3840 Federal Register / Vol. 80, No. 15 / Friday, January 23, 2015 / Proposed Rules 

DEPARTMENT OF VETERANS 

AFFAIRS 

38 CFR Part 3 

RIN 2900–AO73 

Net Worth, Asset Transfers, and 

Income Exclusions for Needs-Based 

Benefits 

AGENCY: Department of Veterans Affairs. 

ACTION: Proposed rule. 

SUMMARY: The Department of Veterans 

Affairs (VA) proposes to amend its 

regulations governing entitlement to VA 

pension to maintain the integrity of the 

pension program and to implement 

recent statutory changes. The 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 intended effect of these 

changes is to respond to recent 

recommendations made by the 

Government Accountability Office 

(GAO), to maintain the integrity of VA’s 

needs-based benefit programs, and to 

clarify and address issues necessary for 

the consistent adjudication of pension 

and parents’ dependency and indemnity 

compensation claims. We also propose 

to implement statutory changes 

pertaining to certain pension 

beneficiaries who receive Medicaidcovered nursing home care, as well as 

a statutory income exclusion for certain 

disabled veterans and a non-statutory 

income exclusion pertaining to 

annuities. 

DATES: VA must receive comments on or 

before March 24, 2015. 

ADDRESSES: Written comments may be 

submitted through http://

www.regulations.gov; by mail or handdelivery to: Director, Regulation Policy 

and Management (02REG), Department 

of Veterans Affairs, 810 Vermont Ave. 

NW., Room 1068, Washington, DC 

20420; or by fax to (202) 273–9026. 

Comments should indicate that they are 

submitted in response to ‘‘RIN 2900– 

AO73, Net Worth, Asset Transfers, and 

Income Exclusions for Needs-Based 

Benefits.’’ Copies of comments received 

will be available for public inspection in 

the Office of Regulation Policy and 

Management, Room 1068, between the 

hours of 8:00 a.m. and 4:30 p.m., 

Monday through Friday (except 

holidays). Please call (202) 461–4902 for 

an appointment. (This is not a toll-free 

number.) In addition, during the 

comment period, comments may be 

viewed online through the Federal 

Docket Management System (FDMS) at 

http://www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

Martha Schimpf, Analyst, Pension and 

Fiduciary Service, Veterans Benefits 

Administration, Department of Veterans 

Affairs, 21P1, 810 Vermont Ave. NW., 

Washington, DC 20420, (202) 632–8863. 

(This is not a toll-free number.) 

SUPPLEMENTARY INFORMATION: The 

Department of Veterans Affairs (VA) 

administers a needs-based benefit, 

‘‘pension,’’ for wartime veterans and for 

surviving spouses and children of 

wartime veterans. The current pension 

program was established by the 

Veterans’ and Survivors’ Pension 

Improvement Act of 1978, Public Law 

95–588, 92 Stat. 2497, and became 

effective January 1, 1979. The statutory 

authority for pension is 38 U.S.C. 

chapter 15, implemented at 38 CFR 

3.271 through 3.277. As further 

explained later in this Notice of 

Proposed Rulemaking (NPRM), VA 

proposes to amend 38 CFR part 3 to 

preserve program integrity because we 

have received information that, under 

current regulations, claimants who are 

not actually in need may qualify for 

these needs-based benefits. For clarity 

and consistency, some of the changes 

we propose would apply to other needsbased benefits as well. Although new 

pension claimants may qualify for 

pension only under the current 

program, VA still pays benefits under 

two prior pension programs. In 

addition, new claimants may qualify for 

parents’ dependency and indemnity 

compensation (parents’ DIC) under 38 

U.S.C. 1315. Regulations pertaining to 

all of these older programs are found at 

current 38 CFR 3.250 through 3.263. 

As a preliminary matter, we propose 

to refer to the current pension benefit as 

‘‘pension,’’ rather than referring to 

‘‘improved pension.’’ See 38 CFR 

3.3(a)(3). When specificity is required in 

VA regulations to distinguish between 

veterans and survivors, we propose to 

refer to ‘‘veterans pension’’ and 

‘‘survivors pension’’ instead of 

‘‘disability pension’’ and ‘‘death 

pension.’’ We have determined that the 

term ‘‘disability pension’’ is a misnomer 

because a veteran who has attained age 

65 does not need to be disabled to 

receive pension. See 38 U.S.C. 1513. We 

also note that subchapter II of 38 U.S.C. 

chapter 15 is titled ‘‘Veterans’ Pensions’’ 

and subchapter III is titled ‘‘Pensions to 

Surviving Spouses and Children.’’ The 

proposed terms would be consistent 

with the titles used in the statutes. 

We would not amend current 

§ 3.3(a)(3) in this rulemaking or amend 

other references in part 3 to ‘‘improved 

pension,’’ ‘‘disability pension,’’ or 

‘‘death pension,’’ but would implement 

the terminology changes over time. We 

also would not amend references to 

VA’s prior pension programs, ‘‘section 

306’’ and ‘‘old law’’ pension. 

Executive Summary 

1. Legal Authority and Need for 

Rulemaking 

Section 501 of title 38, United States 

Code, authorizes VA to prescribe 

regulations necessary for administration 

of its programs. In the context of VA’s 

needs-based pension benefit, sections 

1522 and 1543 of title 38, United States 

Code, direct VA to deny, reduce, or 

discontinue the payment of pension 

when it is reasonable that a claimant 

consume some portion of his or her net 

worth for his or her maintenance. 

Because nothing in sections 1522 and 

1543 define when ‘‘it is reasonable’’ for 

a claimant to consume some part of his 

or her net worth or provide criteria for 

determining when net worth is 

excessive, VA may interpret the law by 

filling these gaps. 

Similarly, section 1503(a)(8) of title 

38, United States Code, authorizes VA 

to deduct from a pension claimant’s 

countable income payments for 

unreimbursed medical expenses but 

does not define a medical expense for 

VA purposes. This rulemaking would 

fill that gap. 

This proposed rulemaking would 

amend regulations governing VA’s 

needs-based pension programs to 

promote consistency in benefit 

decisions, reduce opportunities for 

attorneys and financial advisors to take 

advantage of pension claimants, and 

preserve the integrity of the pension 

program. The revised regulations would 

promote consistent decisions by 

establishing a bright-line net worth limit 

and re-defining net worth as the sum of 

assets and annual income. The revised 

regulations would also promote 

consistent decisions by defining in 

regulations those unreimbursed medical 

expenses that VA will deduct from a 

claimant’s annual income for purposes 

of determining a claimant’s annual 

pension payment. 

By establishing in regulations a lookback and penalty period for claimants 

who transfer assets before applying for 

pension to create the appearance of 

economic need where it does not exist, 

the revised rules would reduce 

opportunities for financial advisors to 

provide advice for the restructuring of 

assets that, in many cases, renders the 

claimant ineligible for other needsbased benefits. Establishing a look-back 


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and penalty period for pre-application 

transfers of assets would also preserve 

the integrity of the pension program by 

ensuring that VA only pays the benefit 

to those with genuine need. 

2. Summary of Major Provisions 

Proposed § 3.274 would establish a 

clear net worth limit. VA does not 

currently have a bona fide net worth 

limit. The proposed net worth limit is 

the dollar amount of the maximum 

community spouse resource allowance 

established for Medicaid purposes at the 

time the final rule is published. This 

amount is currently $119,220, which 

would be indexed for inflation by 

adjusting it at the same time and by the 

same percentage as cost-of-living 

increases provided to Social Security 

beneficiaries. The amount of a 

claimant’s net worth would be 

determined by adding the claimant’s 

annual income to his or her assets. VA 

would calculate the amount of a 

claimant’s net worth when it receives an 

original or new pension claim; a request 

to establish a new dependent; or 

information that net worth has 

increased or decreased. Proposed 

§ 3.274 would provide that a claimant’s 

net worth can decrease if the claimant’s 

annual income decreases or if the 

claimant spends down assets on basic 

necessities such as food, clothing, 

shelter, or health care. Proposed § 3.274 

would include effective dates for benefit 

rate adjustments due to net worth. 

Proposed § 3.275 would describe how 

VA calculates assets. It would provide 

that VA would not consider a claimant’s 

primary residence, including a 

residential lot area not to exceed 2 acres, 

as an asset. Proposed § 3.275 would also 

provide that if the residence is sold, 

proceeds from the sale are assets unless 

the proceeds are used to purchase 

another residence within the calendar 

year of the sale. 

Proposed § 3.276 would provide new 

requirements pertaining to preapplication asset transfers and net worth 

evaluations to qualify for VA pension. 

The changes respond to 

recommendations that the Government 

Accountability Office (GAO) made in a 

May 2012 report, ‘‘Veterans Pension 

Benefits: Improvements Needed to 

Ensure Only Qualified Veterans and 

Survivors Receive Benefits.’’ Section 

3.276 would establish a presumption, 

absent clear and convincing evidence 

showing otherwise, that asset transfers 

made during the look-back period were 

made to establish pension entitlement. 

The changes would establish a 36- 

month look-back period and establish a 

penalty period not to exceed 10 years 

for those who dispose of assets to 

qualify for pension. The penalty period 

would be calculated based on the total 

assets transferred during the look-back 

period to the extent they would have 

made net worth excessive. The penalty 

period would begin the first day of the 

month that follows the last asset 

transfer. 

Proposed § 3.278 would define and 

clarify what VA considers to be a 

deductible medical expense for all of its 

needs-based benefits. The medical 

expense amendments will help to 

ensure that those who process VA 

needs-based claims process them fairly 

and consistently and that only needy 

claimants receive needs-based benefits. 

It would provide definitions for several 

terms, including activities of daily 

living (ADLs) and instrumental 

activities of daily living (IADLs), and 

provide that custodial care means 

regular assistance with two or more 

activities of ADLs or assistance because 

a person with a mental disorder is 

unsafe if left alone due to the mental 

disorder. It would provide that 

generally, payments to facilities such as 

independent living facilities are not 

medical expenses, nor are payments for 

assistance with IADLs. However, there 

would be exceptions for disabled 

individuals who require health care 

services or custodial care. The proposed 

rule would place a limit on the hourly 

payment rate that VA may deduct for inhome attendants. 

Proposed § 3.279 would place in one 

central location all statutory exclusions 

from income and assets that apply to all 

VA needs-based benefits. 

Proposed § 3.503 would incorporate 

in regulations statutory changes 

regarding Medicaid-covered nursing 

home care and applicability to surviving 

child beneficiaries. 

3. Assessment of Costs and Benefits 

VA’s impact analysis can be found as 

a supporting document at http://

www.regulations.gov, usually within 48 

hours after the rulemaking document is 

published. Additionally, a copy of the 

rulemaking and its impact analysis are 

available on VA’s Web site at http://

www1.va.gov/orpm/, by following the 

link for ‘‘VA Regulations Published.’’ 

Background Information on Net Worth 

and Asset Transfers for Pension 

Under 38 U.S.C. 1522 and 1543, VA 

may not pay pension to a veteran or 

survivor when the corpus of the 

individual’s estate is such that under all 

the circumstances, including 

consideration of the individual’s income 

and that of the individual’s spouse or 

dependent children, it is reasonable that 

the individual consume some part of the 

estate for his or her maintenance prior 

to receiving pension. However, Congress 

has not prescribed criteria for 

determining whether it would be 

reasonable to require an individual to 

consume his or her assets before 

receiving pension. VA implemented 

sections 1522 and 1543 in current 38 

CFR 3.274 and 3.275. We have 

determined that the current 

implementing regulations also do not 

prescribe effective criteria for 

determining whether or not net worth 

bars pension entitlement. 

The Veterans Benefits 

Administration’s (VBA) Adjudication 

Procedures Manual (manual), M21– 

1MR, which interprets VA regulations 

and establishes procedures for 

implementing regulations, instructs 

adjudicators to deny pension on 

excessive net worth grounds if ‘‘a 

claimant’s assets are sufficiently large 

that the claimant could live off these 

assets for a reasonable period of time.’’ 

M21–1MR, Part V, Subpart iii, Chapter 

1, Section J.67.g. The manual also 

provides that ‘‘[p]ension 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.’’ Id. at J.67.h. However, 

neither current regulations nor the 

manual defines ‘‘reasonable period of 

time’’ or establish definitive pension net 

worth limits. Accordingly, GAO 

concluded in its May 2012 report that 

VA adjudicators ‘‘lack[ ] specific 

guidance on how to determine whether 

or not a claimant’s financial resources 

are sufficient to meet their basic needs 

without the pension benefit.’’ U.S. 

Government Accountability Office, 

GAO–12–540, Veterans’ Pension 

Benefits: Improvements Needed to 

Ensure Only Qualified Veterans and 

Survivors Receive Benefits 14 (2012). 

The GAO report also identified over 

200 organizations that market services, 

primarily financial planning services, to 

assist veterans and survivors with 

transferring assets in order to reduce net 

worth and qualify for VA pension. As 

GAO noted, ‘‘[c]urrent federal law 

allows veterans to transfer significant 

assets’’ before applying for pension and 

still qualify for pension, which is 

inconsistent with the purpose of the 

program.’’ GAO–12–540, at 22. 

Currently, a pension claimant may 

lawfully transfer significant assets 

before applying for pension. Current 

§ 3.276(b) provides that a pension 

claimant’s gift of property to a relative 

residing in the same household is not 

recognized as reducing the claimant’s 

corpus of estate and a pension 

claimant’s sale of property to such a 

relative is not recognized as reducing 


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the claimant’s corpus of estate if the 

purchase price or other consideration 

for the sale is so low as to equate to a 

gift. However, there is currently no 

objective standard for determining 

whether the purchase price or other 

consideration for the sale is so low as to 

equate to a gift. Current § 3.276 also 

provides that a pension claimant’s gift 

of property to someone other than a 

relative living in the claimant’s 

household will not be recognized as 

reducing the claimant’s corpus of estate 

unless it is clear that the claimant has 

relinquished ‘‘all rights of ownership, 

including the right of control’’ over the 

property. However, current § 3.276 does 

not prohibit a claimant from making a 

gift of property to an individual not 

living in the claimant’s household 

immediately before applying for 

pension, so currently such a gift would 

reduce the claimant’s corpus of estate. 

Also, the regulation does not define the 

terms ‘‘ownership’’ and ‘‘control.’’ 

Sections 1522 and 1543 require VA to 

deny or discontinue pension when it is 

reasonable to require the individual to 

consume some portion of his or her net 

worth for personal maintenance. The 

legislative history of the current pension 

program reveals Congress’ intent that ‘‘a 

needs-based system . . . apply only to 

those veterans who are, in fact, in 

need.’’ H.R. Rep. No. 95–1225, at 33 

(1978), reprinted in 1978 U.S.C.C.A.N. 

5583, 5614. We interpret the statutory 

requirement to consume excessive net 

worth prior to receiving needs-based 

pension as precluding pension 

entitlement based upon transferring 

assets that a claimant or beneficiary 

could use for his or her maintenance. 

Congress did not intend that a claimant 

who has sufficient assets for selfsupport could preserve those assets for 

his or her heirs or transfer them as gifts 

and still qualify for pension at the 

expense of taxpayers. In our view, it 

would be an unreasonable interpretation 

of current law to conclude that Congress 

intended that veterans and survivors 

could use the pension program as an 

estate planning tool, under which they 

may preserve or gift assets and shift 

responsibility for their support to the 

Government. Accordingly, we propose 

to amend VA’s net worth and asset 

transfer regulations to ensure program 

integrity and preserve the program for 

wartime veterans and their survivors 

who actually need Government support. 

Proposed Net Worth and Asset Transfer 

Amendments 

Current 38 CFR 3.274, 3.275, and 

3.276 use the terms ‘‘net worth’’ and 

‘‘corpus of the estate’’ to describe the 

assets available to a claimant or 

beneficiary that could bar pension 

entitlement if sufficiently great. In 

particular, current § 3.275(b) gives the 

same definition to both terms. We 

propose to use the term ‘‘net worth’’ in 

proposed §§ 3.274, 3.275, and 3.276 

because it is the more commonly 

understood term. In addition, as 

explained in more detail below, net 

worth would be defined as the sum of 

a claimant’s or beneficiary’s assets and 

annual income. 

Section 3.274—Net Worth and VA 

Pension 

We propose to revise § 3.274 to 

establish new policies pertaining to 

pension and net worth. As we explained 

above, sections 1522 and 1543 require 

VA to deny or discontinue pension 

when, under all the circumstances, ‘‘it 

is reasonable’’ that the claimant or 

beneficiary use some portion of the 

applicable net worth for his or her 

maintenance. VA implemented this 

statutory requirement in current § 3.274, 

which essentially tracks the language of 

the statutes and prescribes denial or 

discontinuance of pension when it is 

reasonable that the individual consume 

‘‘some part’’ of his or her net worth for 

personal maintenance. Current 

§ 3.274(a) pertains to denial or 

discontinuance of veterans’ pension 

entitlement based on excessive net 

worth, and § 3.274(c) pertains to denial 

or discontinuance of surviving spouses’ 

pension entitlement based on excessive 

net worth. Current paragraphs (b) and 

(d) prescribe when VA must deny or 

discontinue increased pension paid to a 

veteran or surviving spouse, 

respectively, on account of a child. 

Current paragraph (e) pertains to denial 

or discontinuance of surviving 

children’s pension entitlement based on 

excessive net worth. 

Unlike the regulatory framework 

governing other Federal needs-based 

programs, such as the Social Security 

Administration’s Supplemental Security 

Income (SSI) program, see e.g., 20 CFR 

416.1205, which prescribes a $2,000 

limit on resources (i.e., assets) for 

unmarried individuals and a $3,000 

limit for married individuals, VA’s net 

worth regulations do not prescribe clear 

limits for pension entitlement. Rather, 

for determining whether some part of a 

claimant’s net worth should be 

consumed for his or her maintenance, 

current § 3.275(d) requires VA to 

consider the claimant’s income with (1) 

the liquidity of the property, (2) the life 

expectancy of the claimant, (3) the 

number of dependent family members, 

and (4) the potential rate of depletion of 

available assets. Absent from current 

§§ 3.274 and 3.275(d) are clear rules for 

evaluating these factors and determining 

whether a claimant’s assets and income 

are sufficient to meet his or her needs 

without pension. As a result, GAO 

concluded that VA adjudicators had to 

use their own discretion, leading to 

inconsistent decisions for similarly 

situated claimants. See GAO–12–540, at 

14–15. 

In addition to producing inconsistent 

decisions, current rules require 

development of additional information 

not solicited in the initial application 

for compensation and pension, VA 

Form 21–526, or the application for 

survivors’ benefits, VA Form 21P–534. 

For example, to determine the potential 

rate of depletion of a claimant’s net 

worth, VA must gather information 

about a claimant’s living expenses and 

reconcile those expenses with the 

claimant’s income over an unspecified 

period of time. This development 

necessarily adds time and complexity to 

the adjudication of these needs-based 

benefits, potentially creating greater 

financial hardship for claimants as they 

wait for VA to decide their claims. 

As stated above, the statutory 

authorities for net worth, 38 U.S.C. 1522 

and 1543, require VA to consider a 

veteran’s, surviving spouse’s, or child’s 

annual income when determining 

whether excessive net worth bars 

pension entitlement. Current regulations 

governing VA’s assessment of net worth, 

38 CFR 3.275(d), require VA, in making 

net worth determinations, to consider 

‘‘the amount of the claimant’s income,’’ 

together with other considerations. In 

order to account for the statutory annual 

income component of net worth 

determinations, we propose a new net 

worth definition which VA would 

calculate by adding assets and annual 

income. 

Proposed § 3.274(a) would establish a 

clear net worth limit for pension 

entitlement. Establishing a clear limit 

would promote uniformity and 

consistency in pension entitlement 

determinations consistent with the 

purpose of the pension program. 

Additionally, under a clear bright-line 

limit, it would no longer be necessary 

for claim adjudicators to complete 

lengthy, subjective net-worth 

determinations, which would free up 

limited resources for other claim-related 

activities, specifically timely delivery of 

benefits to individuals who immediately 

need Government support. 

The net worth limit for pension 

entitlement that we propose to use is the 

standard maximum community spouse 

resource allowance (CSRA) prescribed 

by Congress for Medicaid, another 

Federal needs-based benefit program, 

which we consider sufficiently 


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analogous to VA’s pension program to 

use the Congressional resource limit on 

Medicaid entitlement in VA’s program. 

For the Medicaid program, Congress has 

established a standard maximum 

resource amount that the ‘‘community 

spouse’’ of an institutionalized 

individual may be allowed to retain 

without the institutionalized spouse 

losing entitlement to Medicaid because 

of excessive resources. Congress 

established this standard maximum 

amount, referred to as the maximum 

CSRA, at $60,000 in 1989 and indexed 

that amount for inflation by increasing 

it by the same percentage as the 

percentage increase in the average 

consumer price index for all urban 

consumers. See 42 U.S.C. 1396r–5(f) and 

(g). For calendar-year 2014, the 

maximum CSRA is $117,240. See http:// 

www.medicaid.gov/Medicaid-CHIPProgram-Information/By-Topics/

Eligibility/Downloads/SpousalImpoverishment-2014.pdf. As described 

in further detail below, we would use 

the dollar amount of the maximum 

CSRA that is in effect at the effective 

date of the final rule after publication in 

the Federal Register and have inserted 

a temporary placeholder in the 

proposed rule. 

Congress’ intent in establishing the 

CSRA was to prevent the 

impoverishment of the noninstitutionalized spouse of a Medicaidcovered individual. VA’s intent in 

proposing to adopt the maximum CSRA 

as the net worth limit for pension 

entitlement is similar in that we seek to 

prevent the impoverishment of wartime 

veterans and their dependents or 

survivors as a prerequisite for obtaining 

VA pension. We recognize that a veteran 

or a veteran’s surviving spouse may 

have built up a modest amount of 

savings prior to applying for pension 

and that there might be a need to retain 

a reasonable portion of these assets to 

respond to unforeseen events, such as 

medical conditions requiring care in an 

assisted living facility or nursing home. 

The current cost of nursing home and 

assisted living care supports our 

proposal to adopt the maximum CSRA. 

A recent survey found that the average 

annual cost of a semi-private room in a 

nursing home was over $81,000, and the 

cost of a private room was over $90,000. 

MetLife Mature Market Institute, 

‘‘Market Survey of Long-Term Care 

Costs’’ 4 (2012). A 2010 survey also 

found that the average annual cost of a 

private room in a nursing home was 

over $90,000. Prudential Research 

Report, ‘‘Long-Term Care Cost Study’’ 

15 (2010). One survey found that the 

average cost of a residence in an assisted 

living facility was $3,550 monthly or 

$42,600 annually. MetLife Mature 

Market Institute, ‘‘Market Survey of 

Long-Term Care Costs’’ 4 (2012). The 

cost of such facilities would quickly 

deplete the savings permitted by our 

proposed use of the maximum CSRA 

even with the supplemental income 

provided by VA’s pension program, 

which for 2014 is established at a 

maximum of $25,022 annually for a 

veteran with a spouse and $13,563 

annually for a surviving spouse. Given 

the high cost of such care and the fact 

that many veterans or survivors may 

have to pay for the care, we have 

determined that it would be reasonable 

to establish the maximum CSRA as the 

net worth limit for pension entitlement. 

This limit would correspond roughly to 

the cost of residential care in a nursing 

home or assisted living facility for 1 to 

2 years. 

Proposed § 3.274(a) includes several 

placeholders that describe what the 

final rule would contain if 

implemented. The net worth limit 

would be the dollar amount of the 

current maximum CSRA as of the 

effective date of the final rule, to be 

increased by the same percentage as the 

increase in Social Security benefits 

whenever there is a cost-of-living 

increase in benefit amounts payable 

under the Social Security Act. VA 

would publish the current limit on its 

Web site. The proposed regulation text 

also does not include the Web site 

address because VA has not yet 

determined the address at which the net 

worth limit would be published. We 

have inserted ‘‘location to be 

determined’’ in the proposed regulation 

text as a placeholder and would provide 

the Web site address, current net worth 

limit, and effective date in the final rule. 

Under proposed § 3.274(b), VA would 

deny or discontinue pension if a 

claimant’s or beneficiary’s net worth 

exceeds the net worth limit. It would 

not be necessary to retain the 

reasonableness language in the current 

regulation under this bright-line limit. 

We have determined that it would be 

reasonable and consistent with the 

purpose of the pension program to fairly 

and consistently assess net worth and to 

make pension entitlement 

determinations using standardized 

criteria. Proposed § 3.274(b)(1) would 

define a claimant’s or beneficiary’s net 

worth as the sum of his or her assets and 

annual income. We propose this new 

definition because under VA’s net worth 

statutes, 38 U.S.C. 1522 and 1543, VA 

must consider a claimant’s or child’s 

annual income when determining if net 

worth bars pension entitlement. To 

account for this statutory requirement, 

net worth for VA pension purposes 

would include both an asset component 

and an income component. This would 

be reflected for veterans, surviving 

spouses, and surviving children in 

proposed § 3.274(b)(1) and for 

dependent children in proposed 

§ 3.274(d)(2). 

Proposed § 3.274(b)(2) would provide 

that VA calculates a claimant’s or 

beneficiary’s assets under this section 

and § 3.275; and paragraph (b)(3) would 

provide cross-references to make it clear 

that ‘‘annual income’’ for net worth 

purposes is the same ‘‘annual income’’ 

used for calculating a pension 

entitlement rate for a claimant or a 

beneficiary. Proposed paragraph (b)(4) 

gives an example of a net worth 

calculation. 

Proposed § 3.274(c) generally restates 

provisions in current § 3.274(a), (c), and 

(e) and explains whose assets VA 

includes as a claimant’s or beneficiary’s 

assets. A veteran’s assets include the 

assets of the veteran as well as the assets 

of the veteran’s spouse, if the veteran 

has a spouse. See 38 U.S.C. 1522(a). A 

surviving child’s assets include those of 

his or her custodian unless the 

custodian is an institution. We also 

propose to refer to the provisions of 

current 38 CFR 3.57(d) and clarify that, 

when a surviving child is in the joint 

custody of a natural or adoptive parent 

and a stepparent, the surviving child’s 

assets also include the assets of the 

stepparent. This provision is consistent 

with 38 U.S.C. 1543(b), pertaining to a 

surviving child’s net worth. 

Proposed § 3.274(d) would clarify 

paragraphs (b) and (d) of current § 3.274 

prescribing how a child’s net worth 

affects a veteran’s or surviving spouse’s 

pension entitlement. The current 

paragraphs restate statutory provisions 

in providing that ‘‘increased pension’’ 

payable to a veteran or a surviving 

spouse on account of a child is barred 

if it is reasonable that some part of the 

child’s net worth be consumed for the 

child’s maintenance. See 38 U.S.C. 

1522(b) and 1543(a)(2). In this context, 

VA has interpreted the statutory phrase 

‘‘increased pension’’ to refer to the 

statutory maximum pension rates rather 

than the pension entitlement rate. The 

pension entitlement rate is the pension 

amount that a claimant or beneficiary is 

entitled to receive after VA subtracts the 

claimant’s or beneficiary’s income from 

the statutory maximum rate. If a child 

has sufficient income, a veteran’s or 

surviving spouse’s entitlement rate can 

decrease rather than increase when the 

child is established as a dependent. 

Sections 1522(b) and 1543(a)(2) refer to 

the increased pension payable under the 

applicable subsections of sections 1521 

and 1542 respectively, which provide 


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3844 Federal Register / Vol. 80, No. 15 / Friday, January 23, 2015 / Proposed Rules 

the maximum pension rates. Sections 38 

U.S.C. 1522(b) and 1543(a)(2) also 

explicitly provide that a child with 

excessive net worth ‘‘shall not be 

considered as the veteran’s [or surviving 

spouse’s] child for [pension purposes]. 

Accordingly, proposed § 3.274(d) states 

that VA would not consider a child to 

be a veteran’s or surviving spouse’s 

dependent for pension purposes when 

the child’s net worth exceeds the net 

worth limit. This would be true even if 

removing the child as a dependent 

results in an increased pension 

entitlement rate for the veteran or 

surviving spouse. 

Proposed § 3.274(d)(1) would clarify 

two issues pertaining to dependent 

children. Proposed paragraph (d)(1)(i) 

would provide that a ‘‘dependent child’’ 

refers, for the purposes of this section, 

to a child for whom a veteran or a 

surviving spouse is entitled to an 

increased maximum annual pension 

rate. The maximum annual pension 

rates are the annual pension rates set 

forth in 38 U.S.C. 1521 for veterans and 

38 U.S.C. 1541 for surviving spouses. 

These maximum rates are then reduced 

by countable annual income, divided by 

12, and rounded down to the nearest 

whole number to calculate the monthly 

pension entitlement rate. The maximum 

annual pension rate is the annual 

amount to which an eligible claimant is 

entitled to receive if his or her annual 

income is zero. 

Technically, surviving spouses do not 

have dependent children for VA 

purposes. For VA purposes, any child 

must be a child of the veteran. A 

veteran’s child who is not in the 

custody of a surviving spouse, as 

custody is defined at § 3.57(d), is a 

surviving child who is eligible for 

pension in his or her own right. 

However, referring to a veteran’s child 

in the custody of a surviving spouse as 

a ‘‘dependent child’’ makes the 

necessarily complex net worth 

regulations somewhat easier to 

understand. There is statutory and 

regulatory precedent for referring to a 

child in this manner. Under 38 U.S.C. 

1506(1) and 38 CFR 3.277(a), a 

‘‘dependent child’’ is a child for whom 

a person is receiving or entitled to 

receive increased pension. 

Proposed § 3.274(d)(1)(ii) would 

provide that a ‘‘potential dependent 

child’’ refers to a child who is excluded 

from a veteran’s or surviving spouse’s 

pension award solely or partly because 

the child’s net worth exceeds the limit 

and provides that references to a 

‘‘dependent child’’ also include such 

potential dependent children. 

Similar to proposed paragraphs (b)(1) 

through (b)(3) for claimants and 

beneficiaries, paragraphs (d)(2) through 

(d)(4) of proposed § 3.274 set forth the 

meaning of net worth for dependent 

children, and describe how VA 

calculates a dependent child’s assets 

and annual income to determine the 

amount of the child’s net worth. The 

applicable net worth statutes, 38 U.S.C. 

1522(b) and 1543(a)(2), provide that a 

dependent child’s estate includes only 

the estate of the child, but VA must 

consider the income of the child, the 

veteran or surviving spouse, and other 

dependents when determining if the 

child’s net worth is excessive. 

Therefore, § 3.274(d)(2) would provide 

that a dependent child’s assets include 

the child’s assets only, and § 3.274(d)(3) 

would provide that VA will calculate a 

dependent child’s annual income under 

§ 3.275 and will include the annual 

income of the child as well as the 

annual income of the veteran or 

surviving spouse that would be 

included if VA were calculating a 

pension entitlement rate for the veteran 

or the surviving spouse. See 38 U.S.C. 

1522(b) and 1543(a)(2). 

Nothing in current § 3.274 or any 

other current regulation prescribes 

when VA must calculate net worth for 

purposes of determining initial, 

continued, or increased pension 

entitlement. Accordingly, in § 3.274(e), 

we propose to prescribe that VA would 

calculate net worth when VA receives: 

(1) An original pension claim, (2) a new 

pension claim after a period of nonentitlement, (3) a request to establish a 

new dependent, or (4) information that 

a veteran’s, surviving spouse’s, or 

child’s net worth has increased or 

decreased. 

Information about a claimant’s net 

worth may come from the claimant him 

or herself or from VA matching 

programs with the Internal Revenue 

Service (IRS) or the Social Security 

Administration (SSA). Such matching 

programs are authorized under 38 

U.S.C. 5317. VA would obtain 

information from the IRS and the SSA 

before paying pension and when recalculating net worth for pension under 

§ 3.274(e). We intend that proposed 

paragraph (e) would provide notice to 

VA adjudicators, claimants, and 

beneficiaries regarding the types of 

claims or benefit adjustments that 

require a net worth calculation. As 

explained above in the information 

pertaining to § 3.274(b)(1), net worth 

would be defined as the sum of a 

claimant’s assets and his or her annual 

income. Proposed paragraph (e) would 

also clarify that generally, VA calculates 

net worth only when the claimant meets 

other factors necessary for pension 

entitlement. Proposed § 3.274(e) would 

clarify for readers that if, for example, 

a veteran is not entitled to pension 

because he or she lacks wartime service 

or because his or her annual income 

exceeds the maximum annual pension 

rate, VA will not calculate net worth. 

However, paragraph (e)(3) would 

provide an exception. If the evidence of 

record shows that net worth exceeds the 

net worth limit, VA may decide the 

pension claim before determining if the 

claimant meets other pension 

entitlement factors. In such a case, VA 

would notify the claimant of the 

entitlement factors not established. This 

prevents VA from developing a case 

when the evidence clearly shows that a 

claimant is not entitled to the benefit. 

Nothing in current § 3.274 or any 

other VA regulation addresses the issue 

of whether claimants denied pension 

due to excessive net worth may lawfully 

decrease their net worth and qualify for 

pension. To remedy this omission, 

proposed § 3.274(f) would discuss the 

three ways in which claimants could 

decrease their net worth to lawfully 

qualify for pension. Under proposed 

§ 3.274(f)(1), claimants could make 

certain expenditures that would 

decrease their assets and thereby 

establish entitlement, continue 

entitlement, or increase entitlement to 

pension. Proposed § 3.274(f)(1) would 

limit authorized expenditures to 

expenditures for basic living expenses 

or for education or vocational 

rehabilitation. Such a limitation is 

consistent with the requirement in 

sections 1522 and 1543 that the 

individual consume some part of net 

worth for his or her maintenance when 

net worth is excessive. Given the 

purpose of the needs-based program 

established by Congress, we interpret 

‘‘maintenance’’ to mean basic 

necessities such as food, clothing, 

shelter, or health care. Because 

education or vocational rehabilitation 

expenses can lead to decreased reliance 

on pension, we believe that such 

expenses should also be considered part 

of an individual’s maintenance for this 

purpose. 

Proposed § 3.274(f)(2) would simply 

cross-reference the regulations that 

apply to pension annual income 

calculations. By law, VA must consider 

annual income in determining net 

worth. A decrease in annual income is 

the second method by which net worth 

can decrease. In proposed § 3.274(f)(3), 

we address how VA will treat payments, 

e.g., unreimbursed medical expenses, 

which can decrease either annual 

income or assets. VA would not 

consider the same payments to decrease 

both the annual income and the asset 

components of net worth. Proposed 


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§ 3.274(f)(3) provides that VA will first 

apply the payment amounts to decrease 

annual income. We believe this is fair 

and reasonable because it is the amount 

of the annual income that determines 

the pension entitlement rate. If there are 

remaining deductible amounts and net 

worth still exceeds the limit, VA will 

use those amounts to reduce the asset 

component of net worth. We would 

provide two examples of this provision. 

Paragraphs (g), (h), and (i) of proposed 

§ 3.274 are proposed net worth effectivedate provisions. Proposed paragraph (g) 

is based on current § 3.660(d) and 

would prescribe the effective date of 

entitlement or increased entitlement 

after VA has denied, reduced, or 

discontinued a pension award based on 

excessive net worth. Proposed 

paragraph (g)(1) would describe the 

scope of the rule. Consistent with 

current § 3.660(d), proposed paragraph 

(g)(2) would prescribe the effective date 

of entitlement or increased entitlement 

as the day net worth ceases to exceed 

the limit as long as, before the pension 

claim has become finally adjudicated, 

the claimant or beneficiary submits a 

certified statement that net worth has 

decreased. ‘‘Finally adjudicated’’ is 

defined in 38 CFR 3.160(d), and for net 

worth decisions, means that the 1-year 

period for beginning the appeal process 

by filing a Notice of Disagreement 

(NOD) has expired or that the claim has 

been appealed and decided. If VA does 

not receive the certified statement 

within one year after VA’s decision 

notice to the claimant of the denial, 

reduction, or discontinuance (and does 

not appeal), the effective date is the date 

VA receives a new pension claim. VA 

always has the right, under 38 CFR 

3.277(a), to require that a claimant or 

beneficiary submit additional evidence 

to support entitlement or continuing 

entitlement as the situation warrants 

and proposed § 3.274(g)(2) would so 

provide. 

Proposed § 3.274(h) pertains to 

reduction or discontinuance of a 

beneficiary’s pension entitlement based 

on excessive net worth. Proposed 

paragraph (h)(1) would restate the 

statutory end-of-year effective date for 

reducing or discontinuing a pension 

award because of excessive net worth. 

See 38 U.S.C. 5112(b)(4)(B). The first 

day of non-payment or reduced rate 

would be the first day of the year that 

follows the net worth change. This is 

consistent with longstanding VA 

implementation of reduction and 

discontinuance effective dates. See 38 

CFR 3.500. Proposed paragraph (h)(2) 

would clarify that if net worth decreases 

to or below the limit before the effective 

date, VA will not reduce or discontinue 

the pension award on the basis of 

excessive net worth. Proposed 

§ 3.274(h)(2) would provide that VA 

must receive the beneficiary’s certified 

statement that net worth has decreased 

and must receive it before VA has 

reduced or discontinued the pension 

award. (If VA does, in fact, reduce or 

discontinue the pension award, then 

proposed paragraph (g)(2) would apply 

and the claimant would be able to 

submit evidence of continuing 

entitlement for VA to retroactively 

resume the award.) 

Proposed § 3.274(i) prescribes 

additional effective dates that pertain to 

changes in a dependent child’s net 

worth. As discussed above in the 

information pertaining to § 3.274(d), a 

child would not be considered a 

veteran’s or surviving spouse’s 

dependent child if the child’s net worth 

exceeds the net worth limit. In addition, 

we discussed how a veteran’s or 

surviving spouse’s pension entitlement 

may increase or decrease when a child 

is established as a dependent based on 

the amount of annual income the child 

may have. Proposed § 3.274(i)(1) would 

refer readers to paragraphs (g) and (h) 

for the intuitive situation in which 

establishing a dependent child (because 

the child’s net worth has decreased) 

results in an increased pension 

entitlement rate for the veteran or 

surviving spouse. 

Proposed § 3.274(i)(2) would address 

the situation in which establishing a 

dependent child results in a decreased 

pension entitlement rate for the veteran 

or surviving spouse. Paragraph (i)(2)(i) 

would establish an end-of-year effective 

date for a decreased pension entitlement 

rate when an increase in a dependent 

child’s net worth results in removing 

the child from the award when the 

child’s net worth is excessive. This endof-year effective date is the same 

regardless of whether establishing or not 

establishing the dependent child due to 

a net worth change results in a 

decreased pension entitlement rate for 

the veteran or surviving spouse. Under 

38 U.S.C. 5112(b), the ‘‘effective date of 

a reduction or discontinuance of . . . 

pension . . . by reason of change in [net 

worth] shall be the last day of the 

calendar year in which the change 

occurred.’’ Emphasis added. 

Proposed paragraph (i)(2)(ii) would 

establish the effective date for an 

increased entitlement rate based on 

removing the child as a dependent as 

the date VA receives a claim for an 

increased pension rate based on the 

dependent child’s net worth increase. 

This is consistent with 38 CFR 3.660(c), 

effective March 24, 2015. See 79 FR 

57697, September 25, 2014. 

The explanatory derivation table 

below regarding net worth effective 

dates is provided as an aid for those 

reading this NPRM. 

TABLE 1—NET WORTH (NW) EFFECTIVE-DATE PROVISIONS DERIVATIONS

Proposed § 3.274 Derived from Situation Effective date Change from current rule 

3.274(g) ............................. 3.660(d) ............................. NW has decreased after 

VA denial, reduction, or 

discontinuance.

Entitlement from date of 

NW increase if information received timely.

No date change. 

Addition of certified statement requirement. 

3.274(h) ............................. 3.660(a)(2) ........................ NW has increased and reduction or discontinuance necessary.End-of-the-year that NW 

increases.

No date change. 

Addition of certified statement requirement when 

NW decreases before 

the effective date. 

3.274(i)(1) .......................... New Cross-Reference.

3.274(i)(2)(1) ...................... 3.660(d) ............................. Dependent child’s NW has 

decreased and adding 

the child results in a rate 

decrease for the veteran 

or surviving spouse.

End-of-the-year that NW 

decreases.

No date change. 


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3846 Federal Register / Vol. 80, No. 15 / Friday, January 23, 2015 / Proposed Rules 

TABLE 1—NET WORTH (NW) EFFECTIVE-DATE PROVISIONS DERIVATIONS—Continued 

Proposed § 3.274 Derived from Situation Effective date Change from current rule 

3.274(i)(2)(2) ...................... 3.660(c) ............................. Dependent child’s NW has 

increased and removing 

the child results in a rate 

increase for the veteran 

or surviving spouse.

Date of receipt of claim for 

increased rate based on 

child’s NW increase.

No date change. 

Claim required for increased rate. 

We would remove from § 3.660(d), 

which pertains to net worth effective 

dates, the reference to § 3.274, but the 

reference to § 3.263 would remain 

intact. With the exception of removing 

or redesignating certain paragraphs as 

explained below in the discussion 

regarding conforming amendments, we 

propose no changes to § 3.263, which 

applies to net worth decisions for 

section 306 pension and to parental 

dependency for veterans disability 

compensation purposes under 38 U.S.C. 

1115. 

Finally, we would update the 

authority citation at the end of § 3.274 

to include the effective-date statutes, 38 

U.S.C. 5110 and 5112, along with the 

net worth statutes, 38 U.S.C. 1522 and 

1543. 

Section 3.275—How VA Determines the 

Asset Amount for Pension Net Worth 

Determinations 

Although sections 1522 and 1541 

require VA to deny or discontinue 

pension or increased pension when a 

veteran’s, surviving spouse’s, or child’s 

net worth is excessive, nothing in these 

statutes prescribes how VA should 

calculate net worth. VA implemented 

the statutory net worth provisions in 

current 38 CFR 3.275 by establishing net 

worth evaluation criteria. We propose to 

amend § 3.275 consistent with proposed 

§ 3.274. 

As noted in the above discussion of 

proposed § 3.274, we propose to 

establish the maximum CSRA as the net 

worth limit for pension entitlement. Net 

worth over that limit would not meet 

the reasonableness standard prescribed 

by Congress in sections 1522 and 1543. 

VA would determine the amount of the 

asset component of a claimant’s net 

worth using objective criteria and 

compare the net worth to a published 

limit in order to determine whether a 

claimant’s net worth permits an award 

or increased award of pension. This 

objective standard would promote fair 

and consistent decision-making and 

would allow VA to process claims more 

efficiently for individuals who 

immediately need supplemental 

income. Accordingly, the criteria in 

current § 3.275(d) for subjectively 

evaluating net worth would not be 

applicable under the proposed rule. 

Proposed § 3.275 would define the term 

‘‘assets’’ instead of ‘‘net worth’’ or 

‘‘corpus of estate.’’ As we described 

above in the information pertaining to 

§ 3.274(b), net worth would consist of 

both an asset component and an annual 

income component to account for the 

statutory provision that VA must 

consider annual income in its net worth 

determinations. Because we are 

proposing a bright line net worth limit, 

net worth would be the sum of assets 

and income, and the term ‘‘assets’’ 

would be used in many locations where 

‘‘net worth’’ is currently used because 

net worth does not currently have an 

income component per se. Proposed 

§ 3.275 would also provide exclusions 

from assets as described in greater detail 

below. We would not include the net 

worth evaluation criteria from current 

paragraph (d) because net worth would 

no longer be evaluated using those 

criteria; rather, there would be a bright 

line net worth limit. 

Under current § 3.275(e), VA excludes 

from the net worth (i.e., assets) of a 

child reasonable amounts for actual or 

prospective educational or vocational 

expenses until the child attains age 23. 

There is no statutory requirement for 

this exclusion and we believe that the 

monetary amount of the net worth limit 

we proposed in § 3.275(a) is sufficient to 

account for vocational or educational 

expenses until age 23. Public high 

school education in the United States is 

free. The United States Department of 

Education College Affordability and 

Transparency Center reports average net 

prices of college attendance for 2011– 

2012. Average net price is for full-time 

beginning undergraduate students who 

received grant or scholarship aid from 

federal, state or local governments, or 

the institution. The following college 

prices are reported per semester for 4- 

year colleges: Public (e.g., State): 

$11,582; Private not-for-profit: $20,247; 

and Private for profit: $21,742. 

Therefore, we believe that the maximum 

CSRA of $117,240 (2014) is also an 

appropriate limit for children, and 

proposed § 3.275 does not include the 

language of § 3.275(e). 

Proposed § 3.275(a)(1) would define 

‘‘assets’’ and restate most of current 

§ 3.275(a), (b), and (c), although we 

would use the term ‘‘assets.’’ Proposed 

paragraph (a)(1) would also use the term 

‘‘fair market value’’ rather than the term 

‘‘market value’’ that current paragraph 

(a)(1) uses. We would include a crossreference to proposed § 3.276(a)(4), 

which would define ‘‘fair market 

value.’’ In proposed paragraph (a)(2), we 

propose to define ‘‘claimant’’ in order to 

simplify §§ 3.275 and 3.276. Proposed 

paragraph (a)(2)(i) would provide that, 

with one exception, ‘‘claimant’’ would 

mean a pension beneficiary, a 

dependent spouse, or a dependent or 

potential dependent child as described 

in proposed § 3.274(d), as well as a 

veteran, surviving spouse, or surviving 

child pension applicant for the purposes 

of §§ 3.275 and 3.276. The exception, at 

proposed (a)(2)(ii), would define 

claimant as ‘‘a pension beneficiary or 

applicant who is a veteran, a surviving 

spouse, or a surviving child.’’ This 

definition would apply to paragraph 

(b)(1), which would regulate the manner 

in which VA treats the exclusion of a 

residence. This exception is necessary 

to make clear that VA does not exclude 

more than one residence per family 

unit. These definitions would simplify 

§§ 3.275 and 3.276 because the 

proposed net worth and asset transfer 

provisions would apply to each of these 

individuals and one term would 

describe all affected individuals. 

Proposed paragraph (a)(3) would 

define ‘‘residential lot area’’ to state and 

clarify VA’s policy with respect to lot 

size. Current § 3.275(b) provides that VA 

does not include a claimant’s 

‘‘dwelling . . . including a reasonable 

lot area’’ in determining the amount of 

the claimant’s net worth. Proposed 

§ 3.275(a)(3) would define ‘‘residential 

lot area’’ as the lot on which a residence 

sits that is similar in size to other 

residential lots in the vicinity of the 

residence, but not to exceed 2 acres 

(87,120 square feet), unless the 

additional acreage is not marketable. 

The additional property might not be 

marketable if, for example, the property 

is only slightly more than 2 acres, the 

additional property is not accessible, or 

there are zoning limitations that prevent 

selling the additional property. 


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The United States Census Bureau 

reports that in 2010, the average lot size 

for new single-family homes sold was 

17,590 square feet. In metropolitan 

areas, it was 16,585 square feet and 

outside metropolitan areas, it was 

27,363 square feet. We propose to 

establish a 2-acre residential lot area 

limit to avoid disadvantaging veterans 

and survivors who may have purchased 

a residence with an above-average lot 

size long before they developed a need 

for the support provided by the pension 

program. This limit would support our 

policy choice, under which we exclude 

a claimant’s primary residence from 

assets, while at the same time placing a 

reasonable limit on excluded property 

for purposes of preserving the pension 

program for Veterans and survivors who 

have an actual need. 

Proposed paragraph (b) would 

prescribe exclusions from assets. In 

proposed paragraph (b)(1), we would 

incorporate other matters of 

longstanding VA policy with respect to 

a claimant’s residence, as explained and 

justified below. Under current 

§ 3.275(b), VA excludes a claimant’s 

‘‘dwelling’’ from net worth. We propose 

to refer to a claimant’s ‘‘primary 

residence’’ rather than to a ‘‘dwelling’’ 

to clarify that VA excludes only the 

value of the single residence, along with 

the residential lot area, where the 

claimant has established a permanent 

place of residence, not the value of other 

properties where the claimant may 

occasionally reside. The proposed rule 

clarifies that a claimant can have only 

one primary residence at any given 

time. The term ‘‘primary residence’’ is 

well understood because a primary 

residence is considered a legal residence 

for the purposes of income tax and 

acquiring a mortgage. We also propose 

to state that, if the residence is sold, VA 

would not include the proceeds from 

the property sale as an asset to the 

extent the claimant uses the proceeds to 

purchase another residence within the 

same calendar year. This provision 

would be consistent with the effectivedate rule in 38 U.S.C. 5112(b)(4)(B), 

which provides that a reduction or 

discontinuance of pension based upon a 

change in net worth is effective the last 

day of the calendar year in which the 

change occurred. However, to the extent 

the sale price exceeds the purchase 

price of the latter residence, the excess 

amount would be included as an asset. 

Consistent with proposed 

§ 3.275(a)(1), proposed § 3.275(b)(1)(i) 

would state that VA will not subtract 

from a claimant’s assets the amount of 

any mortgages or encumbrances on a 

claimant’s primary residence. Because 

VA would not include a claimant’s 

primary residence as an asset and 

mortgages and encumbrances would be 

property-specific, VA would not 

subtract mortgages or encumbrances on 

the primary residence from other assets. 

Current § 3.275(b) does not address 

whether VA excludes a claimant’s 

residence if the claimant is receiving 

care in a nursing home or other 

residential facility or receiving care in 

the home of a family member. The 

legislative history of Public Law 95–588, 

which created the current pension 

program, indicates that Congress was 

aware that VA does not include a 

beneficiary’s residence as part of net 

worth and did not intend to change that 

policy. See 123 Cong. Rec. S19754, 

(daily ed. Dec. 15, 1977) (statement of 

Sen. Cranston). However, the legislative 

history does not address the point at 

which VA should discontinue the 

primary residence exclusion. 

Accordingly, at proposed paragraph 

(b)(1)(ii), we propose to state that VA 

would exclude a claimant’s primary 

residence as an asset regardless of 

whether the claimant is residing in a 

nursing home, medical foster home, or 

an assisted living or similar residential 

facility that provides custodial care, or 

resides with a family member for 

custodial care. The terms ‘‘nursing 

home,’’ ‘‘medical foster home,’’ 

‘‘assisted living, adult day care, or 

similar facility,’’ and ‘‘custodial care’’ 

would be defined in proposed § 3.278(b) 

with a cross reference in proposed 

§ 3.275(b)(1)(ii) to that regulation. 

Because there is generally a possibility 

that an individual may return to his or 

her primary residence, and VA supports 

such a return, we propose to prescribe 

clearly that a claimant’s primary 

residence is not an asset for VA pension 

purposes. Consistent with our current 

policy, we would also specify that any 

rental income from the primary 

residence would be countable annual 

income under § 3.271(d) for pension 

entitlement purposes (and thus would 

be part of net worth under proposed 

§ 3.274). This is consistent with the 

general rule in 38 U.S.C. 1503(a) that 

‘‘all payments of any kind or from any 

source . . . shall be included’’ in 

determining annual income except as 

specifically excluded. 

Proposed paragraphs (b)(3) through 

(b)(6) would list four types of payments 

that are excluded from assets for VA’s 

net worth calculations for pension. 

These four exclusions apply to current 

pension but do not apply to prior 

pension programs. Proposed paragraph 

(b)(3) would list payments under section 

6 of the Radiation Exposure 

Compensation Act of 1990 and is taken 

from current § 3.275(h). Proposed 

paragraph (b)(4) would list payments 

made under section 103(c) of the Ricky 

Ray Hemophilia Relief Fund Act of 

1998, which are excluded under 42 

U.S.C. 300c–22(note). Proposed 

paragraph (b)(5) would list payments 

made under the Energy Employees 

Occupational Illness Compensation 

Program, which are excluded under 42 

U.S.C. 7385e(2). Proposed paragraph 

(b)(6) would list payments made to 

certain eligible Aleuts under 50 U.S.C. 

App. 1989c–5. These payments are 

excluded under 50 U.S.C. App. 1989c– 

5(d)(2). 

Below in this NPRM, we propose a 

new § 3.279 that would list payments 

that are statutorily excluded in 

determining entitlement to all needsbased benefits that VA administers. The 

payments listed in paragraphs (f), (g), (i), 

and (j), of current § 3.275 would be 

listed in proposed § 3.279; therefore, 

they would not be included in proposed 

§ 3.275(b). Proposed § 3.275(b)(7) crossreferences proposed § 3.279 and 

excludes from net worth other 

applicable payments listed there. The 

payments described in current § 3.275(e) 

are already accounted for in setting the 

net worth limit (see discussion of the 

CSRA above). As explained and justified 

later in this NPRM, the exclusion 

described in paragraph (k) of current 

§ 3.275 would not be included in these 

regulations. 

Waived Income Provision Relocation 

and Revision 

We propose to move the provision of 

current 38 CFR 3.276(a), which pertains 

to waived income, to a new paragraph 

(i) in 38 CFR 3.271. We believe that 

§ 3.271 would be a more appropriate 

location for a provision that applies to 

income counting than would § 3.276. 

Proposed § 3.276 pertains to asset 

transfers and penalty periods with 

respect to net worth calculations. 

Section 1503(a) of title 38, United States 

Code, requires VA to consider as income 

‘‘all payments of any kind or from any 

source (including salary, retirement or 

annuity payments, or similar income, 

which has been waived . . .).’’ This 

provision of section 1503(a) became 

effective July 1, 1960, when Public Law 

86–211 established what we now term 

‘‘section 306’’ pension. The previous 

pension program, which we now term 

‘‘old-law’’ pension, was an ‘‘all-ornothing’’ benefit in which a small 

increase in income could result in the 

total loss of VA pension. Therefore, 

beneficiaries often wished to waive 

receipt of other income so as not to lose 

pension entitlement, and VA regulations 

pertaining to old-law pension permit 

this. See 38 CFR 3.262(h). However, 


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Public Law 86–211 required VA to 

count waived income for pension 

purposes, thus preventing beneficiaries 

from ‘‘creat[ing] their own need so as to 

qualify for the benefit.’’ See S. Rep. No. 

86–666, at 4 (1959), as reprinted in 1959 

U.S.C.C.A.N. 2190, 2193. This provision 

was carried forward to the current 

pension program in section 1503(a), and 

VA implemented it in current 38 CFR 

3.276(a), which we now propose to 

move to proposed 38 CFR 3.271(i). 

Proposed § 3.271(i) essentially restates 

current § 3.276(a) in that it also provides 

that VA would count waived income. 

We would also add a reference to 

proposed § 3.279, which would list 

statutory exclusions from income. 

Additionally, longstanding VA policy 

provides a qualified exception to the 

general rule regarding waiver, such that 

if an individual withdraws a Social 

Security claim after a finding of 

entitlement to Social Security benefits, 

so as to maintain eligibility for an 

unreduced Social Security benefit on 

attainment of a certain age, this 

withdrawal is not considered to be a 

waiver. In this situation, the 

individual’s withdrawal of the claim is 

more accurately and fairly characterized 

under section 1503(a) as a deferral of 

income rather than a waiver. 

Accordingly, we propose to clearly state 

this policy in proposed § 3.271(i). 

Section 3.276—Asset Transfers and 

Penalty Periods 

Sections 1522 and 1543 of 38 U.S.C. 

require VA to deny or discontinue 

pension when a claimant’s or 

beneficiary’s net worth, including 

consideration of annual income, is 

excessive. As stated in the above 

introductory information on net worth 

determinations and asset transfers, 

current § 3.276(b), which pertains to 

asset transfers, is not effective in 

proscribing transfers of significant assets 

for the purpose of creating pension 

entitlement, which is inconsistent with 

a needs-based benefit program. We 

therefore propose significant changes to 

VA’s asset transfer regulation consistent 

with our interpretation of Congress’ 

intent. Significantly, we propose to 

establish a 36-month look-back period 

for claimants who transfer assets in 

order to reduce net worth and create 

pension entitlement. We also propose to 

establish penalty periods related to such 

transfers. 

Proposed § 3.276(a) would define 

‘‘covered asset,’’ ‘‘covered asset 

amount,’’ ‘‘fair market value,’’ ‘‘transfer 

for less than fair market value,’’ 

‘‘annuity,’’ ‘‘trust,’’ ‘‘uncompensated 

value,’’ ‘‘look-back period’’ and 

‘‘penalty period.’’ These definitions 

would make this necessarily complex 

regulation easier to understand. We 

would also provide a cross-reference to 

the definition of ‘‘claimant’’ in proposed 

§ 3.275, which, as previously discussed, 

would mean claimants, beneficiaries, 

and dependent spouses, as well as 

dependent or potentially dependent 

children. We use the same terminology 

in this NPRM when describing proposed 

changes to § 3.276. 

We would define ‘‘covered asset’’ to 

mean an asset that was part of net 

worth, was transferred for less than fair 

market value, and would have caused or 

partially caused net worth to exceed the 

limit had the claimant not transferred 

the asset. The ‘‘covered asset amount’’ 

would be the monetary amount by 

which net worth would have exceeded 

the limit on account of a covered asset 

if the uncompensated value of the 

covered asset had been included in the 

net worth calculation. We would 

include two examples of covered asset 

amounts. These definitions are 

important because the covered asset 

amount is the amount that VA proposes 

to use to calculate the penalty period as 

described below. A smaller covered 

asset amount results in a shorter penalty 

period. We propose to define ‘‘covered 

asset amount’’ in this manner because, 

in our view, it would be inequitable to 

calculate a penalty period using the 

entire transferred amount when net 

worth would have exceeded the limit by 

only a small amount if the claimant had 

not transferred any assets at all. 

In proposed § 3.276(a)(4), we propose 

to define ‘‘fair market value’’ as the 

price at which an asset would change 

hands between a willing buyer and 

willing seller who are under no 

compulsion to buy or sell and who have 

reasonable knowledge of relevant facts. 

VA uses the best available information 

to determine fair market value, such as 

inspections, appraisals, public records, 

and the market value of similar property 

if applicable. Using the best available 

information to determine a fair value is 

a restatement of current and 

longstanding policy. 

We then propose to define ‘‘transfer 

for less than fair market value’’ as 

selling, conveying, gifting, or 

exchanging an asset for an amount less 

than the fair market value of the asset. 

In addition, we would include as a 

transfer for less than fair market value 

any asset transfer to or purchase of any 

financial instrument or investment that 

reduces net worth and would not be in 

the claimant’s financial interest were it 

not for the claimant’s attempt to qualify 

for VA pension by transferring assets to 

or purchasing such instruments or 

investments. Two examples of such 

instruments or investments are 

annuities and trusts. We would define 

‘‘annuity’’ to mean ‘‘a financial 

instrument that provides income over a 

defined period of time for an initial 

payment of principal.’’ This definition 

is derived from the GAO report. We 

would define ‘‘trust’’ to mean a legal 

arrangement by which an individual 

(the grantor) transfers property to an 

individual or an entity (the trustee), 

who manages the property according to 

the terms of the trust, whether for the 

grantor’s own benefit or for the benefit 

of another individual. As previously 

stated, the GAO report identified 

numerous organizations that assist 

claimants with transferring assets to 

create pension entitlement. Therefore, 

we are including these asset transfers in 

the proposed definition of ‘‘transfer for 

less than fair market value.’’ We note 

that similar terms are used in 42 U.S.C. 

1382b(c), which pertains to Social 

Security Administration’s SSI program. 

There are certain similarities between 

SSI and VA’s pension program in that 

both are based on need. In light of VA’s 

broad authority to implement 

appropriate net worth regulations and in 

the absence of specific statutory 

guidance, we have drawn some of the 

proposed language in this NPRM from 

42 U.S.C. 1382b, which pertains to 

resources (i.e., net worth) for SSI. 

The ‘‘uncompensated value’’ of an 

asset would be defined as the difference 

between its fair market value and the 

amount of compensation an individual 

receives for the asset. (In this context, 

the word ‘‘compensation’’ has its more 

general meaning rather than the 

technical meaning given in 38 U.S.C. 

101(13).) In the case of an asset transfer 

to, or purchase of, a financial 

instrument or investment such as a trust 

or an annuity, the uncompensated value 

would mean the amount of money or 

the monetary value of other assets so 

transferred. 

Proposed § 3.276(a)(7) would define 

‘‘look-back period’’ to mean the 36- 

month period before the date on which 

VA receives either an original pension 

claim or a new pension claim after a 

period of non-entitlement. As 

previously stated, VA proposes to 

establish a 3-year look-back period 

similar to that employed by the Social 

Security Administration in 

administering its SSI program. Although 

Medicaid uses a 5-year look-back period 

for most transfers of assets, as a policy 

matter, VA believes that a 3-year lookback period is sufficient to preserve the 

integrity of its pension program. 

‘‘Penalty period’’ would be defined as 

a period of non-entitlement due to 

transfer of a covered asset. 


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Proposed § 3.276(b) would establish 

VA’s policy with regard to pension 

entitlement and covered assets and 

would put claimants on notice that VA 

may require evidence to determine 

whether a prohibited asset transfer has 

occurred. This is consistent with current 

§ 3.277(a), which provides that VA 

always has the right to request proof of 

entitlement to pension. We would 

reference § 3.277(a) in § 3.276(b). See 

also 38 U.S.C. 1506(1). 

Proposed § 3.276(c) would establish a 

presumption, rebuttable by clear and 

convincing evidence, that transferring 

an asset during the look-back period 

was for the purpose of reducing net 

worth to establish entitlement to 

pension. As a result, the asset would be 

considered a covered asset. The 

presumption could be rebutted if the 

claimant establishes that he or she 

transferred an asset as the result of 

fraud, misrepresentation, or unfair 

business practice related to the sale or 

marketing of financial products or 

services for purposes of establishing 

entitlement to VA pension. We propose 

that evidence substantiating the 

application of this exception may 

include a complaint contemporaneously 

filed with state, local, or Federal 

authorities reporting the incident. In 

such a case, VA would not consider the 

transferred asset to be a covered asset 

and would thus not calculate any 

penalty period, although this would 

mean that net worth would be excessive 

and the provisions of § 3.274 regarding 

reducing net worth would apply. 

Proposed § 3.276(d) would set forth 

an exception that applies to assets 

transferred to a trust for the benefit of 

a veteran’s child whom VA rates or has 

rated as being permanently incapable of 

self-support under the provision of 38 

CFR 3.356. VA would not consider 

assets transferred to a trust established 

on behalf of such a child to be covered 

assets as long as there is no 

circumstance under which distributions 

from the trust can be used to benefit the 

veteran, veteran’s spouse, or surviving 

spouse. 

VA considered providing for an 

exception consistent with the ‘‘undue 

hardship’’ determination prescribed in 

the aforementioned SSI statute, 42 

U.S.C. 1382b(c)(1)(C)(iv). However, the 

statutory resource limit in the SSI 

program is $3,000 for an individual with 

a spouse and $2,000 for an individual 

with no spouse. See 42 U.S.C. 

1382(a)(3). Because these limits are 

significantly lower than the net worth 

limit that VA proposes to use, we do not 

believe that a hardship provision is 

warranted. 

In proposed § 3.276(e), VA would 

establish a penalty period for covered 

assets transferred during the look-back 

period and the criteria for calculating 

such a penalty period. In providing the 

calculations for the length of the penalty 

period, we have again drawn on 42 

U.S.C. 1382b(c), pertaining to SSI. 

Subsection (c)(1)(A)(iv) of 42 U.S.C. 

1382b establishes a formula for 

calculating penalty periods for purposes 

of SSI. VA’s formula would be similar. 

VA’s formula would determine a 

penalty period in months by dividing 

the covered asset amount by the 

applicable maximum annual pension 

rate under 38 U.S.C. 1521(d), 1541(d), or 

1542 as of the date of the pension claim, 

rounded down to the nearest whole 

number. For veterans and surviving 

spouses, we would use the maximum 

annual pension rate at the aid and 

attendance level. (Surviving children 

are not entitled to aid and attendance.) 

We note that the higher the divisor, the 

shorter the penalty period. Although not 

all veterans and surviving spouses to 

whom the regulation would apply 

would qualify for pension at the aid and 

attendance level, we believe that most 

claimants who transfer covered assets 

would qualify at this level. Further, and 

again following the example of the SSI 

statute, we note that the divisor for 

calculating penalty periods for SSI is the 

maximum monthly SSI benefit payable. 

We would use the applicable maximum 

annual pension rate in effect as of the 

date of the pension claim and the rule 

would include the VA Web site at 

which the rates may be found. 

We propose to set a maximum penalty 

period of 10 years. We considered 

setting the maximum penalty period at 

36 months, which would be consistent 

with the SSI statute; however, after 

further consideration, we determined 

that it would be inequitable for an 

individual who transfers, for example, 

$1,000,000 to have a penalty period of 

the same length as an individual who 

transfers $25,000. 

Under proposed § 3.276(e)(2), the 

penalty period would begin on the date 

that would have been the payment date 

of an original or new pension award if 

the claimant had not transferred a 

covered asset and the claimant’s net 

worth had been within the limit. Under 

proposed § 3.276(e)(3), the claimant, if 

otherwise qualified, would then be 

entitled to pension benefits effective the 

last day of the last month of the penalty 

period, with a payment date as of the 

first day of the following month in 

accordance with 38 CFR 3.31. 

We would provide an example of 

penalty period calculations at proposed 

§ 3.276(e)(4). 

Proposed § 3.276(e)(5) states that, 

with two exceptions, VA would not 

recalculate a penalty period under this 

section. VA would recalculate the 

penalty period if the original calculation 

is shown to be erroneous or if all of the 

covered assets were returned to the 

claimant before the date of claim or 

within 30 days after the date of claim. 

If, not later than 90 days after VA’s 

decision notice pertaining to the penalty 

period, VA receives evidence showing 

that all covered assets have been 

returned to the claimant, VA would not 

assess a penalty period. Although VA 

would not assess a penalty period in 

such a situation, the claimant’s net 

worth would be excessive, but would be 

available for the claimant to use for his 

or her needs consistent with 

Congressional intent. Once correctly 

calculated, the penalty period would be 

fixed, and return of covered assets after 

the 30-day period provided would not 

shorten the penalty period. Numerous 

penalty period recalculations would 

detract from the primary mission of 

paying pension benefits to those in 

need. Claimants always have the right to 

appeal any VA decision. See 38 CFR 

20.201. 

Section 3.277—Eligibility Reporting 

Requirements 

VA has discretionary authority, under 

38 U.S.C. 1506, to require pension 

beneficiaries to complete annual 

Eligibility Verification Reports (EVR) to 

verify the amount of their income, net 

worth, and the status of their 

dependents. VA has implemented this 

authority at 38 CFR 3.277(c)(2), which 

currently provides that VA ‘‘shall’’ 

require an EVR in particular situations. 

We now propose to remove the word 

‘‘shall’’ and replace it with the word 

‘‘may,’’ which reflects the statute and 

gives VA discretionary authority to 

require EVRs. 

Section 3.278—Deductible Medical 

Expenses 

Section 1503(a)(8) authorizes VA, in 

determining annual income in the 

current pension program, to exclude 

from annual income amounts paid by a 

veteran, veteran’s spouse, or surviving 

spouse, or by or on behalf of a veteran’s 

child, for unreimbursed medical 

expenses to the extent they exceed 5 

percent of the applicable maximum 

annual pension rate. In the parents’ DIC 

program, section 1315(f)(3) authorizes 

VA to exclude from a claimant’s annual 

income ‘‘unusual medical expenses.’’ 

See 38 CFR 3.262(l) (defining unusual 

medical expenses and implementing the 

exclusion for parents’ DIC and section 

306 pension). 


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There is currently no regulation that 

adequately defines ‘‘medical expense’’ 

for VA purposes. Current 38 CFR 

3.262(l) and 3.272(g) are clear that a 

deductible medical expense must be 

unreimbursed and must be made on 

behalf of certain individuals, e.g., the 

veteran, veteran’s spouse, veteran’s 

surviving spouse, or other qualifying 

relatives. Except for the provision in 38 

CFR 3.362(l) that unreimbursed health, 

accident, sickness, and hospitalization 

insurance premiums are included in 

medical expenses for purposes of 

section 306 pension and parents’ DIC, 

VA regulations do not define what 

constitutes an unreimbursed medical 

expense for VA’s needs-based benefit 

programs. In particular, no regulation 

reflects current VA policy pertaining to 

deductions available for institutional 

forms of care and in-home attendants. 

We therefore propose to add new 

§ 3.278 to improve clarity and 

consistency in determining what 

constitutes a medical expense that is 

deductible from a claimant’s or 

beneficiary’s income. We would use the 

term ‘‘deductible’’ because even though 

the statutes and the implementing 

regulations cited above speak in terms 

of medical expense ‘‘exclusions,’’ VA 

treats deductions and exclusions 

differently. A deduction is an amount 

subtracted from income, whereas an 

exclusion is an amount not counted in 

the first instance. For our purposes, this 

technical difference is not important. 

Proposed § 3.278 would implement 

sections 1315(f)(3) and 1503(a)(8) by 

describing and defining the medical 

expenses that VA may deduct for 

purposes of three of VA’s needs-based 

benefit programs. In proposed paragraph 

(a), we would define the scope of 

proposed § 3.278. Proposed paragraph 

(b) defines various terms. Proposed 

§ 3.278(b)(1) would define ‘‘health care 

provider.’’ We propose to require that an 

individual be licensed by a state or 

country to provide health care in the 

state or country in which the individual 

provides the health care. We intend that 

individual states be responsible for such 

licensing. However, we recognize that 

some claimants, beneficiaries, and 

family members do not reside in any 

state and, therefore, we would require 

that the provider be licensed by a state 

‘‘or country.’’ We also propose to list 

examples of licensed health care 

providers. In paragraph (b)(1)(ii), we 

would include within the definition of 

‘‘health care provider’’ a nursing 

assistant or home health aide who is 

supervised by a licensed health care 

provider. 

Paragraphs (b)(2) and (b)(3) of 

proposed § 3.278 would define 

‘‘activities of daily living’’ (ADL) and 

‘‘instrumental activities of daily living’’ 

(IADL). These terms are well-known and 

understood in the health care industry 

and are used in other Federal 

regulations, including VA regulations. 

For the purposes of determining 

deductible medical expenses for VA’s 

needs-based benefits, ADLs would mean 

basic self-care activities and would 

consist of ‘‘bathing or showering, 

dressing, eating, toileting, and 

transferring.’’ We would also define 

‘‘transferring’’ to mean an individual’s 

moving himself or herself, such as 

getting in and out of bed. These 

activities are essentially those described 

in current § 3.352, and the inability to 

perform these activities is considered at 

least partly determinative of an 

individual’s need for the regular aid and 

attendance of another individual for VA 

purposes. Proposed § 3.278(b)(3) would 

define IADLs for VA medical expense 

deduction determinations as 

independent living activities, such as 

shopping, food preparation, 

housekeeping, laundering, managing 

finances, handling medications, using 

the telephone, and transportation for 

non-medical purposes. Proposed 

paragraph (e)(4) would provide that VA 

does not consider expenses for 

assistance with IADLs to be medical 

expenses except in certain 

circumstances because such personal 

care expenses are not intrinsically 

medical. Other Government agencies, 

such as the Internal Revenue Service 

and Social Security Administration, also 

do not consider such expenses to be 

medical expenses for their purposes 

except in limited circumstances. One 

item that is often included as an IADL 

is transportation. Our definition of IADL 

would include ‘‘transportation for nonmedical purposes’’ because it is 

longstanding VA policy to consider 

transportation for medical purposes to 

be a deductible medical expense, and 

we would continue that policy. 

Although managing finances is an 

IADL for purposes of this section, we 

propose to clarify that managing 

finances does not include services 

rendered by a VA-appointed fiduciary. 

We also provide, in proposed paragraph 

(e)(5), that a fee paid to a VA-appointed 

fiduciary is not a deductible medical 

expense. Beneficiaries pay fees to VAappointed fiduciaries out of their 

monthly VA benefits. Accordingly, we 

have determined that it would be 

inappropriate to permit a deduction 

from income for financial management 

services, and thus increase the amount 

of pension paid, when VA benefits are 

used to pay for the services. 

Proposed § 3.278(b)(4) would define 

‘‘custodial care’’ as regular assistance 

with two or more ADLs or regular 

supervision because an individual with 

a mental disorder is unsafe if left alone 

due to the mental disorder This 

definition is consistent with current VA 

policy. 

Proposed § 3.278(b)(5) would define 

‘‘qualified relative.’’ Under 38 U.S.C. 

1503(a)(8) and 1315(f)(3), VA may 

deduct medical expenses paid by a 

veteran, a veteran’s dependent spouse, a 

surviving spouse, or a surviving child 

(pension and section 306 pension) or by 

a veteran’s parent (parents’ DIC). The 

implementing regulations, 38 CFR 

3.262(l) and 3.272(g), limit whose 

medical expenses VA may deduct. In 

addition to the claimant’s or 

beneficiary’s medical expenses, the 

medical expenses of dependents and 

certain other family members are 

deductible. We would define ‘‘qualified 

relative’’ as a veteran’s dependent 

spouse, a veteran’s dependent or 

surviving child, and other relatives of 

the claimant who are members or 

constructive members of the claimant’s 

household whose medical expenses are 

deductible under §§ 3.262(l) or 3.272(g). 

A ‘‘constructive member’’ of a 

household is an individual who would 

be a member of the household if the 

individual were not in a nursing home, 

away at school, or a similar situation. 

Defining a ‘‘qualified relative’’ for the 

purposes of the medical expense 

deduction makes the regulation simpler. 

We would not include veterans or 

surviving spouses in the definition 

because veterans and surviving spouses 

are the only pension beneficiaries who 

can be rated or presumed to require the 

aid and attendance of another 

individual or to be housebound under 

38 CFR 3.351. This distinction is 

significant as will be explained below in 

this NPRM. We would also not include 

claimants who are parents for parents’ 

DIC purposes because they too can be 

rated or presumed to require the aid and 

attendance of another individual. 

Proposed § 3.278(b)(6), the definition 

of ‘‘nursing home,’’ would crossreference current § 3.1(z)(1) or (2), 

which defines ‘‘nursing home’’ for all of 

38 CFR part 3, with provision made that 

if the facility is not located in a state, 

then the facility must be licensed in the 

country in which it is located. 

Consistent with current VA health 

care regulations, proposed paragraph 

(b)(7) would define ‘‘medical foster 

home’’ as a privately owned residence, 

recognized and approved by VA, that 

offers a non-institutional alternative to 

nursing home care for veterans who are 

unable to live alone safely due to 


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chronic or terminal illness. See 38 CFR 

17.73. 

Proposed paragraph (b)(8) would 

define ‘‘assisted living, adult day care, 

or similar facility.’’ We would use this 

rather lengthy term to avoid confusion 

that could result from the fact that not 

all facilities that meet our proposed 

definition use the same nomenclature. 

Some governmental institutions could 

also fall under our proposed definition. 

Our proposed definition for such a 

facility is that it must provide 

individuals with custodial care; 

however, the facility may contract with 

a third-party provider to provide such 

care. We would further provide that 

residential facilities must be staffed 

with custodial care providers 24 hours 

per day. To be included in our 

definition, a facility must be licensed if 

such facilities are required to be 

licensed in the state or country in which 

the facility is located. 

Proposed paragraph (c) would 

prescribe VA’s general medical expense 

policy and list examples of expenses 

that VA considers medical expenses for 

its needs-based benefits. In general, 

medical expenses for VA purposes are 

payments for items or services that are 

medically necessary or that improve a 

disabled individual’s ability to function. 

This reflects longstanding VA policy 

with respect to medical expenses. 

Proposed § 3.278(c) would specify 

that the term ‘‘medical expenses’’ 

includes, but is not limited to, payments 

specified in paragraphs (c)(1) through 

(c)(7). Paragraphs (c)(1) through (c)(7) 

list payments made to a health care 

provider; payments for medications, 

medical supplies, medical equipment, 

and medical food, vitamins, and 

supplements; payments for adaptive 

equipment; transportation expenses for 

medical purposes; health insurance 

premiums; smoking cessation products; 

and payments for institutional forms of 

care and in-home care as provided in 

paragraph (d). We propose to include in 

paragraph (c) detailed provisions 

relating to the broad categories of 

medical expenses. These clarifications 

provide further guidance regarding the 

medical expenses that may be deducted 

from income. 

Under current policy, medical 

expenses include payments for care 

provided by a health care provider, but 

not for cosmetic procedures that only 

improve or enhance appearance, 

although these may be deductible if the 

purpose of such procedure is to improve 

a congenital or accidental deformity or 

is related to treatment for a diagnosed 

medical condition. Proposed 

§§ 3.278(c)(1) and (e)(2) would continue 

this policy. 

We propose to prescribe in 

§ 3.278(c)(4) that VA limits the 

deductible expense per mile for travel 

by private vehicle to the current 

Privately Owned Vehicle (POV) mileage 

reimbursement rate specified by the 

United States General Services 

Administration (GSA). The current 

amount can be obtained from 

www.gsa.gov, and we would also post 

the current amount on VA’s Web site at 

a location to be determined. We have 

inserted ‘‘location to be determined’’ in 

the proposed regulation text as a 

placeholder and would provide the Web 

site address in the final rule. We would 

also clarify that the difference between 

transportation expenses calculated 

under this criterion and the amount of 

other VA or non-VA transportation 

reimbursements are deductible medical 

expenses. This policy is similar to 

considering a co-payment to a health 

care provider as a deductible medical 

expense even though insurance pays the 

remainder. We would provide an 

example of this longstanding policy in 

the proposed rule. 

In proposed § 3.278(c)(5), we would 

clarify that medical expenses include 

Medicare Parts B and D premiums as 

well as long-term care insurance 

premiums. 

Proposed § 3.278(d) would prescribe 

VA’s medical expense policy for 

payments for institutional and in-home 

care services. In accordance with 

longstanding VA policy, proposed 

paragraph (d)(1) would provide that 

payments to hospitals, nursing homes, 

medical foster homes, and inpatient 

treatment centers, including the cost of 

meals and lodging charged by such 

facilities, are deductible medical 

expenses. 

In paragraph (d)(2), we propose to 

clarify VA’s policy with respect to inhome attendants. We also propose a 

limit to the hourly in-home care rate 

that VA would deduct. We propose this 

limit to minimize instances of 

fraudulent or excessive in-home care 

charges. We also would require that 

payments, to qualify as medical 

expenses for VA, must be commensurate 

with the number of hours that the 

provider attends to the disabled 

individual. The proposed limit is 

reasonable and derived from a reputable 

industry source. The limit that we 

propose is the average hourly rate for 

home health aides, which is published 

annually by the MetLife Mature Market 

Institute in its ‘‘Market Survey of LongTerm Care Costs’’ (MetLife Survey). We 

considered using for this purpose the 

mean hourly wage for home health aides 

published by the United States 

Department of Labor (DoL) Bureau of 

Labor Statistics. (See http://

www.bls.gov/oes/current/

oes311011.htm.) However, the 2012 Met 

Life Survey shows that the 2012 

national average private-pay hourly rate 

for home health aides to be $21.00 per 

hour, which was unchanged from 2011. 

The lowest average hourly rate was 

$3.00 per hour and the highest was 

$32.00 per hour. The May 2013 DoL 

mean hourly wage for home health wage 

was $10.60 per hour. We have 

determined that using the higher hourly 

rate as a limit better supports our policy 

decision to ensure that wartime veterans 

and their families receive the highest 

level of care possible while 

simultaneously being mindful of the 

interests of taxpayers. We would use the 

most current applicable MetLife report 

and would publish the limit on a VA 

Web site at a location to be determined. 

We have inserted ‘‘location to be 

determined’’ in the proposed regulation 

text as a placeholder and would provide 

the Web site address in the final rule. 

We would next state the general rule 

that an in-home attendant must be a 

health care provider for the expense to 

qualify as a medical expense and that 

only payments for assistance with ADLs 

or health care services are medical 

expenses. However, if a veteran or a 

surviving spouse (or parent for parents’ 

DIC) meets the criteria for regular aid 

and attendance or is housebound, the 

attendant does not need to be a health 

care provider. In addition, VA would 

consider payments for assistance with 

IADLs (as defined by VA) to be medical 

expenses, as long as the attendant’s 

primary responsibility is to provide the 

veteran, surviving spouse, or parent 

with health care services or custodial 

care. In accordance with current VA 

policy, this provision would also apply 

to a qualified relative if a physician or 

physician assistant states in writing 

that, due to physical or mental 

disability, the relative requires the 

health care services or custodial care 

that the in-home attendant provides. 

Similarly, proposed paragraph (d)(3) 

would address facilities that are assisted 

living, adult day care, and similar 

facilities, and would provide the general 

rule that only payments for health care 

services and assistance with ADLs 

provided by a health care provider are 

medical expenses. However, if a veteran 

or surviving spouse (or parent for 

parents’ DIC) meets the criteria for 

regular aid and attendance or is 

housebound, the care does not need to 

be provided by a health care provider. 

In addition, if the primary reason for the 

veteran or surviving spouse to be in the 

facility is to receive health care services 

or custodial care that the facility 


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provides, then VA would deduct all fees 

paid to the facility, including meals and 

lodging. This provision would also 

apply to a qualified relative if a 

physician or physician assistant states 

in writing that, due to the relative’s 

physical or mental disability, the 

relative requires the health care services 

or custodial care that the facility 

provides. 

Proposed paragraph (e) would list 

examples of items and services that are 

not medical expenses for purposes of 

VA needs-based benefits. We would 

clarify that generally, payments for 

items or services that benefit or 

maintain general health, such as 

vacations and dance classes, are not 

medical expenses, nor are fees paid to 

a VA-appointed fiduciary, as explained 

above. Proposed paragraph (e)(2) would 

provide that cosmetic procedures are 

not medical expenses except in the 

instances described in proposed 

paragraph (c)(1). We would also clarify 

that except as specifically provided, 

medical expenses do not include 

assistance with IADLs (i.e., shopping, 

food preparation, housekeeping, 

laundering, managing finances, 

handling medications, using the 

telephone, and transportation for nonmedical purposes), nor do they include 

payments for meals and lodging, except 

in limited situations involving custodial 

care. Here, we would explicitly state 

that this category applies to facilities 

such as independent living facilities 

that do not provide individuals with 

health care services or custodial care. 

VA’s intent in promulgating these 

rules is to ensure that deductions from 

countable income reflect Congress’ 

intent that amounts be deducted for 

‘‘medical expenses’’ only, and not for 

other services such as meals and lodging 

or excessive administrative services not 

directly related to the provision of 

medical care. We would provide cross 

references to §§ 3.262(l) and 3.272(g); 

amend §§ 3.262(l) and 3.272(g) to cross 

reference the new medical expense 

regulation; and make corresponding 

amendments to § 3.261. 

Section 3.279—Statutory Exclusions 

From Income or Assets (Net Worth or 

Corpus of the Estate) 

As stated above in this NPRM in the 

information pertaining to § 3.275, we 

propose a new § 3.279 regarding 

statutory exclusions from income or 

assets, which would list 27 exclusions 

applicable to all VA-administered 

needs-based benefits. We note that we 

propose no change to net worth 

terminology for VA’s older benefit 

programs in this rulemaking; therefore, 

we would continue to use the previous 

terms in addition to the term ‘‘assets,’’ 

which would apply to current-law 

pension. We would use the terms 

‘‘Corpus of estate’’ in the applicable 

heading in paragraphs (b) through (e) 

along with ‘‘assets,’’ in order to ensure 

consistency with current 38 CFR 

3.261(c). We here use the term ‘‘assets’’ 

to describe the changes and additions. 

Many of these exclusions are already 

contained in current VA regulations. We 

have determined that it would be useful 

for regulation users to have all of the 

statutory exclusions listed in one 

regulation. Exclusions that are not 

applicable to every VA-administered 

needs-based benefit would be contained 

only in the regulations pertaining to the 

benefit. This NPRM describes statutory 

exclusions that are either not currently 

contained in 38 CFR part 3 or are only 

partly contained in current part 3. 

Proposed paragraph (a) would 

describe the scope of the section as 

described above. 

Proposed § 3.279(b)(1) would exclude 

from income relocation payments made 

under the Uniform Relocation 

Assistance and Real Property 

Acquisition Policies Act of 1970, as 

amended. 42 U.S.C. 4601. Payments 

made under the Act are excluded from 

income by 42 U.S.C. 4636. 

Proposed § 3.279(b)(4) would exclude 

from income and assets payments made 

to individuals because of their status 

under Public Law 103–286, as victims of 

Nazi persecution. 

Proposed § 3.279(b)(7) would exclude 

from income and assets payments under 

the National Flood Insurance Act of 

1968. See 42 U.S.C. 4031. 

Proposed § 3.279(c)(1) would exclude 

from income and assets funds paid 

under the Indian Tribal Judgment Funds 

Use or Distribution Act, 25 U.S.C. 1401, 

while such funds are held in trust. The 

first $2,000 per year of income received 

by individual Native Americans in 

satisfaction of a judgment of the United 

States Court of Federal Claims is 

excluded from income. The law 

originally pertained to judgments of the 

Indian Claims Commission as well as 

judgments of the United States Court of 

Federal Claims. However, the 

Government discontinued the Indian 

Claims Commission on September 30, 

1978, so we would not refer to the 

Commission in proposed § 3.279(c)(1). 

We also propose to include a 

clarification which complies with a 

precedent opinion of VA’s Office of the 

General Counsel, VAOPGCPREC 1–94, 

59 FR 27307, May 26, 1994, which held 

that the $2,000 exclusion for per-capita 

payments applies to the sum of all 

payments received in an annual 

reporting period. 

Proposed § 3.279(c)(2) would exclude 

from income the first $2,000 per year 

received by individual Indians that is 

derived from an individual Native 

American’s interest in trust or restricted 

lands. It would also exclude from assets 

all interest of individual Native 

Americans in trust or restricted lands. 

See 42 U.S.C. 1408. Current regulations 

only address the income component. 

Proposed § 3.279(c)(3) would address 

exclusions under the Per Capita 

Distributions Act, codified at 25 U.S.C. 

117a–117c. Under section 117b(a), 

distributions of funds are subject to the 

provisions of 25 U.S.C. 1407. The 

exclusions under § 3.279(c)(3) would 

mirror the exclusions under 

§ 3.279(c)(1). 

Proposed § 3.279(c)(4) would exclude 

from income and assets income derived 

from certain submarginal land of the 

United States that is held in trust for 

certain Native American tribes in 

accordance with 25 U.S.C. 459e. 

Proposed § 3.279(c)(5) would exclude 

from income and assets up to $2,000 per 

year of per capita distributions under 

the Old Age Assistance Claims 

Settlement Act, 25 U.S.C. 2301. 

Proposed § 3.279(c)(6) would exclude 

from income and assets any income or 

asset received under the Alaska Native 

Claims Settlement Act, 43 U.S.C. 1626. 

Current §§ 3.262(x) and 3.272(t) exclude 

the following payments from income 

consideration: cash (including cash 

dividends on stock received from a 

Native American Corporation) to the 

extent that it does not, in the aggregate, 

exceed $2,000 per individual per year; 

stock (including stock issued or 

distributed by a Native American 

Corporation as a dividend or 

distribution on stock); a partnership 

interest; land or an interest in land 

(including land or an interest in land 

received from a Native American 

Corporation as a dividend or 

distribution on stock); and an interest in 

a settlement trust. The Alaska Native 

Claims Settlement Act, 43 U.S.C. 1626, 

provides that the income or asset 

received from Native Corporation shall 

not ‘‘be considered or taken into 

account as an asset or resource’’ for any 

Federal program. 43 U.S.C. 1626(c). 

Therefore, to extend the exclusion to 

assets, proposed § 3.279(c)(6) would 

exclude from assets the income and 

assets described above. We would also 

extend the exclusion to certain bonds 

that are statutorily excluded but are not 

specifically mentioned in current 

§ 3.262(x) or 3.272(t). 

Proposed § 3.279(c)(7) would exclude 

from income and assets payments 

received under the Maine Indian Claims 

Settlement Act of 1980, 25 U.S.C. 1721. 


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Proposed § 3.279(c)(8) would exclude 

payments received by Native Americans 

under the settlement in Cobell v. 

Salazar, Civil Action No. 96–1285 

(TFH) (D.D.C.). Section 101(f)(2) of 

Public Law 111–291, December 8, 2010, 

provides that amounts from this 

settlement received by an individual 

Indian as a lump sum or a periodic 

payment are not to be treated as income 

or resources (i.e., net worth for VA 

purposes) during the 1-year period 

beginning on the date of receipt. 

Accordingly, because VA counts lumpsum payments as income for a 1-year 

period, proposed § 3.279(c)(8) would 

exclude such payments from income 

and would exclude them from assets for 

1 year. 

Proposed § 3.279(d)(1) would exclude 

from income allowances, earnings, and 

payments to individuals participating in 

programs under the Workforce 

Investment Act of 1998, 29 U.S.C. 2931, 

which provides that allowances, 

earnings, and payments to individuals 

participating in programs under the Act 

shall not be considered as income for 

the purposes of determining eligibility 

for, and the amount of, income transfer 

and in-kind aid furnished under any 

Federal or Federally-assisted needsbased program. There would be no net 

worth exclusion. 

Proposed § 3.279(d)(2) would exclude 

from income allowances, earnings, and 

payments to AmeriCorps participants 

pursuant to 42 U.S.C. 12637. There 

would be no asset exclusion. 

Current §§ 3.262(q) and 3.272(k) list 

payments from various Federal 

volunteer programs that are excluded 

from income. Through a series of 

legislative changes, these programs are 

now administered by the Corporation 

for National and Community Service. 

See Public Law 103–82. Section 5044(f) 

of title 42, United States Code, provides 

that payments made under the act 

which created the Corporation for 

National and Community Service, with 

certain exceptions, do not reduce the 

level of or eliminate eligibility for 

assistance that volunteers may be 

receiving under other government 

programs. We propose to account for 

this change in the law by providing, in 

proposed § 3.279(d)(3), that payments 

received from any of the volunteer 

programs administered by the 

Corporation for National and 

Community Service would be excluded 

from income and assets unless the 

payments are equal to or greater than 

the minimum wage. We propose to 

provide that the minimum wage for this 

purpose is that under the Fair Labor 

Standards Act of 1938, 29 U.S.C. 201, or 

that under the law of the state where the 

volunteers are serving, whichever is 

greater. 

Proposed § 3.279(e)(1) would exclude 

from income and assets the value of the 

allotment provided to an eligible 

household under the Food Stamp 

Program. Proposed § 3.279(e)(2) would 

exclude from income and assets the 

value of free or reduced-price food 

under the Child Nutrition Act of 1966, 

42 U.S.C. 1771. 

Proposed § 3.279(e)(3) would exclude 

from income the value of any child care 

provided or arranged (or any amount 

received as payment for such care or 

reimbursement for costs incurred for 

such care) under the Child Care and 

Development Block Grant Act of 1990, 

42 U.S.C. 9858. 

Proposed § 3.279(e)(4) would exclude 

from income the value of services, but 

not wages, provided to a resident of an 

eligible housing project under a 

congregate services program under the 

Cranston-Gonzalez National Affordable 

Housing Act. 42 U.S.C. 8011. 

Proposed § 3.279(e)(5) would exclude 

from income and assets the amount of 

any home energy assistance payments or 

allowances provided directly to, or 

indirectly for the benefit of, an eligible 

household under the Low-Income Home 

Energy Assistance Act of 1981, 42 

U.S.C. 8621. 

Proposed § 3.279(e)(6) would exclude 

from income payments, other than 

wages or salaries, received from 

programs funded under the Older 

Americans Act of 1965, 42 U.S.C. 3001. 

In accordance with 42 U.S.C. 3020a(b), 

such payments may not be treated as 

income for the purpose of any other 

program or provision of Federal or state 

law. 

Proposed § 3.279(e)(7) would exclude 

from income and assets the amount of 

student financial assistance received 

under Title IV of the Higher Education 

Act of 1965, including Federal workstudy programs, Bureau of Indian 

Affairs student assistance programs, or 

vocational training under the Carl D. 

Perkins Vocational and Technical 

Education Act of 1998, as amended, 20 

U.S.C. chapter 44. 

Proposed § 3.279(e)(8) would exclude 

from income annuities received under 

subchapter 1 of the Retired 

Serviceman’s Family Protection Plan. 10 

U.S.C. 1441. We note that this exclusion 

is currently listed at § 3.261(a)(14) for 

prior law pension, but is not listed as an 

income exclusion from current pension 

at § 3.262. Inasmuch as 10 U.S.C. 1441 

was amended after January 1, 1979, we 

believe this statutory exclusion meets 

the requirement for inclusion in § 3.279, 

i.e., it applies to all needs-based benefits 

that VA administers. 

As an aid to those who read this 

supplementary information, we are 

providing the following derivation table 

for proposed § 3.279. It lists only new 

income exclusions (i.e., income 

exclusions not currently found in 38 

CFR part 3) and exclusions derived from 

current § 3.272. It does not list 

exclusions derived from §§ 3.261 or 

3.262. If an exclusion is derived from 

§§ 3.261 or 3.262 but not listed in 

current § 3.272, the derivation table 

below lists the proposed § 3.279 

exclusion as ‘‘new.’’ 

TABLE 2—PROPOSED § 3.279 

DERIVATION

Proposed § 3.279 

Derived from 

current 

§ 3.272 

(or ‘‘New’’) 

3.279(b)(1) ............................. New. 

3.279(b)(2) ............................. 3.272(v). 

3.279(b)(3) ............................. 3.272(p). 

3.279(b)(4) ............................. New. 

3.279(b)(5) ............................. 3.272(o). 

3.279(b)(6) ............................. 3.272(u). 

3.279(b)(7) ............................. New. 

3.279(c)(1) .............................. New. 

3.279(c)(2) .............................. 3.272(r). 

3.279(c)(3) through (c)(5) ...... New. 

3.279(c)(6) .............................. 3.272(t). 

3.279(c)(7) through (d)(2) ...... New. 

3.279(d)(3) ............................. 3.272(k). 

3.279(e)(1) through (e)(8) ...... New. 

3.279(e)(9) ............................. 3.272(w). 

Conforming Amendments, Corrections, 

and Other Exclusions 

Because the statutory exclusions 

pertaining to all VA-administered 

needs-based benefits would be listed in 

proposed § 3.279, for purposes of notice, 

we propose not to include such 

statutory exclusions in other 

regulations. We previously listed 

paragraphs we would not include in 

proposed § 3.275, which pertains to net 

worth for current pension. Section 3.263 

pertains to net worth for section 306 

pension and dependency of parents for 

VA service-connected compensation 

purposes. (Net worth is not a factor for 

parents’ DIC or old-law pension.) We 

would remove paragraphs (e), (f), (g), 

and (h) from § 3.263 because these 

paragraphs list net worth exclusions 

that would be listed at new § 3.279, in 

paragraphs (b)(5), (b)(3), (b)(6), (b)(2), 

and (e)(9), respectively. 

We would amend § 3.270, which 

describes the applicability of certain 

regulations that pertain to needs-based 

benefits, to remove from paragraph (a) 

‘‘Sections 3.250 to 3.270.’’ and add in its 

place ‘‘Sections 3.250 to 3.270 and 

sections 3.278 and 3.279.’’ Currently, 

§§ 3.250 to 3.270 apply only to (1) the 


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prior pension programs, (2) parents’ 

DIC, and (3) parental dependency. 

Current §§ 3.271 to 3.277 apply only to 

current pension. Because proposed new 

§ 3.278 would apply to all VAadministered needs-based benefits for 

which medical expenses may be 

deducted and proposed new § 3.279 

would apply to all VA-administered 

needs-based benefits, it is necessary to 

amend § 3.270 to include the proposed 

new regulations. 

For reasons described below in the 

information pertaining to conforming 

amendments and additions to § 3.272, 

we would remove paragraph (i) from 

§ 3.263. 

Conforming Amendments and 

Corrections to Sections 3.261 and 3.262 

Sections 3.261 and 3.262 set forth 

income exclusions for section 306 

pension, old-law pension, parental 

dependency for compensation under 

§ 3.250, and parents’ DIC. We would 

remove paragraphs (s), (u), (v), (x), (y), 

and (z) from current § 3.262 because 

these paragraphs list income exclusions 

that would be listed at new § 3.279, in 

paragraphs (b)(5), (b)(3), (c)(2), (c)(6), 

(b)(6), (b)(2), and (e)(9), respectively. We 

would redesignate paragraphs (t) and 

(w) of current § 3.262 as proposed 

paragraphs (s) and (t) of proposed 

§ 3.262. We also propose a correction to 

current § 3.262(w), which we propose to 

redesignate as § 3.262(t). Current 

§ 3.262(w) provides that income 

received under Section 6 of the 

Radiation Exposure Compensation Act, 

Public Law 101–426, is excluded for 

purposes of parents’ DIC under the 

authority of 42 U.S.C. 2210 note. This is 

accurate; however, the exclusion also 

applies to parental dependency for 

compensation purposes. The note at 42 

U.S.C. 2210 provides that ‘‘amounts 

paid to an individual under [Section 6 

of the Radiation Exposure 

Compensation Act] . . . shall not be 

included as income or resources for 

purposes of determining eligibility to 

receive benefits described in section 

3803(c)(2)(C) of title 31, United States 

Code or the amount of such benefits.’’ 

42 U.S.C. 2210 note. The list of benefits 

at section 3803(c)(2)(C) does not include 

section 306 pension or old-law pension 

but does include parental dependency 

for compensation purposes in addition 

to parents’ DIC. Accordingly, the 

exclusion at proposed § 3.262(t) would 

apply to parental dependency for 

compensation purposes as well as to 

parents’ DIC. 

Additionally, we would add to 

proposed § 3.262 a new paragraph (u), 

which would refer to other payments 

excluded from income in proposed 

§ 3.279. 

We would remove current entries (35) 

through (37) and (39) through (41) from 

current § 3.261(a). We propose a 

correction to current entry (38) of 

§ 3.261(a), which we would redesignate 

as entry (35). This entry currently 

references § 3.262(w), which would be 

redesignated as § 3.262(t) as described 

above. Further, current entry (38) of 

§ 3.261(a) is erroneous because it shows 

that income received under Section 6 of 

the Radiation Exposure Compensation 

Act is excluded for purposes of old-law 

pension and section 306 pension when 

this is not the case as explained above. 

Proposed entry (35) would provide the 

correct information. 

Additionally, we would add to 

proposed § 3.261(a) a new entry (36), 

which would refer to other payments 

excluded from income in proposed new 

§ 3.279. 

For reasons described below in the 

information pertaining to conforming 

amendments and additions to § 3.272, 

we would remove paragraph (a)(41) 

from § 3.261 and paragraph (aa) from 

§ 3.262; and paragraph (i) from § 3.263. 

Conforming Amendments and 

Additions to Section 3.272 

Section § 3.272 sets forth income 

exclusions for current pension. We 

propose to add to current § 3.272(g) a 

reference to proposed § 3.278 that 

would define medical expenses. We also 

propose to remove from current § 3.272, 

regarding exclusions from income, 

paragraphs (k), (o), (p), (r), (t), (u), (v), 

and (w), because these paragraphs 

contain statutory income exclusions that 

would be listed in proposed § 3.279. We 

also propose to redesignate current 

paragraphs (q), (s), and (x) as (o), (p), 

and (q), respectively. We would add 

new paragraphs (k), (r), and (s). We 

would also amend the authority citation 

in paragraph (q), as proposed to be 

redesignated, due to a law change. 

Section 604 of Public Law 111–275 

amended 38 U.S.C. 1503 to add a new 

paragraph (a)(11), which we describe 

below, and redesignated former 

paragraph (a)(11) as (a)(12). 

We propose to remove paragraph (w) 

because it describes a statutory income 

and asset exclusion of payments 

received under the Medicare 

transitional assistance program and any 

savings associated with the Medicare 

prescription drug discount card. This 

program was discontinued on December 

31, 2005. See 42 U.S.C. 1395w– 

141(a)(ii)(C). The program was replaced 

with the Medicare coverage gap 

discount program under the authority of 

42 U.S.C. 1395w–114a. The statutory 

authority for the new program does not 

include language pertaining to 

eligibility to other Federal benefits; 

therefore, we propose to remove this 

exclusion. 

We also propose to add a new income 

exclusion at § 3.272(k) that would 

clarify VA’s policy pertaining to income 

from certain annuities. We would 

provide that VA would exclude 

payments from an annuity and count, 

on an annual basis, only the interest 

component of the payments if a 

claimant or beneficiary, or someone 

acting on his or her behalf, transfers an 

asset to the annuity principal and either 

(1) VA has already considered the fair 

market value of the transferred asset as 

an asset, or (2) the funds used to 

purchase the annuity were proceeds 

from the sale of the claimant’s or 

beneficiary’s primary residence that was 

previously excluded as an asset from 

VA’s net worth calculation and such 

funds are not sufficient to cause net 

worth to exceed the limit under 

proposed § 3.274(a). 

Generally, VA counts income from 

Individual Retirement Accounts and 

similar investments, even though such 

income represents a partial return on 

principal. In addition, a claimant or 

beneficiary may transfer assets from one 

form to another form, e.g., selling real 

estate at fair market value and placing 

the proceeds into a savings account or 

certificate of deposit. Such a transfer of 

assets has no impact on net worth for 

VA pension as long as VA has included 

the fair market value as an asset and net 

worth remains within the net worth 

limit. However, sometimes a claimant or 

beneficiary, or someone acting on his or 

her behalf, will sell an asset or his or her 

residence and purchase an annuity with 

the proceeds. We emphasize that these 

are situations in which the proceeds 

would not cause net worth to bar 

pension entitlement. If a claimant sells 

his or her primary residence that was 

previously excluded as an asset and 

uses the proceeds to purchase an 

annuity, VA views such a transfer in a 

similar manner as if the claimant had 

placed the proceeds from the sale in a 

bank account. If the proceeds were 

placed in a bank account, then the bank 

account itself would be an asset. 

However, incremental withdrawals from 

the bank account would not count as 

income. Accordingly, fairness would 

dictate that the same proceeds, if placed 

into an annuity principal rather than a 

bank account, should not result in 

countable income that reduces pension 

entitlement, although the annuity 

principal itself could adversely affect 

pension entitlement if the value of the 


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annuity principal caused net worth to 

exceed the net worth limit. 

In proposed § 3.272(r), we would 

incorporate a new statutory income 

exclusion. Section 604 of the Veterans’ 

Benefits Act of 2010, Public Law 111– 

275, amended 38 U.S.C. 1503(a) to 

provide a new income exclusion 

beginning in calendar year 2012. The 

statute now excludes from a veteran’s 

countable income ‘‘payment of a 

monetary amount of up to $5,000 to a 

veteran from a state or municipality that 

is paid as a veterans’ benefit due to 

injury or disease.’’ We propose to 

implement this change in law by 

excluding all such payments from the 

claimant’s or beneficiary’s income, not 

to exceed a total of $5,000 in a 12-month 

annualization period (an annualization 

period is generally a calendar year). In 

proposed § 3.272(s), we would add a 

reference to other payments excluded 

from income listed in § 3.279. 

As an aid to those who read this 

supplementary information, we are 

providing the following proposed 

distribution and derivation tables for 

current and proposed § 3.272. 

TABLE 3—CURRENT § 3.272 

DISTRIBUTION

Current § 3.272 

Distributed to 

or no change 

in location 

3.272(a) through (j) ................ No change. 

3.272(k) .................................. 3.279(d)(3). 

3.272(l) through (n) ................ No change. 

3.272(o) .................................. 3.279(b)(5). 

3.272(p) .................................. 3.279(b)(3). 

3.272(q) .................................. 3.272(o). 

3.272(r) ................................... 3.279(c)(2). 

3.272(s) .................................. 3.272(p). 

3.272(t) ................................... 3.279(c)(6). 

3.272(u) .................................. 3.279(b)(6). 

3.272(v) .................................. 3.279(b)(2). 

3.272(w) ................................. Removed. 

3.272(x) .................................. 3.272(q). 

TABLE 4—PROPOSED § 3.272 

DERIVATION

Proposed § 3.272 

Derived from, 

no change, or 

‘‘new’’ 

3.272(a) through (f) ................ No change. 

3.272(g), last sentence .......... New. 

3.272(h) through (j) ................ No change. 

3.272(k) .................................. New. 

3.272(l) through (n) ................ No change. 

3.272(o) .................................. 3.272(q). 

3.272(p) .................................. 3.272(s). 

3.272(q) .................................. 3.272(x). 

3.272(r) ................................... New. 

3.272(s) .................................. New. 

Statutory Change to Medicaid Nursing 

Home Provision 

We propose to amend current 38 CFR 

3.551(i) to reference the authorizing 

statute, 38 U.S.C. 5503(d)(7) rather than 

to specify the statutory sunset date. 

Section 203 of Public Law 112–260, 

enacted January 10, 2013, amended 38 

U.S.C. 5503(d)(7) to extend to November 

30, 2016, the sunset date for reductions 

of pension to $90 for certain 

beneficiaries receiving Medicaidapproved care in a nursing home. 

Previously, the Veterans Benefits Act of 

2010, Public Law 111–275, had 

extended this sunset date to May 31, 

2015, and Public Law 112–56 had 

extended it to September 30, 2016. To 

avoid multiple future regulatory 

changes, proposed paragraph (i) would 

provide the sunset date as the date given 

in 38 U.S.C. 5503(d)(7). 

We would also add ‘‘surviving child’’ 

where appropriate to state that the 

Medicare reduction pertains to a 

surviving child claiming or receiving 

pension in his or her own right. This 

change would make the rule consistent 

with the statutory amendments made by 

section 606 of the Veterans Benefits Act 

of 2010. We would make clarifying 

changes to the title and content of 

current § 3.551(i) to reflect the above 

noted changes. Finally, we would 

amend 38 CFR 3.503 to add paragraph 

(c), which would be an effective-date 

provision pertaining to Medicaidcovered nursing home care for surviving 

children. Proposed paragraph (c) would 

mirror §§ 3.501(i)(6) and 3.502(f), which 

apply to veterans and surviving spouses, 

respectively. We would amend the 

authority citation to include 38 U.S.C. 

5503(d). 

Paperwork Reduction Act 

This proposed rule includes a 

collection of information under the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3501–3521) that requires 

approval by the Office of Management 

and Budget (OMB). Accordingly, under 

44 U.S.C. 3507(d), VA has submitted an 

information collection request to OMB 

for review. OMB assigns a control 

number for each collection of 

information it approves. VA may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a 

currently valid OMB control number. 

Proposed 38 CFR 3.276 and 3.278 

contain a collection of information 

under the Paperwork Reduction Act of 

1995. If OMB does not approve the 

collection of information as requested, 

VA will immediately remove the 

provisions containing a collection of 

information or take such other action as 

is directed by OMB. 

Comments on the collections of 

information contained in this proposed 

rule should be submitted to the Office 

of Management and Budget, Attention: 

Desk Officer for the Department of 

Veterans Affairs, Office of Information 

and Regulatory Affairs, Washington, DC 

20503, with copies sent by mail or hand 

delivery to the Director, Office of 

Regulation Policy and Management 

(02REG), Department of Veterans 

Affairs, 810 Vermont Ave. NW., Room 

1068, Washington, DC 20420; fax to 

(202) 273–9026 (this is not a toll-free 

number); or email comments through 

www.Regulations.gov. Comments 

should indicate that they are submitted 

in response to ‘‘RIN 2900–AO73.’’ 

VA considers comments by the public 

on proposed collections of information 

in— 

• Evaluating whether the proposed 

collections of information are necessary 

for the proper performance of the 

functions of VA, including whether the 

information will have practical utility; 

• Evaluating the accuracy of VA’s 

estimate of the burden of the proposed 

collections of information, including the 

validity of the methodology and 

assumptions used; 

• Enhancing the quality, usefulness, 

and clarity of the information to be 

collected; and 

• Minimizing the burden of the 

collections of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology, 

e.g., permitting electronic submission of 

responses. 

The collections of information 

contained in 38 CFR 3.276 and 3.278 are 

described immediately following this 

paragraph, under their respective titles. 

Title: Asset Transfers and Penalty 

Periods. 

Summary of collection of information: 

Under proposed 38 CFR 3.276, 

claimants would be required to report to 

VA whether they have transferred assets 

within the 3 years prior to claiming 

pension or anytime thereafter and if so, 

information about those assets. This 

would also require amendments to the 

following existing application forms: 

• VA Form 21–526, Veterans 

Application for Compensation and/or 

Pension, OMB Control Number 2900– 

0001. 

• VA Form 21P–527, Income, Net 

Worth, and Employment Statement, 

OMB Control Number 2900–0002. 

• VA Forms 21P–534, Application for 

Dependency and Indemnity 


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Compensation, Death Pension and 

Accrued Benefits by a Surviving Spouse 

or Child (Including Death Compensation 

if Applicable), and 21P–534EZ, 

Application for DIC, Death Pension, 

and/or Accrued Benefits, OMB Control 

Number 2900–0004. 

• VA Forms 21P–527EZ, Application 

for Pension, OMB Control No. 2900– 

0002. 

Description of the need for 

information and proposed use of 

information: The information is needed 

to ensure that only qualified claimants 

receive VA needs-based benefits. 

Description of likely respondents: 

Claimants for VA pension or survivor 

benefits. 

Estimated frequency of responses: 

Once per claim. 

Estimated number of respondents per 

year and respondent burden: 

VA form No. OMB control 

No. 

Estimated 

number of 

pension and 

survivor 

benefit 

respondents 

per year 

Estimated respondent burden 

Estimated total 

annual reporting and recordkeeping 

burden 

(hours) 

21–526 ............................................................ 2900–0001 25,000 1 hour ............................................................. 25,000 

21P–527 .......................................................... 2900–0002 25,000 1 hour ............................................................. 25,000 

21P–534 .......................................................... 2900–0004 25,000 1 hour, 15 minutes ......................................... 31,250 

21P–534EZ ..................................................... 2900–0004 75,000 50 minutes ...................................................... 62,500 

21–527EZ ....................................................... 2900–0002 75,000 50 minutes ...................................................... 62,500 

Title: Deductible Medical Expenses. 

Summary of collection of information: 

Under proposed 38 CFR 3.278, 

claimants would be required to submit 

information pertaining to their medical 

expenses. Certain claimants would also 

be required to submit evidence that they 

need custodial care or assistance with 

activities of daily living. This would 

also require amendments to the 

following existing forms: 

• The application forms described 

above in the information pertaining to 

asset transfers and penalty periods. 

• VA Form 21P–8416, OMB Control 

Number 2900–0161. 

Description of the need for 

information and proposed use of 

information: The information is needed 

to ensure that only qualified claimants 

receive VA needs-based benefits. 

Description of likely respondents: 

Claimants for VA pension benefits. 

Estimated number of respondents per 

year: 60,000 pension claimants. 

Estimated frequency of responses: 

Annual. 

Estimated respondent burden: 30,000 

hours (30 minutes per form × 60,000 

respondents annually). 

Regulatory Flexibility Act 

The Secretary certifies that this 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities as 

they are defined in the Regulatory 

Flexibility Act, 5 U.S.C. 601–612. This 

proposed rule would directly affect only 

individuals and would not directly 

affect small entities. Therefore, pursuant 

to 5 U.S.C. 605(b), this rulemaking is 

exempt from the initial and final 

regulatory flexibility analysis 

requirements of sections 603 and 604. 

Executive Orders 12866 and 13563 

Executive Orders 12866 and 13563 

direct agencies to assess the costs and 

benefits of available regulatory 

alternatives and, when regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, and other advantages; 

distributive impacts; and equity). 

Executive Order 13563 (Improving 

Regulation and Regulatory Review) 

emphasizes the importance of 

quantifying both costs and benefits, 

reducing costs, harmonizing rules, and 

promoting flexibility. Executive Order 

12866 (Regulatory Planning and 

Review) defines a ‘‘significant 

regulatory action’’ requiring review by 

the OMB, unless OMB waives such 

review, as ‘‘any regulatory action that is 

likely to result in a rule that may: (1) 

Have an annual effect on the economy 

of $100 million or more or adversely 

affect in a material way the economy, a 

sector of the economy, productivity, 

competition, jobs, the environment, 

public health or safety, or State, local, 

or tribal governments or communities; 

(2) Create a serious inconsistency or 

otherwise interfere with an action taken 

or planned by another agency; (3) 

Materially alter the budgetary impact of 

entitlements, grants, user fees, or loan 

programs or the rights and obligations of 

recipients thereof; or (4) Raise novel 

legal or policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order.’’ 

The economic, interagency, 

budgetary, legal, and policy 

implications of this regulatory action 

have been examined, and it has been 

determined to be a significant regulatory 

action under Executive Order 12866 

because it will have an annual effect on 

the economy of $100 million or more, 

and it is likely to result in a rule that 

may raise novel legal or policy issues 

arising out of legal mandates, the 

President’s priorities, or the principles 

set forth in this Executive Order. VA’s 

impact analysis can be found as a 

supporting document at http://

www.regulations.gov, usually within 48 

hours after the rulemaking document is 

published. Additionally, a copy of the 

rulemaking and its impact analysis are 

available on VA’s Web site at http://

www1.va.gov/orpm/, by following the 

link for ‘‘VA Regulations Published.’’ 

Unfunded Mandates 

The Unfunded Mandates Reform Act 

of 1995 requires, at 2 U.S.C. 1532, that 

agencies prepare an assessment of 

anticipated costs and benefits before 

issuing any rule that may result in the 

expenditure by State, local, and tribal 

governments, in the aggregate, or by the 

private sector, of $100 million or more 

(adjusted annually for inflation) in any 

one year. This proposed rule would 

have no such effect on State, local, and 

tribal governments, or on the private 

sector. 

Catalog of Federal Domestic Assistance 

The Catalog of Federal Domestic 

Assistance numbers and titles for the 

programs affected by this proposed rule 

are 64.104, Pension for Non-ServiceConnected Disability for Veterans, and 

64.105, Pension to Veterans Surviving 

Spouses, and Children. 

Signing Authority 

The Secretary of Veterans Affairs, or 

designee, approved this document and 

authorized the undersigned to sign and 


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submit the document to the Office of the 

Federal Register for publication 

electronically as an official document of 

the Department of Veterans Affairs. 

Robert A. McDonald, Secretary, 

Department of Veterans Affairs, 

approved this document on August 6, 

2014, for publication. 

List of Subjects in 38 CFR Part 3 

Administrative practice and 

procedure, Claims, Disability benefits, 

Pensions, Veterans. 

Dated: January 7, 2015. 

William F. Russo, 

Acting Director, Office of Regulation Policy 

& Management, Office of the General Counsel, 

U.S. Department of Veterans Affairs. 

For reasons set out in the preamble, 

VA proposes to amend 38 CFR part 3 as 

follows: 

PART 3—ADJUDICATION 

Subpart A—Pension, Compensation, 

and Dependency and Indemnity 

Compensation 

■ 1. The authority citation for part 3, 

subpart A continues to read as follows: 

Authority: 38 U.S.C. 501(a), unless 

otherwise noted. 

■ 2. Amend the table in § 3.261(a) as 

follows: 

■ a. Remove entries (35) through (37) 

and (39) through (42). 

■ b. Redesignate entry (38) as entry (35). 

■ c. Revise newly designated entry (35). 

■ d. Add entry (36). 

The revision and addition read as 

follows: 

§ 3.261 Character of income; exclusions 

and estates. 

* * * * * 

(a) Income. 

Income Dependency 

(parents) 

Dependency 

and indemnity 

compensation 

(parents) 

Pension; old-law 

(veterans, surviving spouses and 

children) 

Pension; section 

306 (veterans, surviving spouses and 

children) 

See— 

*******

(35) Income received under Section 6 of the Radiation Exposure Compensation Act (Pub. L. 

101–426).

Excluded .......... Excluded .......... Included ................ Included ................ § 3.262(t). 

(36) Other payments excluded from income listed 

in § 3.279.

Excluded .......... Excluded .......... Excluded ............... Excluded ............... § 3.262(u). 

* * * * * 

■ 3. Amend § 3.262 as follows: 

■ a. Add a sentence to the end of 

paragraph (l) introductory text. 

■ b. Remove paragraphs (s), (u), (v), (x), 

(y), (z), and (aa). 

■ c. Redesignate paragraphs (t) and (w) 

as paragraphs (s) and (t), respectively. 

■ d. Revise newly designated paragraph 

(t). 

■ e. Add a new paragraph (u). 

The additions and revision read as 

follows: 

§ 3.262 Evaluation of income. 

* * * * * 

(l) * * * For the definition of what 

constitutes a medical expense, see 

§ 3.278 Deductible medical expenses. 

* * * * * 

(t) Radiation Exposure Compensation 

Act. For the purposes of parents’ 

dependency and indemnity 

compensation and dependency of 

parents under § 3.250, there shall be 

excluded from income computation 

payments under Section 6 of the 

Radiation Exposure Compensation Act 

of 1990. 

(u) Other payments. Other payments 

excluded from income listed in § 3.279. 

§ 3.263 [Amended] 

■ 4. Amend § 3.263 by removing 

paragraphs (e), (f), (g), (h), and (i). 

§ 3.270 [Amended] 

■ 5. Amend § 3.270 as follows: 

■ a. Revise the heading in paragraph (a) 

by removing ‘‘Sections 3.250 to 3.270’’ 

and adding in its place ‘‘Sections 3.250 

through 3.270 and sections 3.278 

through 3.279’’. 

■ b. Revise the note to paragraph (a) by 

removing ‘‘§§ 3.250 to 3.270’’ and 

adding in its place ‘‘§§ 3.250 through 

3.270 and §§ 3.278 through 3.279’’. 

■ c. Revise the heading in paragraph (b) 

by removing ‘‘Sections 3.271 to 3.300’’ 

and adding in its place ‘‘Sections 3.271 

through 3.300’’. 

■ 6. Amend § 3.271 by adding paragraph 

(i) to read as follows: 

§ 3.271 Computation of income. 

* * * * * 

(i) Waiver of receipt of income. 

Potential income that is not excludable 

under §§ 3.272 or 3.279 but is waived by 

an individual is included as countable 

income of the individual. However, if an 

individual withdraws a claim for Social 

Security benefits, after a finding of 

entitlement to those benefits, in order to 

maintain eligibility for unreduced 

Social Security benefits upon reaching a 

particular age, VA will not regard this 

potential income as having been waived 

and will therefore not count it. 

(Authority: 38 U.S.C. 1503(a)) 

■ 7. Amend § 3.272 as follows: 

■ a. Add a sentence to the end of 

paragraph (g) introductory text. 

■ b. Remove paragraphs (k), (o), (p), (r), 

(t), (u), (v), and (w). 

■ c. Redesignate paragraphs (q), (s), and 

(x) as paragraphs (o), (p), and (q), 

respectively. 

■ d. Add new paragraphs (k), (r), and (s). 

■ e. Revise the authority citation in 

newly designated paragraph (q). 

The additions and revision read as 

follows: 

§ 3.272 Exclusions from income. 

* * * * * 

(g) Medical expenses. * * * For the 

definition of what constitutes a medical 

expense, see § 3.278, Deductible 

medical expenses. 

* * * * * 

(k) Income from certain annuity 

payments. VA will exclude annuity 

payments and count, on an annual 

basis, only the interest components of 

payments if a claimant or beneficiary (or 

someone acting on his or her behalf) 

transfers an asset to an annuity 

principal and either of the following 

statements is true: 

(1) VA has already considered the fair 

market value of the transferred asset as 

the claimant’s or beneficiary’s asset for 

VA purposes. 

(2) The funds used to purchase the 

annuity were proceeds from the sale of 

the claimant’s or beneficiary’s primary 

residence that was previously excluded 

as an asset under § 3.275(b)(1), and such 

funds are not sufficient to cause net 

worth to exceed the net worth limit 

under § 3.274(a). 

* * * * * 


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(q) * * * 

(Authority: 38 U.S.C. 1503(a)(12)) 

(r) Veterans’ benefits from states and 

municipalities. VA will exclude from 

income payments from a state or 

municipality to a veteran of a monetary 

benefit that is paid as a veterans’ benefit 

due to injury or disease. VA will 

exclude up to $5,000 of such benefit in 

any annualization period. 

(Authority: 38 U.S.C. 1503(a)(11)) 

(s) Other payments. Other payments 

excluded from income listed in § 3.279. 

■ 8. Revise § 3.274 to read as follows: 

§ 3.274 Net worth and VA pension. 

(a) Net worth limit. For purposes of 

entitlement to VA pension, the net 

worth limit effective [insert effective 

date of the final rule after publication in 

the Federal Register] is [insert the 

dollar amount of the maximum 

community spouse resource allowance 

for Medicaid purposes on the effective 

date of the final rule]. This limit will be 

increased by the same percentage as the 

Social Security increase whenever there 

is a cost-of-living increase in benefit 

amounts payable under section 215(i) of 

title II of the Social Security Act (42 

U.S.C. 415(i)). VA will publish the 

current limit on its Web site at [location 

to be determined]. 

(b) When a claimant’s or beneficiary’s 

net worth exceeds the limit. Except as 

provided in paragraph (h)(2) of this 

section, VA will deny or discontinue 

pension if a claimant’s or beneficiary’s 

net worth exceeds the net worth limit in 

paragraph (a) of this section. 

(1) Net worth means the sum of a 

claimant’s or beneficiary’s assets and 

annual income. 

(2) Asset calculation. VA will 

calculate a claimant’s or beneficiary’s 

assets under this section and § 3.275. 

(3) Annual income calculation. VA 

will calculate a claimant’s or 

beneficiary’s annual income under 

§ 3.271, and will include the annual 

income of dependents as required by 

law. See §§ 3.23(d)(4), 3.23(d)(5), and 

3.24 for more information on annual 

income included when VA calculates a 

claimant’s or beneficiary’s pension 

entitlement rate. In calculating annual 

income for this purpose, VA will 

subtract all applicable deductible 

expenses, to include appropriate 

prospective medical expenses under 

§ 3.272(g). 

(4) Example of net worth calculation. 

A surviving spouse has claimed 

pension. The applicable maximum 

annual pension rate is $8,485 and the 

net worth limit is $117,240. The 

surviving spouse’s annual income is 

$7,000 and her assets total $116,000. 

Therefore, adding the spouse’s annual 

income to her assets produces net worth 

of $123,000. This amount exceeds the 

net worth limit. 

(c) Assets of other individuals 

included as claimant’s or beneficiary’s 

assets. (1) Claimant or beneficiary is a 

veteran. A veteran’s assets include the 

assets of the veteran as well as the assets 

of his or her spouse, if the veteran has 

a spouse. 

(2) Claimant or beneficiary is a 

surviving spouse. A surviving spouse’s 

assets include only the assets of the 

surviving spouse. 

(3) Claimant or beneficiary is a 

surviving child. (i) If a surviving child 

has no custodian or is in the custody of 

an institution, the child’s assets include 

only the assets of the child. 

(ii) If a surviving child has a 

custodian other than an institution, the 

child’s assets include the assets of the 

child as well as the assets of the 

custodian. If the child is in the joint 

custody of his or her natural or adoptive 

parent and a stepparent, the child’s 

assets also include the assets of the 

stepparent. See § 3.57(d) for more 

information on child custody for 

pension purposes. 

(d) How a child’s net worth affects a 

veteran’s or surviving spouse’s pension 

entitlement. VA will not consider a 

child to be a veteran’s or surviving 

spouse’s dependent child for pension 

purposes if the child’s net worth 

exceeds the net worth limit in paragraph 

(a) of this section. 

(1) Dependent child and potential 

dependent child. For the purposes of 

this section— 

(i) ‘‘Dependent child’’ refers to a child 

for whom a veteran or a surviving 

spouse is entitled to an increased 

maximum annual pension rate. 

(ii) ‘‘Potential dependent child’’ refers 

to a child who is excluded from a 

veteran’s or surviving spouse’s pension 

award solely or partly because of this 

paragraph (d). References in this section 

to ‘‘dependent child’’ include a 

potential dependent child. 

(2) Dependent child net worth. A 

dependent child’s net worth is the sum 

of his or her annual income and the 

value of his or her assets. 

(3) Dependent child asset calculation. 

VA will calculate the value of a 

dependent child’s assets under this 

section and § 3.275. A dependent child’s 

assets include the child’s assets only. 

(4) Dependent child annual income 

calculation. VA will calculate a 

dependent child’s annual income under 

§ 3.271, and will include the annual 

income of the child as well as the 

annual income of the veteran or 

surviving spouse that would be 

included if VA were calculating a 

pension entitlement rate for the veteran 

or surviving spouse. 

(e) When VA calculates net worth. 

Except as provided in paragraph (e)(3) 

of this section, VA calculates net worth 

only when: 

(1) VA has received— 

(i) an original pension claim; 

(ii) a new pension claim after a period 

of non-entitlement; 

(iii) a request to establish a new 

dependent; or 

(iv) information that a veteran’s, 

surviving spouse’s, or child’s net worth 

has increased or decreased; and 

(2) The claimant or beneficiary meets 

the other factors necessary for pension 

entitlement as provided in § 3.3(a)(3) 

and (b)(4). 

(3) When VA may calculate net worth. 

If the evidence shows that net worth 

exceeds the net worth limit, VA may 

decide the pension claim before 

determining if the claimant meets other 

entitlement factors. VA will notify the 

claimant of the entitlement factors that 

have not been established. 

(f) How net worth decreases. Net 

worth may decrease in three ways: 

assets can decrease, annual income can 

decrease, or both assets and annual 

income can decrease. 

(1) How assets decrease. A veteran, 

surviving spouse, or child, or someone 

acting on their behalf, may decrease 

assets by spending them on the types of 

expenses provided in paragraph (f)(1)(i) 

and (ii) of this section. The expenses 

must be those of the veteran, surviving 

spouse, or child, or a relative of the 

veteran, surviving spouse, or child. The 

relative must be a member or 

constructive member of the veteran’s, 

surviving spouse’s, or child’s 

household. 

(i) Basic living expenses such as food, 

clothing, shelter, or health care; or 

(ii) Education or vocational 

rehabilitation. 

(2) How annual income decreases. See 

§§ 3.271 through 3.273. 

(3) How VA treats payment amounts 

that can decrease either annual income 

or assets. When expenses can be 

considered as either deductible 

expenses for purposes of calculating 

annual income under § 3.272 or basic 

living expenses for purposes of 

decreasing assets under paragraph (f)(1) 

of this section, VA will first apply the 

amounts paid to decrease annual 

income, using remaining amounts paid 

to decrease assets if necessary. VA will 

not deduct the same expenses from both 

annual income and assets. 

(4) Example 1. The net worth limit is 

$114,000 and the maximum annual 


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pension rate (MAPR) is $12,000. A 

claimant has assets of $113,000 and 

annual income of $8,000. Adding 

annual income to assets produces a net 

worth of $121,000, which exceeds the 

net worth limit. The claimant pays 

unreimbursed medical expenses of 

$9,000. Unreimbursed medical expenses 

are deductible from annual income 

under § 3.272(g) to the extent that they 

exceed 5 percent of the applicable 

MAPR. They may also be deducted from 

assets under paragraph (h)(1) of this 

section because they are basic living 

expenses. VA applies the expenditures 

to annual income first, which decreases 

annual income to zero. The claimant’s 

net worth is now $113,000; therefore, it 

is not necessary to apply the expenses 

to assets. 

(5) Example 2. The net worth limit is 

$114,000 and the MAPR is $12,000. A 

claimant has assets of $113,000 and 

annual income of $9,500. Adding 

annual income to assets produces a net 

worth of $122,500, which exceeds the 

net worth limit. The claimant pays 

unreimbursed medical expenses of 

$9,000. Unreimbursed medical expenses 

are deductible from annual income 

under § 3.272(g) to the extent that they 

exceed 5 percent of the applicable 

MAPR. In this case, medical expenses 

that exceed $600 are deductible from 

income. Medical expenses may also be 

deducted from assets under paragraph 

(f)(1) of this section. VA applies the 

expenditures to annual income first, 

which decreases annual income to 

$1,100. This decreases net worth to 

$114,100, which is still over the limit. 

VA will then deduct the remaining $600 

in medical expenses from assets, 

bringing net worth to $113,500. 

(g) Effective dates of pension 

entitlement or increased entitlement 

after a denial, reduction, or 

discontinuance based on excessive net 

worth. (1) Scope of paragraph. This 

paragraph (g) applies when VA has: 

(i) Discontinued pension or denied 

pension entitlement for a veteran, 

surviving spouse, or surviving child 

based on the veteran’s, surviving 

spouse’s, or surviving child’s excessive 

net worth; or 

(ii) Reduced pension or denied 

increased pension entitlement for a 

veteran or surviving spouse based on a 

dependent child’s excessive net worth. 

(2) Effective date of entitlement or 

increased entitlement. The effective date 

of entitlement or increased entitlement 

is the day net worth ceases to exceed the 

limit. For this effective date to apply, 

the claimant or beneficiary must submit 

a certified statement that net worth has 

decreased and VA must receive the 

certified statement before the pension 

claim has become finally adjudicated 

under § 3.160. This means that VA must 

receive the certified statement within 1 

year after its decision notice to the 

claimant concerning the denial, 

reduction, or discontinuance unless the 

claimant appeals VA’s decision. 

Otherwise, the effective date is the date 

VA receives a new pension claim. In 

accordance with § 3.277(a), VA may 

require the claimant or beneficiary to 

submit additional evidence as the 

individual circumstances may require. 

(h) Reduction or discontinuance of 

beneficiary’s pension entitlement based 

on excessive net worth. (1) Effective date 

of reduction or discontinuance. When 

an increase in a beneficiary’s or 

dependent child’s net worth results in a 

pension reduction or discontinuance 

because net worth exceeds the limit, the 

effective date of reduction or 

discontinuance is the last day of the 

calendar year in which net worth 

exceeds the limit. 

(2) Net worth decreases before the 

effective date. If net worth decreases to 

the limit or below the limit before the 

effective date provided in paragraph 

(h)(1) of this section, VA will not reduce 

or discontinue the pension award on the 

basis of excessive net worth. 

(i) Additional effective-date 

provisions for dependent children. (1) 

Establishing a dependent child on 

veteran’s or surviving spouse’s pension 

award results in increased pension 

entitlement. When establishing a 

dependent child on a veteran’s or 

surviving spouse’s pension award 

results in increased pension entitlement 

for the veteran or surviving spouse, VA 

will apply the effective-date provisions 

in paragraphs (g) and (h) of this section. 

(2) Establishing a dependent child on 

veteran’s or surviving spouse’s pension 

award results in decreased pension 

entitlement. (i) When a dependent 

child’s non-excessive net worth results 

in decreased pension entitlement for the 

veteran or surviving spouse, the 

effective date of the decreased pension 

entitlement rate (i.e., VA action to add 

the child to the award) is the end of the 

year that the child’s net worth 

decreases. 

(ii) When a dependent child’s 

excessive net worth results in increased 

pension entitlement for the veteran or 

surviving spouse, the effective date of 

the increased pension entitlement rate 

(i.e., VA action to remove the child from 

the award) is the date that VA receives 

a claim for an increased rate based on 

the child’s net worth increase. 

(Authority: 38 U.S.C. 1522, 1543, 5110, 5112) 

■ 9. Revise § 3.275 to read as follows: 

§ 3.275 How VA determines the asset 

amount for pension net worth 

determinations. 

(a) Definitions pertaining to assets. (1) 

The term assets means the fair market 

value of all property that an individual 

owns, including all real and personal 

property, unless excluded under 

paragraph (b) of this section, less the 

amount of mortgages or other 

encumbrances specific to the mortgaged 

or encumbered property. VA will 

consider the terms of the recorded deed 

or other evidence of title to be proof of 

ownership of a particular asset. See also 

§ 3.276(a)(4), which defines ‘‘fair market 

value.’’ 

(2) Claimant. (i) Except as provided in 

paragraph (a)(2)(ii) of this section, for 

the purposes of this section and § 3.276, 

claimant means a pension beneficiary, a 

dependent spouse, or a dependent or 

potential dependent child as described 

in § 3.274(d), as well as a veteran, 

surviving spouse, or surviving child 

pension applicant. 

(ii) For the purpose of paragraph (b)(1) 

of this section, claimant means a 

pension beneficiary or applicant who is 

a veteran, a surviving spouse, or a 

surviving child. 

(3) Residential lot area. For purposes 

of this section, residential lot area 

means the lot on which a residence sits 

that is similar in size to other residential 

lots in the vicinity of the residence, but 

not to exceed 2 acres (87,120 square 

feet), unless the additional acreage is 

not marketable. 

(b) Exclusions from assets. Assets do 

not include the following: 

(1) The value of a claimant’s primary 

residence (single-family unit), including 

the residential lot area, in which the 

claimant has an ownership interest. VA 

recognizes one primary residence per 

claimant. If the residence is sold, any 

proceeds from the sale is an asset except 

to the extent the proceeds are used to 

purchase another residence within the 

same calendar year as the year in which 

the sale occurred. 

(i) Personal mortgage not deductible. 

VA will not subtract from a claimant’s 

assets the amount of any mortgages or 

encumbrances on a claimant’s primary 

residence. 

(ii) Claimant not residing in primary 

residence. Although rental income 

counts as annual income as provided in 

§ 3.271(d), VA will not include a 

claimant’s primary residence as an asset 

even if the claimant resides in any of the 

following as defined in § 3.278(b): 

(A) A nursing home or medical foster 

home; 

(B) An assisted living or similar 

residential facility that provides 

custodial care; or 


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(C) The home of a family member for 

custodial care. 

(2) Value of personal effects suitable 

to and consistent with a reasonable 

mode of life, such as appliances and 

family transportation vehicles. 

(3) Radiation Exposure Compensation 

Act payments. Payments made under 

section 6 of the Radiation Exposure 

Compensation Act of 1990. 

(Authority: 42 U.S.C. 2210 (note)) 

(4) Ricky Ray Hemophilia Relief Fund 

payments. Payments made under 

section 103(c) and excluded under 

section 103(h)(2) of the Ricky Ray 

Hemophilia Relief Fund Act of 1998. 

(Authority: 42 U.S.C. 300c–22 (note)) 

(5) Energy Employees Occupational 

Illness Compensation Program 

payments. Payments made under the 

Energy Employees Occupational Illness 

Compensation Program. 

(Authority: 42 U.S.C. 7385e(2)) 

(6) Payments to Aleuts. Payments 

made to certain Aleuts under 50 U.S.C. 

App. 1989c–5. 

(Authority: 50 U.S.C. App. 1989c–5(d)(2)) 

(7) Other payments. Other payments 

excluded from net worth listed in 

§ 3.279, which lists statutory exclusions 

from income and net worth for all VA 

needs-based benefits. 

(Authority: 38 U.S.C. 1522, 1543) 

■ 10. Revise § 3.276 to read as follows: 

§ 3.276 Asset transfers and penalty 

periods. 

(a) Asset transfer definitions. For 

purposes of this section— 

(1) Claimant has the same meaning as 

defined in § 3.275(a)(2)(i). 

(2) Covered asset means an asset 

that— 

(i) Was part of a claimant’s net worth, 

(ii) Was transferred for less than fair 

market value, and 

(iii) If not transferred, would have 

caused or partially caused the 

claimant’s net worth to exceed the net 

worth limit under § 3.274(a). 

(3) Covered asset amount means the 

monetary amount by which a claimant’s 

net worth would have exceeded the 

limit due to the covered asset alone if 

the uncompensated value of the covered 

asset had been included in net worth. 

(i) Example 1. The net worth limit 

under § 3.274(a) is $115,920. A 

claimant’s assets total $113,000 and his 

annual income is zero. However, the 

claimant transferred $30,000 by giving it 

to a friend. If the claimant had not 

transferred the $30,000, his net worth 

would have been $143,000, which 

exceeds the net worth limit. The 

claimant’s covered asset amount is 

$27,080, because this is the amount by 

which the claimant’s net worth would 

have exceeded the limit due to the 

covered asset. 

(ii) Example 2. The net worth limit 

under § 3.274(a) is $115,920. A 

claimant’s annual income is zero and 

her total assets are $117,000, which 

exceeds the net worth limit. In addition, 

the claimant transferred $30,000 by 

giving $20,000 to her married son and 

giving $10,000 to a friend. The 

claimant’s covered asset amount is 

$30,000 because this is the amount by 

which the claimant’s net worth would 

have exceeded the limit due to the 

covered assets alone. 

(4) Fair market value means the price 

at which an asset would change hands 

between a willing buyer and a willing 

seller, neither being under any 

compulsion to buy or to sell and both 

having reasonable knowledge of 

relevant facts. VA will use the best 

available information to determine fair 

market value, such as inspections, 

appraisals, public records, and the 

market value of similar property if 

applicable. 

(5) Transfer for less than fair market 

value means— 

(i) Selling, conveying, gifting, or 

exchanging an asset for an amount less 

than the fair market value of the asset, 

or 

(ii) An asset transfer to, or purchase 

of, any financial instrument or 

investment that reduces net worth and 

would not be in the claimant’s financial 

interest but for the claimant’s attempt to 

qualify for VA pension by transferring 

the asset to, or purchasing, the 

instrument or investment. Examples of 

such instruments or investments 

include— 

(A) Annuities. Annuity means a 

financial instrument that provides 

income over a defined period of time for 

an initial payment of principal. 

(B) Trusts. Trust means a legal 

arrangement by which an individual 

(the grantor) transfers property to an 

individual or an entity (the trustee), 

who manages the property according to 

the terms of the trust, whether for the 

grantor’s own benefit or for the benefit 

of another individual. 

(6) Uncompensated value means the 

difference between the fair market value 

of an asset and the amount of 

compensation an individual receives for 

it. In the case of a trust, annuity, or 

other financial instrument or investment 

described in paragraph (a)(5)(ii) of this 

section, uncompensated value means 

the amount of money or the monetary 

value of any other type of asset 

transferred to such a trust, annuity, or 

other financial instrument or 

investment. 

(7) Look-back period means the 36- 

month period immediately preceding 

the date on which VA receives either an 

original pension claim or a new pension 

claim after a period of non-entitlement. 

(8) Penalty period means a period of 

non-entitlement, calculated under 

paragraph (e) of this section, due to 

transfer of a covered asset. 

(b) General statement of policy 

pertaining to pension and covered 

assets. VA pension is a needs-based 

benefit and is not intended to preserve 

the estates of individuals who have the 

means to support themselves. 

Accordingly, a claimant may not create 

pension entitlement by transferring 

covered assets. VA will review the terms 

and conditions of asset transfers made 

during the 36-month look-back period to 

determine whether the transfer 

constituted transfer of a covered asset. 

In accordance with § 3.277(b), for any 

asset transfer, VA may require a 

claimant to provide evidence such as a 

Federal income tax return transcript, the 

terms of a gift, trust, or annuity, or the 

terms of a recorded deed or other 

evidence of title. 

(c) Presumption and exception 

pertaining to covered assets. In the 

absence of clear and convincing 

evidence showing otherwise, VA 

presumes that an asset transfer made 

during the look-back period was for the 

purpose of decreasing net worth to 

establish pension entitlement and will 

consider such an asset to be a covered 

asset. However, VA will not consider 

such an asset to be a covered asset if the 

claimant establishes through clear and 

convincing evidence that he or she 

transferred the asset as the result of 

fraud, misrepresentation, or unfair 

business practice related to the sale or 

marketing of financial products or 

services for purposes of establishing 

entitlement to VA pension. Evidence 

substantiating the application of this 

exception may include a complaint 

contemporaneously filed with state, 

local, or Federal authorities reporting 

the incident. 

(d) Exception for transfers to certain 

trusts. VA will not consider as a covered 

asset an asset that a veteran, a veteran’s 

spouse, or a veteran’s surviving spouse 

transfers to a trust established on behalf 

of a child of the veteran if: 

(1) VA rates or has rated the child 

incapable of self-support under § 3.356; 

and 

(2) There is no circumstance under 

which distributions from the trust can 

be used to benefit the veteran, the 

veteran’s spouse, or the veteran’s 

surviving spouse. 


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(e) Penalty periods and calculations. 

When a claimant transfers a covered 

asset during the look-back period, VA 

will assess a penalty period not to 

exceed 10 years. VA will calculate the 

length of the penalty period by dividing 

the total covered asset amount by the 

monthly penalty rate described in 

paragraph (e)(1) of this section and 

rounding the quotient down to the 

nearest whole number. The result is the 

number of months for which VA will 

not pay pension. 

(1) Monthly penalty rate. The monthly 

penalty rate is the applicable maximum 

annual pension rate (MAPR) under 38 

U.S.C. 1521(d), 1542(d), or 1543 

described in this paragraph (e)(1) that is 

in effect as of the date of the pension 

claim, divided by 12, and rounded 

down to the nearest whole dollar. The 

MAPRs are located on VA’s Web site at 

http://www.benefits.va.gov/pension/. 

(i) If the claimant is a veteran or a 

surviving spouse, the annual rate is the 

MAPR at the aid and attendance level 

for a veteran or a surviving spouse with 

the applicable number of dependents. 

(ii) If the claimant is a child, the 

annual rate is the child alone MAPR. 

(2) Beginning date of penalty period. 

When a claimant transfers a covered 

asset or assets during the look-back 

period, the penalty period begins on the 

first day of the month that follows the 

date of the transfer. If there was more 

than one transfer, the penalty period 

will begin on the first day of the month 

that follows the date of the last transfer. 

(3) Entitlement upon ending of 

penalty period. VA will consider that 

the claimant, if otherwise qualified, is 

entitled to benefits effective the last day 

of the last month of the penalty period, 

with a payment date as of the first day 

of the following month in accordance 

with § 3.31. 

(4) Example of penalty period 

calculation: VA receives a pension 

claim in November 2014 The claimant’s 

net worth is equal to the net worth limit. 

However, the claimant transferred 

covered assets totaling $10,000 on 

August 20, 2014, and September 23, 

2014. Therefore, the total covered asset 

amount is $10,000, and the penalty 

period begins on October 1, 2014. The 

claimant is a surviving spouse with no 

dependents, so the applicable MAPR is 

$13,563, and the monthly penalty rate is 

$1,130. The penalty period is $10,000/ 

$1,130 per month = 8 months. The 

eighth month of the penalty period is 

May 2015. The surviving spouse may be 

entitled to pension effective May 31, 

2015, with a payment date of June 1, 

2015, if other entitlement requirements 

are met. 

(5) Penalty period recalculations. VA 

will not recalculate a penalty period 

under this section unless— 

(i) The original calculation is shown 

to be erroneous; or 

(ii) VA receives evidence showing 

that all covered assets were returned to 

the claimant before the date of claim or 

within 30 days after the date of claim. 

If all covered assets were returned to the 

claimant, VA will not assess a penalty 

period. For this exception to apply, VA 

must receive the evidence not later than 

60 days after the date of VA’s notice to 

the claimant of VA’s decision 

concerning the penalty period. Once 

covered assets are returned, a claimant 

may reduce net worth under the 

provisions of § 3.274(f). 

(Authority: 38 U.S.C. 1522, 1543, 1506(1)) 

(The Office of Management and Budget has 

approved the information collection 

requirement in this section under control 

numbers 2900–0001, 2900–0002, 2900–0004, 

and 2900–0002.) 

§ 3.277 [Amended] 

■ 11. Amend § 3.277(c)(2) by removing 

‘‘shall’’ and adding in its place ‘‘may’’. 

■ 12. Add § 3.278 to read as follows: 

§ 3.278 Deductible medical expenses. 

(a) Scope. This section identifies 

medical expenses that VA may deduct 

from countable income for purposes of 

three of its needs-based programs: 

Pension, section 306 pension, and 

parents’ dependency and indemnity 

compensation (DIC). Payments for such 

medical expenses must be 

unreimbursed to be deductible from 

income. 

(b) Definitions. For the purposes of 

this section— 

(1) Health care provider means: 

(i) An individual licensed by a state 

or country to provide health care in the 

state or country in which the individual 

provides the health care. The term 

includes, but is not limited to, a 

physician, physician assistant, 

psychologist, chiropractor, registered 

nurse, licensed vocational nurse, 

licensed practical nurse, and physical or 

occupational therapist; and 

(ii) A nursing assistant or home health 

aide who is supervised by a licensed 

health care provider as defined in 

paragraph (b)(1)(i) of this section. 

(2) Activities of daily living (ADL) 

mean basic self-care activities and 

consist of bathing or showering, 

dressing, eating, toileting, and 

transferring. Transferring means an 

individual’s moving himself or herself 

from one position to another, such as 

getting in and out of bed. 

(3) Instrumental activities of daily 

living (IADL) mean independent living 

activities, such as shopping, food 

preparation, housekeeping, laundering, 

managing finances, handling 

medications, using the telephone, and 

transportation for non-medical 

purposes. Managing finances does not 

include services rendered by a VAappointed fiduciary. 

(4) Custodial care means regular: 

(i) Assistance with two or more ADLs, 

or 

(ii) Supervision because an individual 

with a mental disorder is unsafe if left 

alone due to the mental disorder. 

(5) Qualified relative means a 

veteran’s dependent spouse, a veteran’s 

dependent or surviving child, and other 

relatives of the claimant who are 

members or constructive members of the 

claimant’s household whose medical 

expenses are deductible under 

§§ 3.262(l) or 3.272(g). A ‘‘constructive 

member’’ of a household is an 

individual who would be a member of 

the household if the individual were not 

in a nursing home, away at school, or 

a similar situation. Qualified relatives 

do not include claimants who are 

veterans, surviving spouses, or parents. 

(6) Nursing home means a facility 

defined in § 3.1(z)(1) or (2). If the facility 

is not located in a state, the facility must 

be licensed in the country in which it 

is located. 

(7) Medical foster home means a 

privately owned residence, recognized 

and approved by VA under 38 CFR 

17.73(d), that offers a non-institutional 

alternative to nursing home care for 

veterans who are unable to live alone 

safely due to chronic or terminal illness. 

(8) Assisted living, adult day care, or 

similar facility means a facility that 

provides individuals with custodial 

care. The facility may contract with a 

third-party provider for this purpose. A 

facility that is residential must be 

staffed 24 hours per day with custodial 

care providers. To be included in this 

definition, a facility must be licensed if 

such facilities are required to be 

licensed in the state or country in which 

the facility is located. 

(c) Medical expenses for VA purposes. 

Generally, medical expenses for VA 

needs-based benefit purposes are 

payments for items or services that are 

medically necessary or that improve a 

disabled individual’s functioning. 

Medical expenses may include, but are 

not limited to, the payments specified in 

paragraphs (c)(1) through (7) of this 

section. 

(1) Care by a health care provider. 

Payments to a health care provider for 

services performed within the scope of 

the provider’s professional capacity are 

medical expenses. Cosmetic procedures 

that a health care provider performs to 


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3862 Federal Register / Vol. 80, No. 15 / Friday, January 23, 2015 / Proposed Rules 

improve a congenital or accidental 

deformity or related to treatment for a 

diagnosed medical condition are 

medical expenses. 

(2) Medications, medical supplies, 

medical equipment, and medical food, 

vitamins, and supplements. Payments 

for prescription and non-prescription 

medication procured lawfully under 

Federal law, as well as payments for 

medical supplies or medical equipment 

are medical expenses. Medically 

necessary food, vitamins, and 

supplements as prescribed or directed 

by a health care provider authorized to 

write prescriptions are medical 

expenses. 

(3) Adaptive equipment. Payments for 

adaptive devices or service animals, 

including veterinary care, used to assist 

a person with an ongoing disability are 

medical expenses. Medical expenses do 

not include non-prescription food, 

boarding, grooming, or other routine 

expenses of owning an animal. 

(4) Transportation expenses. 

Payments for transportation for medical 

purposes, such as the cost of 

transportation to and from a health care 

provider’s office by taxi, bus, or other 

form of public transportation are 

medical expenses. The cost of 

transportation for medical purposes by 

privately owned vehicle (POV), 

including mileage, parking, and tolls, is 

a medical expense. For transportation in 

a POV, VA limits the deductible mileage 

rate to the current POV mileage 

reimbursement rate specified by the 

United States General Services 

Administration (GSA). The current 

amount can be obtained from 

www.gsa.gov or on VA’s Web site at 

[location to be determined]. Amounts by 

which transportation expenses set forth 

in this paragraph (c)(4) exceed the 

amounts of other VA or non-VA 

reimbursements for the expense are 

medical expenses. 

(i) Example. In February 2013, a 

veteran drives 60 miles round trip to a 

VA medical center and back. The 

veteran is reimbursed $24.90 from the 

Veterans Health Administration. The 

POV mileage reimbursement rate 

specified by GSA is $0.565 per mile, so 

the transportation expense is $0.565/

mile * 60 miles = $33.90. For VA needsbased benefits purposes, the 

unreimbursed amount, here, the 

difference between $33.90 and $24.90 is 

a medical expense. 

(ii) [Reserved] 

(5) Health insurance premiums. 

Payments for health, medical, 

hospitalization, and long-term care 

insurance premiums are medical 

expenses. Premiums for Medicare Parts 

B and D and for long-term care 

insurance are medical expenses. 

(6) Smoking cessation products. 

Payments for items and services 

specifically related to smoking cessation 

are medical expenses. 

(7) Institutional forms of care and inhome care. As provided in paragraph (d) 

of this section. 

(d) Institutional forms of care and inhome care. (1) Hospitals, nursing 

homes, medical foster homes, and 

inpatient treatment centers. Payments to 

hospitals, nursing homes, medical foster 

homes, and inpatient treatment centers 

(including inpatient treatment centers 

for drug or alcohol addiction), including 

the cost of meals and lodging charged by 

such facilities are medical expenses. 

(2) In-home care. Payments for 

services provided by an in-home 

attendant are medical expenses. 

Payments must be commensurate with 

the number of hours that the provider 

attends to the disabled person, and the 

attendant’s hourly rate may not exceed 

the average hourly rate for home health 

aides published annually by the MetLife 

Mature Market Institute in its Market 

Survey of Long-Term Care Costs. VA 

will publish the in-home care hourly 

rate limit on its Web site at [location to 

be determined]. 

(i) Except as provided in paragraphs 

(d)(2)(ii) and (iii) of this section, the 

attendant must be a health care 

provider, and only payments for 

assistance with ADLs or health care 

services are medical expenses. 

(ii) If a veteran or surviving spouse (or 

parent, for parents’ DIC purposes) meets 

the criteria in § 3.351 for needing 

regular aid and attendance or being 

housebound, then— 

(A) The attendant does not need to be 

a health care provider, and 

(B) Payments for assistance with 

IADLs are medical expenses only if the 

primary responsibility of the attendant 

is to provide health care services or 

custodial care. Otherwise, only 

payments for assistance with health care 

or custodial care are medical expenses. 

(iii) Paragraph (d)(2)(ii) of this section 

also applies to a qualified relative if a 

physician or physician assistant states 

in writing that, due to physical or 

mental disability, the qualified relative 

requires the health care services or 

custodial care that the in-home 

attendant provides. 

(3) Assisted living, adult day care, 

and similar facilities. Certain payments 

to assisted living, adult day care, and 

similar facilities are medical expenses. 

Except as provided in paragraphs 

(d)(3)(i) and (ii) of this section, only 

payments for health care services or 

assistance with ADLs provided by a 

health care provider are medical 

expenses. 

(i) If a veteran or surviving spouse (or 

parent for parents’ DIC purposes) meets 

the criteria in § 3.351 for needing 

regular aid and attendance or being 

housebound, then— 

(A) The care does not need to be 

provided by a health care provider, and 

(B) Medical expenses include all 

payments to the facility, to include 

meals and lodging, if the primary reason 

for the veteran or surviving spouse to be 

in the facility is to receive health care 

services or custodial care that the 

facility provides. Otherwise, only 

payments for assistance with health care 

or custodial care are medical expenses. 

(ii) Paragraph (d)(3)(i) of this section 

also applies to a qualified relative if a 

physician or physician assistant states 

in writing that, due to mental or 

physical disability, the qualified relative 

requires the health care services or 

custodial care that the facility provides. 

(e) Non-medical expenses for VA 

purposes. Payments for items and 

services listed in paragraphs (e)(1) 

through (5) of this section are not 

medical expenses for VA needs-based 

benefit purposes. The list is not allinclusive. 

(1) Maintenance of general health. 

Payments for items or services that 

benefit or maintain general health, such 

as vacations and dance classes, are not 

medical expenses. 

(2) Cosmetic procedures. Except as 

provided in paragraph (c)(1) of this 

section, cosmetic procedures are not 

medical expenses. 

(3) Meals and lodging. Except as 

provided in paragraph (d) of this 

section, payments for meals and lodging 

are not medical expenses. This category 

includes payments to facilities such as 

independent living facilities that do not 

provide health care services or custodial 

care. 

(4) Assistance with IADLs. Except as 

provided in paragraph (d) of this 

section, payments for assistance with 

IADLs are not medical expenses. 

(5) VA fiduciary fees. Fees for VAappointed fiduciary services are not 

medical expenses. 

CROSS REFERENCES: For the rules 

governing how medical expenses are 

deducted, see § 3.272(g) (regarding 

pension) and § 3.262(l) (regarding 

section 306 pension and parents’ DIC). 

(Authority: 38 U.S.C. 501(a), 1315(f)(3), 

1503(a)(8), 1506(1)) 

(The Office of Management and Budget has 

approved the information collection 

requirement in this section under control 

numbers 2900–0001, 2900–0002, 2900–0004, 

2900–0161, and 2900–0002.) 


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■ 13. Add § 3.279 to read as follows: 

§ 3.279 Statutory exclusions from income 

or assets (net worth or corpus of the 

estate). 

(a) Scope of section. This section sets 

forth payments that Federal statutes 

exclude from income for the purpose of 

determining entitlement to any VAadministered benefit that is based on 

financial need. Some of the exclusions 

also apply to assets (pension), aka, net 

worth or the corpus of the estate 

(section 306 pension and parents as 

dependents for compensation). 

Program or payment Income 

Assets 

(corpus of 

the estate) 

Authority 

(b) COMPENSATION OR RESTITUTION PAYMENTS 

(1) Relocation payments. Payments to individuals displaced as a direct result of programs or projects undertaken by a Federal agency or with Federal financial assistance under the Uniform Relocation Assistance and Real Property Acquisition Policies 

Act of 1970, as amended.

Excluded ....... Included ............. 42 U.S.C. 4636. 

(2) Crime victim compensation. Amounts received as compensation under the Victims of 

Crime Act of 1984 unless the total amount of assistance received from all federally 

funded programs is sufficient to fully compensate the claimant for losses suffered as 

a result of the crime.

Excluded ....... Excluded ............ 42 U.S.C. 

10602(c). 

(3) Restitution to individuals of Japanese ancestry. Payments made as restitution under 

Public Law 100–383 to an individual of Japanese ancestry who was interned, evacuated, or relocated during the period of December 7, 1941, through June 30, 1946, 

pursuant to any law, Executive Order, Presidential proclamation, directive, or other official action respecting these individuals.

Excluded ....... Excluded ............ 50 U.S.C. App. 

1989b–4(f). 

(4) Victims of Nazi persecution. Payments made to individuals because of their status 

as victims of Nazi persecution.

Excluded ....... Excluded ............ 42 U.S.C. 1437a 

note. 

(5) Agent Orange settlement payments. Payments made from the Agent Orange Settlement Fund or any other fund established pursuant to the settlement in the In Re 

Agent Orange product liability litigation, M.D.L. No. 381 (E.D.N.Y.).

Excluded ....... Excluded ............ Sec. 1, Public 

Law 101–201. 

(6) Chapter 18 benefits. Allowances paid under 38 U.S.C. chapter 18 to a veteran’s 

child with a birth defect.

Excluded ....... Excluded ............ 38 U.S.C. 

1833(c). 

(7) Flood mitigation activities. Assistance provided under the National Flood Insurance 

Act of 1968, as amended.

Excluded ....... Excluded ............ 42 U.S.C. 4031. 

(c) PAYMENTS TO NATIVE AMERICANS 

(1) Indian Tribal Judgment Fund distributions. All Indian Tribal Judgment Fund distributions excluded from income and net worth while such funds are held in trust. First 

$2,000 per year of income received by individual Indians under the Indian Tribal 

Judgment Funds Use or Distribution Act in satisfaction of a judgment of the United 

States Court of Federal Claims excluded from income.

Excluded ....... Excluded ............ 25 U.S.C. 1407. 

(2) Interests of individual Indians in trust or restricted lands. Interests of individual Indians in trust or restricted lands excluded from net worth. First $2,000 per year of income received by individual Indians that is derived from interests in trust or restricted 

lands excluded from income.

Excluded ....... Excluded ............ 25 U.S.C. 1408. 

(3) Per Capita Distributions Act. First $2,000 per year of per capita distributions to members of a tribe from funds held in trust by the Secretary of the Interior for an Indian 

tribe. All funds excluded from income and net worth while funds are held in trust.

Excluded ....... Excluded ............ 25 U.S.C. 117b, 

25 U.S.C. 1407. 

(4) Submarginal land. Income derived from certain submarginal land of the United 

States that is held in trust for certain Indian tribes.

Excluded ....... Excluded ............ 25 U.S.C. 459e. 

(5) Old Age Assistance Claims Settlement Act. Up to $2,000 per year of per capita distributions under the Old Age Assistance Claims Settlement Act.Excluded ....... Excluded ............ 25 U.S.C. 2307. 

(6) Alaska Native Claims Settlement Act. Any of the following, if received from a Native 

Corporation, under the Alaska Native Claims Settlement Act: 

(i) Cash, including cash dividends on stocks and bonds, up to a maximum of $2,000 per 

year; 

(ii) Stock, including stock issued as a dividend or distribution; 

(iii) Bonds that are subject to the protection under 43 U.S.C. 1606(h) until voluntarily 

and expressly sold or pledged by the shareholder after the date of distribution; 

(iv) A partnership interest; 

(v) Land or an interest in land, including land received as a dividend or distribution on 

stock; 

(vi) An interest in a settlement trust. 

Excluded ....... Excluded ............ 43 U.S.C. 

1626(c). 

(7) Maine Indian Claims Settlement Act. Payments received under the Maine Indian 

Claims Settlement Act of 1980.

Excluded ....... Excluded ............ 25 U.S.C. 1728. 

(8) Cobell Settlement. Payments received under Cobell v. Salazar, Civil Action No. 96– 

1285 (TFH) (D.D.C.).

Excluded for 

one year.

Excluded for one 

year.

Sec. 101, Public 

Law 111–291. 

(d) WORK-RELATED PAYMENTS 

(1) Workforce investment. Allowances, earnings, and payments to individuals participating in programs under the Workforce Investment Act of 1998 (29 U.S.C. chapter 

30).

Excluded ....... Included ............. 29 U.S.C. 

2931(a)(2). 

(2) AmeriCorps participants. Allowances, earnings, and payments to AmeriCorps participants under the National and Community Service Act of 1990.Excluded ....... Included ............. 42 U.S.C. 

12637(d). 


emcdonald on DSK67QTVN1PROD with PROPOSALS4
3864 Federal Register / Vol. 80, No. 15 / Friday, January 23, 2015 / Proposed Rules 

Program or payment Income 

Assets 

(corpus of 

the estate) 

Authority 

(3) Volunteer work. Compensation or reimbursement to volunteers involved in programs 

administered by the Corporation for National and Community Service, unless the payments are equal to or greater than the minimum wage. The minimum wage is either 

that under the Fair Labor Standards Act of 1938 (29 U.S.C. 201 et seq.) or that under 

the law of the state where the volunteers are serving, whichever is greater.

Excluded ....... Excluded ............ 42 U.S.C. 

5044(f). 

(e) MISCELLANEOUS PAYMENTS 

(1) Food stamps. Value of the allotment provided to an eligible household under the 

Food Stamp Program.

Excluded ....... Excluded ............ 7 U.S.C. 2017(b). 

(2) Food for children. Value of free or reduced-price for food under the Child Nutrition 

Act of 1966.

Excluded ....... Excluded ............ 42 U.S.C. 

1780(b). 

(3) Child care. Value of any child care provided or arranged (or any amount received as 

payment for such care or reimbursement for costs incurred for such care) under the 

Child Care and Development Block Grant Act of 1990.

Excluded ....... Included ............. 42 U.S.C. 9858q. 

(4) Services for housing recipients. Value of services, but not wages, provided to a resident of an eligible housing project under a congregate services program under the 

Cranston-Gonzalez National Affordable Housing Act.

Excluded ....... Included ............. 42 U.S.C. 

8011(j)(2). 

(5) Home energy assistance. The amount of any home energy assistance payments or 

allowances provided directly to, or indirectly for the benefit of, an eligible household 

under the Low-Income Home Energy Assistance Act of 1981.

Excluded ....... Excluded ............ 42 U.S.C. 

8624(f). 

(6) Programs for older Americans. Payments, other than wages or salaries, received 

from programs funded under the Older Americans Act of 1965, 42 U.S.C. 3001.

Excluded ....... Included ............. 42 U.S.C. 

3020a(b). 

(7) Student financial aid. Amounts of student financial assistance received under Title IV 

of the Higher Education Act of 1965, including Federal work-study programs, Bureau 

of Indian Affairs student assistance programs, or vocational training under the Carl D. 

Perkins Vocational and Technical Education Act of 1998.

Excluded ....... Excluded ............ 20 U.S.C. 

1087uu, 

2414(a). 

(8) Retired Serviceman’s Family Protection Plan annuities. Annuities received under 

subchapter 1 of the Retired Serviceman’s Family Protection Plan.

Excluded ....... Included ............. 10 U.S.C. 1441. 

(Authority: 38 U.S.C. 501(a)) 

■ 14. Amend § 3.503 by adding 

paragraph (c) to read as follows: 

§ 3.503 Children. 

* * * * * 

(c) Medicaid-covered nursing home 

care (§ 3.551(i)). (1) Last day of the 

calendar month in which Medicaid 

payments begin, last day of the month 

following 60 days after issuance of a 

prereduction notice required under 

§ 3.103(b)(2), or the earliest date on 

which payment may be reduced without 

creating an overpayment, whichever 

date is later; or 

(2) If the child or the child’s custodian 

willfully conceals information necessary 

to make the reduction, the last day of 

the month in which that willful 

concealment occurred. 

(Authority: 38 U.S.C. 501, 1832, 5112(b), 

5503(d)) 

■ 15. Amend § 3.551 by revising 

paragraph (i) to read as follows: 

§ 3.551 Reduction because of 

hospitalization. 

* * * * * 

(i) Certain beneficiaries receiving 

Medicaid-covered nursing home care. 

This paragraph (i) applies to a veteran 

without a spouse or child, to a surviving 

spouse without a child, and to a 

surviving child. Effective November 5, 

1990, and terminating on the date 

provided in 38 U.S.C. 5503(d)(7), if such 

a beneficiary is receiving Medicaidcovered nursing home care, no pension 

or survivors pension in excess of $90 

per month will be paid to or for the 

beneficiary for any period after the 

month in which the Medicaid payments 

begin. A beneficiary is not liable for any 

pension paid in excess of the $90 per 

month by reason of the Secretary’s 

inability or failure to reduce payments, 

unless that inability or failure is the 

result of willful concealment by the 

beneficiary of information necessary to 

make that reduction. 

* * * * * 

§ 3.660 [Amended] 

■ 16. Amend § 3.660(d) by removing 

‘‘§§ 3.263 or 3.274’’ and adding in its 

place ‘‘§ 3.263’’. 

[FR Doc. 2015–00297 Filed 1–22–15; 8:45 am] 

BILLING CODE 8320–01–P 


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