entitlement to NSC pension benefits with SMP prior to October 18, 2018 is denied. As noted, the Veteran has been granted NSC pension benefits with SMP from October 18, 2018. The question presented for the Board's consideration is whether he is entitled to such benefits for the period on appeal prior to that date. Pension is payable to veterans of a period of war because of non-service-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). The Veteran filed his claim in June 2016. Effective October 18, 2018, VA amended its regulations to, among other things, establish new requirements for evaluating net worth and asset transfers for pensions and identify which medical expenses may be deducted from countable income for VA's needs-based benefit programs. See Net Worth, Asset Transfers, and Income Exclusions for Needs-Based Benefits, 83 Fed. Reg. 47,246 (Sep. 18, 2018). Prior to October 18, 2018, there was no specific dollar limitation on net worth (as opposed to income) that barred an otherwise eligible claimant from receiving pension benefits. Effective October 18, 2018, an initial, specific "bright-line" net worth limit of $123,600 was put into place, with consideration of factors such as life expectancy and rate of depletion of assets removed from the analysis. 38 C.F.R. § 3.274(a). The amendments also revised § 3.276(a)(5)(ii) to provide that a "[t]ransfer for less than fair market value" means a voluntary asset transfer to, or purchase of, any financial instrument or investment, to include annuities and trusts, that reduces net worth by transferring the asset to, or purchasing, the instrument or investment unless the claimant establishes that he or she has the ability to liquidate the entire balance of the asset for the claimant's own benefit. As an initial matter, the Board finds that the aforementioned amendments cannot be applied to the Veteran's claim with respect to the period on appeal prior to October 18, 2018. The amendments themselves specifically provide for an effective date of October 18, 2018. 83 Fed. Reg. at 47,274 (Dates) ("This rule is effective October 18, 2018"). In addition, the overall tenor of the amendments reflects that they were not intended to have retroactive effect. Revisions to 38 C.F.R. § 3.276, for example, explicitly provide that the new three-year "look back" rule for transfer of assets is not to apply to periods prior to the effective date of the new rule. See 38 C.F.R. § 3.276(a)(7), (b). New provisions pertaining to institutional forms of care or in-home care as they relate to unreimbursed medical expenses were likewise written to apply only to claimants who moved to a different institution or changed in-home providers. Similarly, if a claimant was receiving pension on the effective date of the new rules, the new rules provide that although his or her net worth exceeds the net worth limit under new § 3.274(a), the claimant will continue to received pension unless he or she loses pension for another reason. 83 Fed. Reg. at 47,265-266 (Applicability, Effective Date, and Related Matters); see Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208, 109 S. Ct. 468, 102 L. Ed. 2d 493 (1988) (indicating that "[r]etroactivity is not favored by the law," and "congressional enactments and administrative rules will not be construed to have retroactive effect unless their language requires this result."). Under the law in effect prior to October 18, 2018, entitlement to pension was denied when the corpus of a veteran's estate (and that of any spouse) was such that, under all circumstances, including consideration of the annual income of the veteran, his spouse, and any cohabitating children, it was reasonable that some part of the corpus of such estates be consumed for the veteran's maintenance. 38 U.S.C. § 1522; 38 C.F.R. § 3.274(a) (2018). The terms "corpus of estate" and "net worth" were used interchangeably in VA regulations and meant 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) (2018). In determining whether some part of a veteran's estate should be consumed for maintenance, consideration was to be given to the amount of the claimant's income together with the following: whether the property could be readily converted into cash at no substantial sacrifice; life expectancy; number of dependents who met 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) (2018). A gift of property to someone other than a relative residing in the grantor's household was not to be recognized as reducing the corpus of the grantor's estate unless it was clear that the grantor had relinquished all rights of ownership, including the right of control of the property. 38 C.F.R. § 3.276(b) (2018). In this case, the Veteran has the requisite wartime service and is considered disabled for purposes of receiving NSC pension benefits. The record also shows that his need for regular aid and attendance was established effective June 2016. As noted previously, the PMC denied payment of NSC pension with SMP prior to October 18, 2018 based on the Veteran's net worth. The Veteran contends that the value of irrevocable trusts set up in September 2011 should not be included in the computation of his net worth for pension purposes. At the February 2019 Board hearing, he testified that he established two trusts, a Residence Trust, to which he and his spouse had donated their home, and a Family Trust for investments. He reported that both trusts were irrevocable, that they were managed by a trustee, D.T.D., that he did not have control over the assets of the trust, and the principal beneficiaries of the trust were his children. A Trust Instrument submitted by the Veteran shows that he and his spouse were designated as the original income beneficiaries of the trust at issue, established in September 2011. The settlors, or grantors, were the Veteran and his spouse. A July 2016 application for pension shows that the Veteran reported that his spouse died in December 2011; thus, the Veteran is the sole income beneficiary of the trust. The Trust Instrument provides that the principal beneficiaries shall be D.T.D., S.K.D. and K.S.D. and provides that the trust shall terminate upon the death of the last settlor/original income beneficiary. The Trust Instrument specifies that the purpose of the trust is to hold property for the benefit of the beneficiaries, to provide for the administration and management of the settlors' property during their life, and to ensure their financial security, and, thereafter, to administer assets of the trust for the benefit of the beneficiaries. The Trust Instrument also provides that the trustee may, in the trustee's sole and absolute discretion, accumulate or distribute income for the benefit of any income beneficiary, for the beneficiary's health, education, maintenance, and support, or for any other purpose, and the principal may be distributed to an income beneficiary in such amounts as determined by the trustee to be appropriate. The question for the Board is whether the value of the Veteran's irrevocable trusts should be included in his net worth for purposes of determining his entitlement to pension benefits for the period prior to October 18, 2018. VA regulations applicable at the time of the Veteran's claim do not specifically address the issue of trusts in the context of net worth determinations; however, several VA General Counsel Opinions 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 VAOPGCPREC 33-97 (1997), the Office of General Counsel (OGC) determined that the VA regulations (as in effect prior to October 18, 2018) did not establish specific criteria governing when trust assets were to be considered in net worth determinations. OGC also noted that 38 C.F.R. § 3.276(b) dictated that certain gifts and transfers to relatives should not, for VA pension purposes, be considered to reduce the size of an estate. Although that regulation did not address the situation of transfer of assets to a trust, the regulation did reflect VA's interpretation that the circumstances of a transfer of property may be considered in determining eligibility for pension. The fact that a claimant transferred property to a trust, as opposed to a friend or relative, is not 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 the claimant or someone with the legal authority to act on the claimant's behalf can use the trust assets for the claimant's benefit. OGC held that assets transferred to an irrevocable trust or another 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. In this case, the Veteran has argued that the trusts at issue should not be included as part of the corpus of his estate because, under the terms of the trusts, he has no control over the distribution of principal and income; because he did not reserve any rights of ownership or use of any property donated to the trusts; and none of the assets are available to him. However, the Residence Trust provides that the settlors could in a "validly executed testament . . . change the beneficiaries of this trust to name settlor's creditors or creditors of the settlor's estate as beneficiaries, in whole or in part." The Residence Trust also provides that the trustee may pay to or for the benefit of any disabled beneficiary distributions for special needs, which "means the requisites for maintaining the disabled beneficiary's good health, safety, and support." As for the Family Trust, it provides, in part, that the trustee may distribute income to any income beneficiary who is not also a principal beneficiary for the purpose of the beneficiary's health, education, maintenance, and support; that the trustee may distribute principal to the income beneficiaries; and that the trustee may also pay to or for the benefit of a disabled beneficiary for special needs, which means "the requisites for maintaining the disabled beneficiary's good health, safety, and support." The Family Trust further states that it "is important that the disabled beneficiary maintain a level of human dignity and humane care," and that the trustee's powers include the ability to "[h]ire geriatric care managers, nurses, and other medical pro[f]essionals for the benefit of a beneficiary." Because the Veteran's home was sold and his cash and investment assets were transferred into a Residence Trust and Family Trust for the purpose of preserving assets for his children, as well as for the Veteran's benefit and financial security during his lifetime, because the Veteran is named as an income beneficiary of the trusts, and because the Veteran received multiple distributions from the trusts during the period prior to October 18, 2018, those trusts are considered as a part of his net worth for purposes of determining his eligibility for NSC pension benefits. Although it may be true, as the Veteran asserts, that a beneficiary of a trust is not considered to have ownership in the corpus of the trust under Louisiana law, state law is not controlling on the matter of whether the corpus of a trust should be considered part of the corpus of a veteran's estate under Federal law, for purposes of establishing entitlement to a Federal benefit. Rather, as noted above, that matter is governed by 38 U.S.C. § 1522, the regulations that implement it, and the OGC opinions that interpret those provisions and are binding on the Board. In correspondence dated in September 2016 and October 2016, the Veteran reported that the total value of the Family Trust was $616,307.86 and the total value of the Residence Trust was $174,819.53. In addition, a July 2016 Application for Pension identified $4,743.36 held in cash or non-interest-bearing bank accounts, and $14,552.80 in IRAs or KEOGH Plans, etc. Thus, the Veteran had a total net worth of approximately $810,423.55. See also February 2021 VA Form 21-4138 (showing the total values of the Family Trust and the Residence Trust effective January 1, 2017 and January 1, 2018). The Veteran reported that his total income was $3,475.01 per month ($41,700.12 per year) in 2016; $3,498.81 per month ($41,985.72 per year) in 2017; and $3,504 per month ($42,057.72 per year) in 2018. See December 2020 correspondence. He also reported expenses of $3,765.33 per month ($45,183.96 per year) in 2016; $3,941.50 per month ($47,298 per year) in 2017; and $4,138.05 per month ($49,656.60) in 2018. Id. Thus, his expenses exceeded his income by $3,483.84 in 2016, $5,312.28 in 2017, and $7,598.88 in 2018. With consideration of his total net worth of $810,424.00, his life expectancy which was shown by an October 2016 Corpus of Estate Determination to be 4.7 years, and the rate of depletion, the Board finds that it was reasonable for the Veteran to have consumed some part of the corpus of his estate for his maintenance. 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 (or "family members"). See M21-1, Part V.iii.1.J. Pension entitlement is based on need and that need does not exist if a claimant's estate is of such size that he or she could use it for living expenses. The Veteran reported trust distributions of $4,500 from September 2016 to October 2016; $10,300 in 2017; and $17,300 in 2018. See December 2020 correspondence. Despite these distributions, the value of his trusts, and therefore his net worth, increased during the period from 2016 to 2018. See February 2021 VA Form 21-4138. As noted, the evidence shows that the Veteran's annual expenses exceeded his income by $3,483.84 in 2016, $5,312.28 in 2017, and $7,598.88 in 2018 without consideration of income generated by trusts, and that his net worth was sufficient to provide for his maintenance. Accordingly, the Board finds that the Veteran did not meet the net worth requirements under the former version of 38 C.F.R. § 3.274 for the period prior to October 18, 2018 and the appeal must be denied. In reaching this conclusion, the Board has considered the applicability of the benefit-of-the-doubt doctrine; however, because the preponderance of the evidence is against the claim, that doctrine does not apply. See 38 U.S.C. § 5107; Gilbert v. Derwinski, 1 Vet. App. 49 (1990); 38 C.F.R. § 3.102. DAVID A. BRENNINGMEYER Veterans Law Judge Board of Veterans' Appeals Attorney for the Board J. Ragheb, Counsel The Board's decision in this case is binding only with respect to the instant matter decided. This decision is not precedential and does not establish VA policies or interpretations of general applicability. 38 C.F.R. § 20.1303.