Net Worth, Asset Transfers, and Income Exclusions for Needs-Based Benefits, 47246-47275 [2018-19895]

Agencies

• DEPARTMENT OF VETERANS AFFAIRS

[Federal Register Volume 83, Number 181 (Tuesday, September 18, 2018)]
[Rules and Regulations]
[Pages 47246-47275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19895]



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Vol. 83

Tuesday,

No. 181

September 18, 2018

Part II





 Department of Veterans Affairs





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38 CFR Part 3





 Net Worth, Asset Transfers, and Income Exclusions for Needs-Based 
Benefits; Final Rule

Federal Register / Vol. 83 , No. 181 / Tuesday, September 18, 2018 / 
Rules and Regulations

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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: Final rule.

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SUMMARY: The Department of Veterans Affairs (VA) amends its regulations 
governing veterans' eligibility for VA pensions and other needs-based 
benefit programs. The amended regulations establish new requirements 
for evaluating net worth and asset transfers for pensions and identify 
which medical expenses may be deducted from countable income for VA's 
needs-based benefit programs. The amendments help to ensure the 
integrity of VA's needs-based benefit programs and the consistent 
adjudication of pension and parents' dependency and indemnity 
compensation claims. Lastly, the amendments effectuate: Statutory 
changes for pension beneficiaries who receive Medicaid-covered nursing 
home care; a statutory income exclusion for disabled veterans; and 
longstanding statutory income exclusions for all VA needs-based 
benefits.

DATES: Effective Date: This rule is effective October 18, 2018.

FOR FURTHER INFORMATION CONTACT: Timothy Bailey, Acting Assistant 
Director, 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: 

A. Overview of Proposed Provisions Producing the Majority of Public 
Comments

    In a notice of proposed rulemaking published in the Federal 
Register on January 23, 2015 (80 FR 3840), VA proposed to amend its 
adjudication regulations governing its needs-based pension benefit for 
wartime veterans and for surviving spouses and children of wartime 
veterans, as well as its adjudication regulations governing its older 
pension programs and parents' dependency and indemnity compensation 
(DIC).
    The 60-day public comment period ended on March 24, 2015. VA 
received over 850 comments from an array of constituencies, including 
advocates, advisors, law firms, members of Congress, State government 
agencies, professional associations, veterans service organizations, 
and other interested members of the public. We read, analyzed, and 
considered each comment and are grateful to all who invested their time 
to comment. Some commenters stated that our explanation for certain 
provisions is unclear. We believe that we provided adequate 
justification in the proposed rule for this rulemaking but nonetheless 
provide further justification for this rulemaking in this final rule 
document. Many made valuable contributions, and we made changes in the 
final rule as a result. We grouped the comments by topic and discuss 
them by topic group later in this document.
    The majority of the comments focused on several specific 
provisions, and we summarize those here. First, we proposed changes to 
the pension benefit program with respect to the amount of net worth a 
claimant could have to qualify for pension (for purposes of this 
supplementary information, references to a claimant include a 
beneficiary). We proposed a bright-line net worth limit and proposed as 
the limit the dollar amount of the maximum community spouse resource 
allowance (CSRA) for Medicaid purposes, at the time of publication of 
the final rule. We proposed to define net worth for VA purposes as the 
sum of a claimant's assets and annual income.
    Second, we proposed to set forth the manner in which VA calculates 
a claimant's assets. We proposed to clarify VA's treatment of a 
claimant's residence for asset calculation purposes. We proposed a 
definition of ``residential lot area'' to mean the lot on which a 
residence sits that is similar in size to other residential lots in the 
vicinity, but not to exceed 2 acres (87,120 square feet), unless the 
additional acreage is not marketable.
    Third, we proposed to establish a 36-month ``look-back'' period and 
a penalty period not to exceed 10 years for those who transfer assets 
during this look-back period to qualify for pension. We proposed that a 
transfer for less than fair market value would include 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 were it not for the claimant's attempt to qualify for pension. 
We proposed that examples of such instruments or investments would 
include trusts and annuities. We further proposed to create a 
presumption that, in the absence of clear and convincing evidence 
showing otherwise, an asset transfer made during the look-back period 
was for the purpose of decreasing net worth to establish pension 
entitlement. We proposed that the presumption could be rebutted by 
clear and convincing evidence that the claimant 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 pension. The proposed rule 
provided that VA would not consider as a transfer for less than fair 
market value a trust established on behalf of a child whom VA has rated 
incapable of self-support. The proposed rule provided that VA would not 
recalculate a penalty period unless the original calculation was shown 
to be erroneous or VA received evidence, within 60 days after VA 
notified the claimant of the decision, that all covered assets were 
returned to the claimant before the date of claim or within 30 days 
after the date of claim.
    Finally, we proposed to define and identify medical expenses that 
VA may deduct from countable income for its needs-based benefits that 
utilize such deductions. We proposed definitions of ``activities of 
daily living'' (ADLs); ``instrumental activities of daily living'' 
(IADLs); ``custodial care''; and ``assisted living, adult day care, or 
similar facility.'' We proposed to define ``custodial care'' as regular 
assistance with two or more ADLs or supervision because an individual 
with a mental disorder is unsafe if left alone due to the mental 
disorder. The proposed rule provided that, generally, medical expenses 
do not include either assistance with IADLs or meals and lodging in an 
independent living facility. The proposed rule provided that an in-home 
care attendant's ``hourly rate may not exceed the average hourly rate 
for home health aides published annually'' in the Market Survey of 
Long-Term Care Costs published by the MetLife Mature Market Institute.
    For the reasons set forth in the proposed rule and in the 
discussion below, we are adopting the proposed rule as final, with 
changes as explained below to proposed 38 CFR 3.261, 3.262, 3.263, 
3.270, 3.272, 3.274, 3.275, 3.276, 3.278, and 3.279.

B. Terminology Clarifications Regarding VA Pension and Other VA Needs-
Based Benefits

    Multiple commenters did not understand various VA benefits and one 
commenter expressed confusion by our use of the term ``needs-based.'' 
As used in this supplementary information, ``needs-based'' refers to a 
VA benefit in which the claimant's income is an entitlement factor or 
both a claimant's

[[Page 47247]]

income and assets are entitlement factors. ``Need'' as used here refers 
to financial need and does not refer to a claimant's level of 
disability. Another term for ``needs-based'' is ``means-tested.'' The 
following VA benefits are needs-based: Pension for veterans and 
survivors under current pension laws (``current-law pension,'' formerly 
called ``improved pension''), section 306 pension for veterans and 
survivors, old-law pension for veterans and survivors, and parents' 
DIC. The following VA benefits are not needs-based (i.e., the amount of 
a claimant's income or assets does not impact the benefit amount or 
entitlement to the benefit): Disability compensation for veterans; DIC 
for surviving spouses or children; death compensation for surviving 
parents, spouses, or children; and Spanish-American War pension. There 
is a minor exception to these lists: A veteran who receives disability 
compensation may receive additional compensation when the veteran has a 
parent or parents who are dependent on the veteran for support. See 38 
U.S.C. 1115. Because VA evaluates a veteran's parent's income and 
assets when determining if the parent is dependent on the veteran for 
support, such cases are considered ``needs-based'' insofar as the 
parent's need is concerned.
    At least one commenter expressed the belief that our proposed rule 
was proposing to turn benefits that are not needs-based into new needs-
based benefits. It is not. This final rule does not apply to VA 
benefits that are not needs-based. This final rule pertains only to the 
VA needs-based benefits identified above. The new and revised net worth 
and asset-transfer rules apply only to current-law pension for veterans 
and survivors. This benefit is simply called ``pension'' or ``VA 
pension,'' unless it is necessary to distinguish between current-law 
pension and previous VA pension programs. Also, if it is necessary to 
distinguish between veterans and survivors, we may refer to the pension 
programs as ``veterans pension'' or ``survivors pension.''
    We note that a number of commenters referred to pension as ``Aid 
and Attendance.'' This is a misnomer and can be confusing because a 
higher ``aid and attendance rate'' may be payable under all of the 
following VA benefit programs: Pension, parents' DIC, disability 
compensation, DIC (for surviving spouses), and death compensation. In 
addition, a veteran who receives disability compensation may receive 
additional compensation when the veteran has a spouse and the spousal 
allowance is higher if the spouse meets aid and attendance criteria. 
The additional ``spousal aid and attendance rate'' is available only to 
certain compensation beneficiaries and is not available to pension 
claimants. A ``housebound rate'' that is a lesser amount than the aid 
and attendance rate may be paid to qualifying individuals who do not 
qualify at the aid and attendance level. This housebound rate is 
available to: Veterans and surviving spouses who receive pension; 
veterans who receive disability compensation; and surviving spouses who 
receive DIC. The aid and attendance and housebound rates are sometimes 
collectively called ``special monthly compensation (SMC)'' when the 
benefit is disability compensation, ``special monthly DIC'' when the 
benefit is DIC, and ``special monthly pension (SMP)'' when the benefit 
is pension. We emphasize that this final rule does not apply to 
disability compensation for veterans or to DIC for surviving spouses or 
children. It also does not apply to Family Caregiver benefits and 
General Caregiver benefits authorized by 38 U.S.C. 1720G; those 
benefits are available to veterans with certain injuries that were 
incurred in or aggravated in active military, naval, or air service. 
This final rule only applies to needs-based benefits.
    Multiple commenters expressed the belief that, like most pensions, 
the VA pension benefit is a benefit into which veterans previously paid 
so it would be available later in life. Others expressed the opinion 
that VA pension should not be means-tested or that it is or should be 
available to all veterans. We make no changes based on such comments. 
Although veterans certainly ``pay into'' VA pension in terms of serving 
their country during a period of war, VA pension is not a benefit into 
which veterans previously directly contributed financially. The 
statutes governing VA pension are found in 38 U.S.C. chapter 15. Under 
the current pension statutes, pension is a benefit in which the annual 
amount of the benefit is reduced dollar-for-dollar by annual income 
received. See 38 U.S.C. 1521, 1541, and 1542. VA calculates annual 
income by deducting or excluding (not counting) amounts noted in 38 
U.S.C. 1503 and other applicable statutes, such as a portion of 
unreimbursed medical expenses and educational expenses.
    Multiple commenters pointed out that VA no longer considers a 
veteran's net worth when deciding if the veteran is eligible to receive 
VA hospital, nursing home, or domiciliary care. For this reason, these 
commenters state or indicate that net worth should not be a factor for 
pension entitlement. Moreover, several commenters stated that the 
proposed provisions would cause fewer veterans to qualify for VA 
hospital care at Priority Groups 4 and 5. We disagree. The VA statutes 
governing net worth for pension entitlement (38 U.S.C. 1522 and 1543) 
are different than those governing net worth for hospital care 
eligibility (38 U.S.C. 1722). Under 38 CFR 17.36(b)(4), Priority Group 
4 includes veterans who receive increased pension based on their need 
for regular aid and attendance or by reason of being permanently 
housebound. It also includes veterans determined catastrophically 
disabled by the VA facility where they are examined. Priority Group 5 
includes veterans whom the Veterans Health Administration (VHA) 
determines are unable to defray the expenses of necessary care under 38 
U.S.C. 1722(a). 38 CFR 17.36(b)(5). Although VHA assumes that veterans 
who receive pension meet Priority Group 5 criteria, veterans are not 
required to receive pension to qualify for Priority Group 5. To the 
extent that some veterans might not be entitled to pension under this 
final rule, this does not mean these veterans would not be entitled to 
VA hospital care at the same priority. VA must consider net worth as an 
entitlement factor for pension (38 U.S.C. 1522 and 1543); it does not 
have discretion in this regard as it does for hospital care 
eligibility. Therefore, we make no changes based on such comments.

C. Discussion of Public Comments Regarding VA's Authority To Promulgate 
Regulations Governing Requirements for Net Worth, Asset Transfers, and 
Income Exclusions for Needs-Based Benefits

    Numerous commenters questioned VA's authority to promulgate 
regulations governing the requirements for net worth, asset transfers, 
and income exclusions in order to qualify for VA's pension program. VA 
disagrees with these commenters and, therefore, does not make any 
changes to this rulemaking based on these comments. As discussed in the 
proposed rule, under 38 U.S.C. 1522 and 1543, VA may not pay pension to 
a veteran or to a veteran's surviving spouse when the corpus of the 
individual's estate (and a veteran's spouse's estate, if applicable) is 
such that, under all the circumstances, including consideration of the 
individual's income and that of the individual's spouse and dependent 
children, it is reasonable that the individual consume some part of the 
estate for his or her maintenance prior to receiving pension.

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    VA's authority here is derived from 38 U.S.C. 501(a), which permits 
VA to prescribe all rules and regulations which are necessary or 
appropriate to carry out the laws administered by VA and are consistent 
with those laws. VA may administer the Congressionally-created pension 
program by formulating policy and enacting rules to fill any gap left, 
implicitly or explicitly, by Congress. See Morton v. Ruiz, 415 U.S. 
199, 231 (1974). These rules may effect a change in existing law, so 
long as VA promulgates them through a notice-and-comment procedure and 
its ``action is reasonable and consistent in light of the statute and 
congressional intent.'' Disabled Am. Veterans v. Gober, 234 F.3d 682, 
691 (Fed. Cir. 2000). Inasmuch as Congress did not define what is 
considered reasonable consumption of net worth prior to receiving VA's 
needs-based pension, this rulemaking promulgates reasonable gap-filling 
regulations.
    As previously stated, 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. 
We interpret the statutory requirement that a pension claimant must 
reasonably consume excessive net worth prior to receiving needs-based 
pension as precluding pension entitlement to an individual who has 
sufficient net worth for his or her maintenance (over $123,600, for 
2018), transfers assets to get below that threshold, and then applies 
for VA pension leaving the Government to fund his or her maintenance. 
The text of the statute makes clear that Congress did not intend for 
claimants who have sufficient assets for self-support to use the 
pension program as an estate planning tool, under which they may 
preserve or gift assets to their heirs and shift responsibility for 
their support to the Government, at the expense of taxpayers. See also 
H.R. Rep. No. 95-1225, at 33 (1978), reprinted in 1978 U.S.C.C.A.N. 
5583, 5614 (Congress's intent that ``a needs-based system . . . apply 
only to those veterans who are, in fact, in need'').
    Many commenters also pointed out that, in recent years, Congress 
has failed to implement legislation that would have implemented many of 
the changes that VA seeks to make in this rulemaking. Such failure does 
not negate VA's authority to provide reasonable rules in furtherance of 
Congress's directive for a net worth limitation. 38 U.S.C. 501(a), 
1522, 1543. Moreover, VA notes that ``unsuccessful attempts at 
legislation are not the best of guides to legislative intent.'' Red 
Lion Broad. Co. v. FCC, 395 U.S. 367, 381-382 n.11 (1969). The 
Government Accountability Office (GAO), U.S. Senate Special Committee 
on Aging, and others have advocated for changes to bolster the 
integrity of the pension program. See Pension Poachers: Preventing 
Fraud and Protecting America's Veterans, Hearing Before the S. Special 
Comm. on Aging, S. Hrg. 112-542 (2012); U.S. Government Accountability 
Office, GAO-12-540, Veterans' Pension Benefits: Improvements Needed to 
Ensure Only Qualified Veterans and Survivors Receive Benefits (2012). 
And Congress' contemporaneous statements in enacting the current 
pension program, discussed above, are clear that this program is a 
needs-based program intended to serve only those claimants in need. 
Accordingly, VA declines to make any changes to this rulemaking based 
on these comments.

D. Discussion of Public Comments Regarding Net Worth Provisions

1. Net Worth Limit and Definition (Proposed Sec.  3.274(a) and (b))

    Multiple commenters took issue with our proposal to use a bright-
line net worth limit for pension entitlement. Several commenters argued 
that a bright-line net worth provision is arbitrary and does not take 
into account age, disability, life expectancy, rate of depletion of 
assets, liquidity of assets, normal living expenses for healthy 
dependents, nursing home status, or medical expenses in relation to 
income. Some commenters proposed alternative net worth calculation and 
decision methodologies that included these factors. A number of 
commenters argued that our proposed changes to net worth provisions 
will make it more difficult for claimants to qualify for pension, and 
stated their belief that not as many will qualify, causing individuals 
more stress during a difficult time. Some stated that claimants would 
essentially have to deplete their net worth to qualify. Some suggested 
that VA could make exceptions for veterans who are over age 75.
    We make no changes based on these comments. As stated in the 
preamble of the proposed rule, the way that net worth decisions are 
made now is often inconsistent and arbitrary. See 80 FR 3842. According 
to the GAO, the current regulatory scheme has left adjudicators to 
their own discretion, leading to inconsistent decisions for similarly 
situated claimants. Id. Having a clear net worth limit promotes 
consistency and uniformity in decisions. It also reduces the amount of 
time claim processors have to spend on lengthy, subjective net-worth 
determinations--freeing them up for other claim-related activities. A 
clear limit will result in quicker benefits decisions for veterans and 
the potential for future automation. It also benefits claimants by 
providing a clear pension entitlement criterion that is easy to 
understand and apply.
    While net worth determinations will no longer take into account 
life expectancy, rate of depletion of assets, and other factors, it is 
that multitude of factors that have resulted in inconsistent, and 
sometimes unfair, decisions. For example, we have reviewed cases in 
which elderly claimants with short life expectancies have been denied 
pension with as little as $10,000 of net worth. We have seen claims 
processors deny pension if assets are projected to last the claimant's 
lifetime or longer, and others require complete or almost complete 
spend-down of net worth before granting pension. Accordingly, we 
decline to create an exception for claimants over 75; in fact, we 
believe that more pension claims will be granted under these 
regulations than under the previous regime.
    Instead, we believe the best approach moving forward, for both 
pension claimants and the efficiency of the system, is employing, as 
the net worth limit, the standard maximum CSRA prescribed by Congress. 
We have considered the possibility of finding a solution within the 
current standard, as well as other solutions commenters set forth, but 
many of them, such as establishing upper and lower limits, would be 
less favorable to claimants than a net worth limit at the maximum CSRA. 
We believe that setting the net worth limit at the maximum CSRA--which 
in 2018 is $123,600--allows more claimants to qualify for the benefit 
than before. Our impact analysis concurrent with the proposed rule 
indicated that 1,149 pension denials would have been grants (and only 
40 grants would have been denials) if the maximum CSRA had been the net 
worth limit in fiscal year 2014. See https://www.va.gov/orpm/RINs_2900_AO.asp (RIN 2900-AO73).
    We understand, as many pointed out, that the CSRA was prescribed by 
Congress for Medicaid, which is a fundamentally different program than 
VA pension. But it is a number that was adopted by Congress to prevent 
the impoverishment of the non-institutionalized spouse of a Medicaid-
covered individual. Similarly, we do not desire any net worth 
limitation that could subject wartime veterans and

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their survivors to impoverishment. See H.R. Rep. 95-1225, at 27 
(reflecting Congress' intention to ``assure[ ] a level of assistance'' 
for veterans and survivors ``that places them above the official 
poverty line''); 44 FR 45930 (1979). Congress has indicated that 
individuals with net worth beyond the maximum CSRA are sufficiently 
protected from impoverishment for Medicaid purposes. It is no stretch, 
then, for VA to conclude that individuals with net worth beyond the 
maximum CSRA are sufficiently protected from impoverishment and do not 
need VA pension. Moreover, using the maximum CSRA allows pension 
claimants to retain a reasonable portion of their assets to respond to 
unforeseen events, including medical care.
    Multiple commenters stated that VA's proposal to establish the 
bright-line net worth limit by using the CSRA prescribed by Congress 
for Medicaid was out of context, i.e., that VA ``cherry picked'' some 
parts of the Medicaid resource statutes and disregarded others. 
According to these commenters, VA overlooked the following: (1) 
Medicaid covers all of the medical expenses of the institutionalized 
spouse; (2) there are significant differences between States in what 
assets are countable assets toward the CSRA; (3) the community (non-
institutional) spouse is allowed to keep all of his or her income as 
well as part of the institutionalized spouse's income if the community 
spouse's income is lower than the spousal allowance; (4) Medicaid does 
not have a penalty period longer than 60 months; (5) Medicaid does a 
fairly good job of explaining its rules and making the public aware 
that transfers made more than 60 months before applying for Medicaid 
will not create any penalty; (6) Medicaid will allow trusts to be used 
to reduce net worth; (7) Medicaid allows the purchase of immediate 
annuities to reduce net worth; (8) Medicaid applies the CSRA only to 
married claimants, whereas VA would apply it to all claimants, whether 
married or single, (9) Medicaid allows community spouses to retain net 
worth greater than the maximum CSRA; and (10) adopting the Medicaid 
asset limitation for VA purposes is much more limiting and 
impoverishing in nature than the Medicaid system.
    To be clear, these programs are governed by different statutes and 
serve different purposes. VA pension is a monetary benefit paid to 
wartime veterans and survivors to supplement their income, based on 
need. On the other hand, Medicaid is a health insurance program for 
individuals and families with low income and limited resources. As 
such, incorporating all of Medicaid's net worth rules into the VA 
pension program is neither legally required nor sensible. But, because 
Congress has established a level of net worth sufficient to avoid 
``impoverishment'' in administering Medicaid, we find it sensible to 
employ that Congressional determination for VA pension. Similarly, as 
further discussed in the proposed rule and later in this supplementary 
information, we find it sensible to take aspects of the look-back 
period implemented in Medicaid (per GAO's recommendation) to form a 
look-back period.
    Thus, though we reviewed these comments on Medicaid and made 
changes in this final rule in response to some of them, we disagree 
with the comments above that highlighted favorable Medicaid policies, 
as they overlooked particular rules of VA pension that are also 
favorable to claimants. For instance, although VA does not pay for 
medical expenses as Medicaid does, VA does deduct unreimbursed medical 
expenses that exceed 5 percent of the maximum annual pension rate 
(MAPR) allowed by Congress, to reduce income for VA purposes. Overall, 
we did not intend in our proposed rule to equate all aspects of VA 
pension to Medicaid, or to mimic other aspects of Medicaid provisions, 
and there is no legal requirement that any particular Medicaid policies 
or procedures be incorporated into VA pension.
    Several commenters stated that the proposed regulations fail to 
provide for a maintenance income and an asset allowance, as well as an 
exception for a divestment of gifts and conversion of assets for a 
community spouse such as those provided by Medicaid rules, and these 
omissions are likely to result in the impoverishment of community 
spouses. Several commenters also stated that, under 38 U.S.C. 1522, VA 
is required to take into account ``all the circumstances'' of a veteran 
and a veteran's family in evaluating annual income and other real and 
personal property. Commenters stated or implied that the failure of 
current regulations, as well as the proposed regulations, to provide 
for the maintenance needs of a community spouse arguably violates VA's 
duty to consider ``all the circumstances'' in determining whether it is 
``reasonable'' that some part of an institutionalized veteran's estate 
should be consumed for the veteran's maintenance.
    VA makes no changes based on these comments. By selecting the 
maximum CSRA as the net worth limit and deducting payments for 
institutionalized care from net worth, we strongly disagree that these 
regulations do not take into account the needs of community spouses. 
Indeed, in this final rule, as discussed below, VA has expanded its net 
worth deductions for payments to care facilities other than nursing 
homes to ensure that ``all the circumstances'' are considered for 
situations where the veteran can no longer live at home. Succinctly 
stated, while the regulations adopted herein might depart from specific 
Medicaid rules--as a program with a different purpose is permitted to 
do--they do not leave community spouses unprotected from 
impoverishment.
    One commenter also mentioned that VHA's net worth provisions at 38 
CFR 17.111 do not take into account the amount of the maximum CSRA when 
determining whether a veteran is required to pay a co-payment for VA-
provided extended care services. We make no change based on this 
comment. Noted above in the information pertaining to terminology 
clarifications, the VA statutes governing net worth for pension 
entitlement are different from those governing VA hospital care 
eligibility. Although VA no longer considers net worth when determining 
a veteran's eligibility for VA hospital care, VA is required to 
consider net worth when determining pension entitlement. 38 U.S.C. 
1522, 1543.
    Some commenters said that the bright-line net worth limit does not 
take into account future increases in costs of care or inflation. To 
the contrary, proposed and final Sec.  3.274(a) provide for cost-of-
living increases in the net worth limit to account for inflation.
    Another commenter stated that, if a claimant's deductible medical 
expenses exceed the claimant's income, the net worth limit does not 
take this into account. As further discussed below, however, medical 
expenses affect net worth in two ways: First, a claimant's predictable 
medical expenses are subtracted from countable income; second, the 
actual payment of the medical expenses will (other things held 
constant) reduce assets. Thus, medical expenses exceeding income do 
affect net worth.
    Other commenters noted that the bright-line net worth limit does 
not take locality differences into account. We first note that the 
statutory MAPRs under 38 U.S.C. 1521, 1541, and 1542 are fixed and not 
adjusted by locality. Second, we believe that, in choosing as our net 
worth limit the maximum CSRA ($123,600 in 2018) rather than the minimum 
CSRA ($24,720 in 2018) or any amounts within this range, we have 
adequately accounted for different

[[Page 47250]]

localities. Thus, we make no changes based on such comments.
    Several commenters asserted that our proposed rule regarding the 
bright-line net worth limit contained faulty reasoning in stating that 
``current rules require development of additional information not 
solicited in the initial [pension] application.'' 80 FR 3842. These 
commenters pointed out that having insufficient forms is a reason to 
change forms, not rules. Some of these commenters proposed alternative 
net worth decision methodologies and form modifications. While their 
point that rules need not be changed for a problem with forms is 
certainly valid, our desire to establish a bright-line limit has less 
to do with forms and more to do with consistency, uniformity, and 
clarity, as discussed above. Moreover, although some commenters stated 
that neither pension application nor development forms request 
information regarding living expenses, a claimant's completion of VA 
Form 21-8049, Request for Details of Expenses, has been an 
administrative requirement in order for claims processors to make net 
worth determinations. Among other things, this form includes monthly 
living expenses such as housing, food, utilities, clothing, and 
education. The information requested on this form will no longer be 
necessary for net worth determinations under this final rule. We 
further note that VA is amending application forms in conjunction with 
this final rule to incorporate information previously received on the 
VA Form 21-8049, as well as other information.
    One change that we are making is to the example in proposed Sec.  
3.274(b)(4). The final rule uses a more current number (the maximum 
CSRA for 2018) for the net worth limit and eliminates superfluous 
language.

2. How Net Worth Decreases (Proposed Sec.  3.274(f))

    One commenter noted that proposed Sec.  3.274(f)(1) is overly 
restrictive in providing that assets could only decrease by spending 
them on ``[b]asic living expenses'' or educational or vocational 
rehabilitation. As proposed, the rule could be read to preclude 
expenditures for items such as vacations, televisions, and sprinkler 
systems. We agree, and, therefore, we are withdrawing proposed Sec.  
3.274(f)(1)(i) and (ii) and revising Sec.  3.274(f)(1) to provide that 
a claimant may decrease assets by spending them on items or services 
for which fair market value is received. A claimant could not, of 
course, spend down assets by purchasing an item whose value VA would 
still include as an asset--such as a $50,000 painting or gold coins--
and this final rule so states. Although a claimant can certainly 
purchase a $50,000 painting or gold coins, the value of the painting or 
coins would still be included as an asset. Final paragraph (f)(1) is 
significantly more liberal than proposed paragraph (f)(1). We note here 
that, in general, VA does not require receipts or other proofs of 
purchase to show decreased assets, although it is permitted to request 
them under 38 U.S.C. 1506(1).
    Due to this change and based on our further administrative review, 
final Sec.  3.274(f) does not include proposed paragraph (f)(3). 
Proposed paragraph (f)(3) was a provision that erroneously stated that 
VA would ``deduct'' certain expenses from assets. VA does not deduct 
the value of future expenses from current assets when determining asset 
values; rather, VA deducts projected unreimbursed medical expenses from 
income when the medical expenses are reasonably predictable. Therefore, 
for example, if a claimant's net worth exceeds the net worth limit in a 
given year even though projected medical expenses have reduced income 
to zero, the actual payment of these medical expenses the next year may 
cause assets to decrease and the claimant to then qualify for pension.
    We renumbered proposed paragraphs (f)(4) and (5) as final 
paragraphs (f)(3) and (4), respectively. We also amended the text of 
final paragraphs (f)(3) and (4) to reflect the clarification discussed 
above.

3. Residential Exclusion From Assets (Proposed Sec.  3.275)

    Multiple commenters criticized proposed Sec.  3.275(a)(3), claiming 
that the definition of ``residential lot area'' is too restrictive by 
limiting the lot area to 2 acres (87,120 sq. ft.). Many commenters 
stated that claimants living in rural areas would be unfairly penalized 
because of zoning and other restrictions which would prevent them from 
being able to sell the excess land. VA disagrees because the definition 
of ``residential lot area'' includes the provision that the lot cannot 
exceed 2 acres 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. Therefore, lot sizes that exceed 2 acres may 
still be excluded from the claimant's asset calculation if the 
additional property is deemed unmarketable. However, VA recognizes that 
the proposed provision that lots must be ``similar in size to other 
residential lots in the vicinity of the residence'' may be 
unnecessarily restrictive for claimants with less than 2 acres, but 
more acreage than their neighbors. Therefore, the final rule does not 
include the ``similar in size to other residential lots in the 
vicinity'' requirement.
    Several commenters interpreted the proposed rule to mean that VA 
would require claimants to sell their residences and/or their land if 
the residential lot area was greater than 2 acres. We note that when a 
claimant's residential lot is greater than 2 acres, VA will still 
exclude the value of the residence and 2 acres worth of property from 
the claimant's assets. VA is not requiring claimants to sell either 
their residence or land. VA will only include the value of the 
additional property in the asset calculation.
    One commenter stated that the 2-acre limit would cause claimants to 
sell their land, which would lead to more development, thus endangering 
wildlife and harming the environment. As noted above, VA is not 
requiring any claimant to sell his or her land, nor can we speculate on 
whether a claimant might do so or for what purpose the land might be 
used. The concern has been taken into consideration, but we make no 
change to the final rule based on the comment.
    One commenter stated that the rule does not address treatment of 
property listed for sale. VA excludes the value of the primary 
residence from net worth (and includes the value of other residences) 
regardless of whether or not the property is listed for sale. We make 
no change based on this comment.
    Several commenters noted that it is already VA policy to exclude 
from net worth a claimant's residence and a reasonable lot area and did 
not agree with VA's decision to place a limit on the lot area VA 
considers reasonable. As stated in the proposed rule, the limit 
supports our policy choice to exclude a claimant's primary residence 
from assets, while at the same time placing a reasonable limit on 
excluded property to preserve the pension program for veterans and 
survivors who have an actual need. We make no changes based on such 
comments.
    Many commenters questioned why the residential lot exclusion is 
based on acreage rather than value. VA clarifies that the purpose of 
using acreage instead of value is so that claimants who live on small, 
but valuable land (regardless of what that value is derived from) are 
not penalized. For example, a claimant could live in a small, meager

[[Page 47251]]

home in northern Virginia that has been passed down for generations. 
Even though the house is meager and the lot is small, because property 
values in northern Virginia have skyrocketed over the last few decades, 
that claimant might be disadvantaged for not moving to cheaper land. VA 
further clarifies that the definition of ``residential lot area'' is 
specifically designed to provide consideration to claimants who live in 
residences on small but highly valuable lots, as well as claimants who 
live in residences on large but less valuable (or at least partially 
unmarketable) lots.
    One commenter asked if VA claims adjudicators would require 
claimants to provide property deeds or other evidence to determine lot 
size. Under 38 CFR 3.277(a), claims adjudicators always have a right to 
request that a claimant submit evidence to support entitlement to a 
benefit. We make no change based on this comment.
    Many commenters questioned why proposed Sec.  3.275(b) included the 
provision that ``[i]f 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.'' These commenters stated that it is unreasonable to 
expect claimants to sell a residence and buy a new one in the same 
year, especially if the sale occurs toward the end of the year. 
Although we understand their point, 38 U.S.C. 5112(b)(4) requires that 
changes in net worth be recognized at the close of the calendar year in 
which the change occurred, and we make no change based on these 
comments. We note that this provision only applies to home sales after 
pension entitlement is established. The final rule makes this clear by 
providing that it only applies ``[i]f the residence is sold after 
pension entitlement is established.'' If the residence is sold at any 
time before the date of claim, i.e., within the 3-year look-back 
period, another residence could be purchased (or funds from the sale 
could be used to purchase other items or services for fair market 
value) at any time before the date of claim without penalty or effect.
    For residential sales after pension entitlement is established, the 
rule provides that the residences need to be sold and purchased within 
the same calendar year because 38 U.S.C. 5112(b)(4) provides that the 
effective date of reduction or discontinuance of pension due to a 
change in net worth is the end of the year in which net worth changes. 
Therefore, for example, if an individual is receiving pension and in 
July 2017 receives proceeds from the sale of a residence which make net 
worth excessive, the statutory effective date of discontinuance is 
December 31, 2017, and VA would discontinue pension as of January 1, 
2018. However, if the claimant spends down the funds or purchases 
another residence before the effective date, VA would not discontinue 
pension. We understand and recognize the disparity between a person who 
sells his or her residence in January, for example, versus a person who 
sells his or her residence in December. However, we are bound by the 
effective date statute. We note that if an individual sells his or her 
residence in December 2017, and spends down the net worth or purchases 
a new residence in February 2018, VA would discontinue pension as of 
January 1, 2018, and resume pension as of March 1, 2018, assuming 
entitlement factors continue to be met and the claimant informs VA of 
the spend-down or purchase before VA's decision regarding the 
discontinuance becomes final. Of course, these examples assume that the 
sale of the residence makes net worth excessive; not all residential 
sales would result in discontinuance.
    One commenter stated that the rule is unfair to those who choose to 
rent--rather than purchase another home--after selling their residence. 
Others commented more generally that rent (to a care facility or 
otherwise) should be deducted from net worth. To the extent there is a 
concern about the effect of selling a residence in order to move into a 
nursing home or other care facility, we believe that our changes to the 
deductible medical expense provisions, described below, will alleviate 
much of this concern. Under final Sec.  3.278(d), amounts paid to a 
care facility for lodging will often be considered a medical expense, 
deducted from income pursuant to 38 U.S.C. 1503(a)(8). However, as to 
the request to deduct other rent payments from net worth, we are 
unaware of any statutory authority for doing so. While we are 
continuing our longstanding policy of excluding the value of primary 
residences from assets, it does not follow that we have an obligation 
or the authority to deduct rent from income. To be clear, neither rent 
payments (to a non-care facility) nor mortgage payments are deducted 
from income, and money set aside for both rent payments and mortgage 
payments (prior to being spent) are included as assets. It is only the 
primary residence's value that is excluded from assets. We make no 
changes based on such comments.
    One commenter asked that a definition of ``proceeds from the sale'' 
be included. To alleviate any confusion, the final rule refers to ``net 
proceeds from the sale.'' We believe this change adequately addresses 
the commenter's concern. The definition is readily available from many 
sources. The term net proceeds refers to the amount of money a seller 
receives from the sale. It is the sales price of the residence minus 
selling costs. Net proceeds do not include payoff of existing mortgages 
or fees such as brokerage commissions and closing costs.

4. Other Net Worth Matters

    One commenter believed that VA's asset calculation methodology was 
not explained in detail in the proposed regulation. We disagree; 
proposed and final Sec. Sec.  3.274 and 3.275 address the types of 
assets included and excluded in an asset calculation, VA generally 
accepts the statements of its claimants regarding assets unless there 
is reason to question them, and VA does not plan to change this 
practice.
    One commenter seemed to have misunderstood proposed Sec.  
3.275(b)(1)(i), which provides that VA will not subtract from a 
claimant's assets the amount of mortgages or other encumbrances on a 
claimant's primary residence. We clarify here that VA excludes a 
claimant's primary residence from assets, regardless of the value of 
the residence. Section 3.275(b)(1)(i) simply means that VA does not 
subtract mortgages and encumbrances on a primary residence from other 
assets. For example, assume a claimant owns a primary residence worth 
$100,000, still owes $20,000 on the residence, and the claimant's only 
other asset is a $50,000 bank account. Assets for VA purposes would 
total $50,000 because we exclude the primary residence and do not 
subtract the mortgage on a primary residence from other assets. Under 
Sec.  3.275(a), mortgages and encumbrances specific to the mortgaged or 
encumbered property (that is not the primary residence) are deducted 
from the value of the property. One commenter relatedly questioned the 
treatment of liens on a property. Liens qualify as encumbrances. We 
make no change based on these comments.
    Some commenters questioned why the income and assets of any child 
living in the primary residence must be considered as included in an 
applicant's net worth. Others stated that VA should not bar a veteran's 
pension because of a child's net worth, to include an inheritance or 
job income. We make no change based on these comments because we 
believe statute governs this issue. Under 38 U.S.C. 1521(h)(1) and 
1541(g), a veteran's or surviving spouse's income generally includes a

[[Page 47252]]

dependent child's income. However, under 38 U.S.C. 1522(a) and 1543(a), 
a veteran's or surviving spouse's assets do not include a child's 
assets (though the rate of pension may be impacted by a child's assets, 
38 U.S.C. 1522(b) and 1543(a)(2)). Proposed and final Sec.  3.274(b)(3) 
and (c)(1) and (2) are consistent with statute.
    One commenter believed that a veteran's assets should not include 
the assets of his or her spouse if the spouse and the veteran do not 
reside together. Again, this issue is addressed by statute and we make 
no change based on this comment. See 38 U.S.C. 1521(h)(2).
    Another commenter stated that a surviving child's assets should not 
include the assets of his or her guardian. We make no changes based on 
this comment because, by statute, the assets of an individual are 
included when the child is residing with the individual and the 
individual is legally responsible for the child's support. See 38 
U.S.C. 1543(b). The same commenter stated that trust corpus should not 
be included in a disabled child's assets. As discussed further below, 
pursuant to final Sec.  3.276(a)(5)(ii), trusts are generally not 
included as an asset, unless they can be entirely liquidated for the 
claimant's own benefit.
    One commenter believed that assets should not include personal 
property. We make no changes based on this comment because most general 
definitions of assets include personal property. We note that, under 
proposed and final Sec.  3.275(b)(2), VA does not include as an asset 
the value of personal effects suitable to and consistent with a 
reasonable mode of life, such as appliances and family transportation 
vehicles. We further note that this provision is not a change from past 
practice.
    Another commenter stated there should be a clear and defined 
difference between net worth and liquid net worth. The commenter seemed 
to believe that VA bases its pension entitlement decisions on liquid 
assets alone. Normally, we think of a liquid asset as a cash asset or 
an asset that can easily be converted to cash. Real estate and other 
types of personal property are considered to be non-liquid assets. Save 
certain exceptions discussed in this preamble and noted in the final 
rule, VA does not distinguish between liquid and non-liquid assets when 
making pension entitlement determinations. A claimant who has $50,000 
in a bank account and a claimant who owns property worth $50,000 (that 
is not his or her primary residence) are both considered to have 
$50,000 in assets. VA generally accepts as true a claimant's statement 
regarding the value of his or her assets in the absence of conflicting 
information. We make no changes based on the comment.
    Multiple commenters complained that VA is counting income twice: 
Once for its net worth determinations and again in the calculation of 
the pension entitlement rate. Although we are sympathetic with this 
concern, we are again bound by the pension statutes, and thus make no 
changes. Sections 1522 and 1543 of 38 U.S.C. require VA to consider the 
amount of claimants' and certain dependents' income when making net 
worth determinations. Sections 1521, 1541, and 1542 of 38 U.S.C. then 
require VA to reduce the MAPRs by the annual income of the claimant and 
certain dependents. One commenter asked us to provide additional 
justification; however, we decline to do so because we believe the 
statute is sufficient. We re-emphasize that a claimant's reasonably 
predictable projected unreimbursed medical expenses can be deducted 
from income when calculating a claimant's net worth. Therefore, for 
many claimants who are paying in-home care or facility expenses for 
themselves or a dependent, the income component of net worth will be 
zero, and this issue will not be a concern.
    Some commenters appeared to believe that total net worth would have 
to be spent on the applicant's needs in order to obtain pension, 
leaving nothing for the needs of the surviving spouse (and child) in 
the future. As clarified above, a child is not required to consume his 
or her assets for a parent to qualify for pension. 38 U.S.C. 1522(a) 
and 1543(a). And, again, we have chosen a net worth limit for pension 
that enables a claimant to retain a reasonable portion of assets to 
respond to unforeseen events.
    One commenter suggested that the proposed rule makes no provision 
for small business owners or farmers who own property and have to 
liquidate assets to provide income for themselves and employees. The 
commenter questions how small business assets will be calculated if 
they are sold to pay employees. We believe that our definition of 
``fair market value'' covers such a situation and make no change based 
on the comment. Although an individual might sell an asset for less 
than its appraised value, depending on the circumstances and in the 
absence of information showing otherwise, VA could consider such a sale 
to be a transfer for fair market value and would consider the net 
proceeds from the sale to be an asset. Distribution of the net proceeds 
to employees would then decrease that individual's assets.
    A commenter asked: If VA determines the need to re-evaluate net 
worth based on a matching program with the Internal Revenue Service 
(IRS), how will VA know what unreimbursed medical expenses exist for 
the many elderly individuals who do not file income taxes? In response 
to this commenter, at the time a veteran or survivor applies for VA 
pension, VA uses a claimant's projected unreimbursed medical expenses 
to calculate the claimant's pension entitlement rate as long as the 
claimant reports the expenses and the expenses are reasonably 
predictable. It is the claimant's responsibility to keep VA informed at 
all times of any changes that affect continued entitlement.
    A commenter noted that this rulemaking does not address how VA 
would treat real property held as a life estate. The commenter asked 
how VA would treat a life tenant's primary residence if the residence 
is sold and suggested that VA adopt the IRS's valuation of life 
estates. Because the proposed rule did not address the treatment of 
life estates, we are concerned that addressing this issue in the final 
rule would deprive interested parties the opportunity to meaningfully 
comment on any related proposal. VA will consider whether to address 
this issue in a future rulemaking. However, VA is unable to make any 
changes to this rulemaking based on these comments.

5. Correction of Net Worth Effective-Date Table

    In the preamble of our proposed rule, we included an explanatory 
derivation table to summarize the rather complex effective dates 
pertaining to net worth. See 80 FR 3845. Unfortunately, the table 
contained two errors. The word ``increase'' in the ``Effective Date'' 
column in the first row should have been ``decrease.'' Also, the second 
row of the ``Change from current rule'' column should not have included 
language regarding a certified statement. We are re-publishing the 
table with those corrections here, although we now use ``New Sec.  
3.274'' and ``Change from Previous Rule'' in the column headings.

[[Page 47253]]



                          Table 1--Net Worth (NW) Effective-Date Provisions Derivations
----------------------------------------------------------------------------------------------------------------
                                                                                                   Change from
    New Sec.   3.274                Derived from                Situation      Effective date     previous rule
----------------------------------------------------------------------------------------------------------------
3.274(g)................  3.660(d)........................  NW has decreased  Entitlement from  No date change.
                                                             after VA          date of NW        Addition of
                                                             denial,           decrease if       certified
                                                             reduction, or     information       statement
                                                             discontinuance.   received timely.  requirement.
3.274(h)................  3.660(a)(2).....................  NW has increased  End-of-the-year   No date change.
                                                             and reduction     that NW
                                                             or                increases.
                                                             discontinuance
                                                             necessary.
3.274(i)(1).............  New Cross-Reference.............
3.274(i)(2)(1)..........  3.660(d)........................  Dependent         End-of-the-year   No date change
                                                             child's NW has    that NW
                                                             decreased and     decreases.
                                                             adding the
                                                             child results
                                                             in a rate
                                                             decrease for
                                                             the veteran or
                                                             surviving
                                                             spouse.
3.274(i)(2)(2)..........  3.660(c)........................  Dependent         Date of receipt   No date change.
                                                             child's NW has    of claim for      Claim required
                                                             increased and     increased rate    for increased
                                                             removing the      based on          rate.
                                                             child results     child's NW
                                                             in a rate         increase.
                                                             increase for
                                                             the veteran or
                                                             surviving
                                                             spouse.
----------------------------------------------------------------------------------------------------------------

E. Discussion of Public Comments Regarding Asset Transfer Provisions

1. Inclusion of Annuities and Trusts in Definition of ``Transfer for 
Less Than Fair Market Value'' (Proposed Sec.  3.276(a)(5)(ii))

    Multiple commenters expressed that certain types of trusts and 
annuities should not be included in the definition of ``transfer for 
less than fair market value.'' We agree that certain annuities and 
trusts should not be included as a transfer for less than fair market 
value. Thus, based on a number of comments discussed below, we are 
revising Sec.  3.276(a)(5)(ii) to provide that a transfer for less than 
fair market value means a voluntary asset transfer to, or purchase of, 
any financial instrument or investment that reduces net worth by 
transferring the asset to, or purchasing, the instrument or investment 
unless the claimant establishes that he or she has the ability to 
liquidate the entire balance of the asset for the claimant's own 
benefit. We also provide that, if the claimant establishes that the 
asset can be liquidated, the asset is included as net worth.
    First, some commenters misunderstood proposed Sec.  
3.276(a)(5)(ii), believing that a transfer to any revocable or 
irrevocable trust would be considered a transfer for less than fair 
market value. We want to be clear that transfers to annuities or trusts 
over which a claimant retains control and the ability to liquidate are 
transfers for fair market value under this final rule and are not 
subject to a penalty period. Annuities and trusts that can be 
liquidated for the benefit of the claimant will instead be considered 
as an asset in net worth calculations. Of course, we would not require 
claimants to liquidate their assets; we simply would not consider funds 
over which a claimant still has complete control to have been 
transferred for less than fair market value. Such funds are assets.
    Second, several commenters noted that some transfers to annuities 
are mandated upon retirement. The conversion of deferred accounts to an 
immediate annuity is required under some retirement plans. We concur 
with these comments and final Sec.  3.276(a)(5)(ii) excludes mandatory 
conversions. This means that we will not count, as a covered asset, the 
amount transferred to such an annuity, although distributions from the 
annuity will continue to count as income.
    Third, a commenter asked us to explain why annuities and trusts are 
included in proposed Sec.  3.276(a)(5)(ii) as ``any financial 
instrument or investment that reduces net worth and would not be in the 
claimant's financial interest.'' The commenter asked us to explain why 
annuities and trusts are not in the financial interest of the claimant. 
We agree that this language is confusing and would be difficult to 
apply, and it has been removed.
    Fourth, one commenter requested we explicitly exclude implied 
trusts from the definition of a trust by replacing the word 
``arrangement'' in Sec.  3.276(a)(5)(ii)(B) with the word 
``instrument.'' We agree with this comment, and the final rule uses the 
word ``instrument'' as suggested.
    Several commenters asked why VA seemed to be singling out annuities 
and further pointed out that bank accounts and stocks are sometimes 
unwise investments for seniors. As noted in the proposed rule, 
annuities and trusts are simply two examples of instruments that could 
possibly be used to restructure a claimant's assets to make it appear 
that the claimant's net worth is less than it is. This rulemaking is 
not an attempt to eradicate all unwise investments undertaken by 
seniors; it is an effort to discourage those who are financially secure 
from transferring assets to qualify for VA pension. Asset transfers to 
stocks, bonds, or bank accounts do not reduce net worth at the time of 
transfer.
    One commenter questioned why establishing a trust or annuity was 
considered a ``less than fair market value'' transfer. That commenter 
also stated that veterans should not be penalized for establishing 
trusts or annuities for purposes not related to VA pension. Our 
response is two-fold. First, these instruments are considered transfers 
of less than fair market value because they are the primary tools of 
the over 200 organizations identified by the GAO as manipulating assets 
to reduce a claimant's net worth. See GAO-12-540, at 15-21. The GAO 
chronicled the misleading marketing strategies, erroneous information, 
and commissions and fees charged by financial planners that raise 
significant doubt about considering such instruments fair market value 
transfers. Id. Second, given the changes to proposed Sec.  3.276(a)(5) 
noted above and the fact that there is no penalty for trusts 
established on behalf of a child incapable of self-support (Sec.  
3.276(d)), transfers prior to the look-back period (Sec.  3.276(e)), or 
claimants whose net worth would have been below the bright-line limit 
regardless of the transfer (Sec.  3.276(a)(2)(iii)), we believe that 
individuals transferring assets for reasons completely unrelated to VA 
pension will be penalized rarely, if ever.
    Many commenters thought that establishing a trust and/or annuity 
under the proposed regulation would always result in a penalty period. 
As

[[Page 47254]]

noted above, that is not the case. Only when assets are transferred 
during the 3-year look-back period to a trust or annuity that is 
incapable of being liquidated, and when net worth would have been 
excessive without such transfer, will a penalty period be assessed 
based on the portion of the transferred assets that would have made net 
worth excessive. For example, a veteran transfers $90,000 into an 
irrevocable trust one year before she claims VA pension. The veteran 
has $10,000 remaining in a checking account. Because the $90,000 
transfer would not have made her net worth excessive, this claimant 
incurs no penalty period. We expect the asset transfer changes to 
affect a very small number of pension claimants, while nevertheless, 
helping bolster the integrity of the program by counteracting the 
hundreds of financial planners noted in the GAO report that are 
targeting and enabling those who are not in financial need to transfer 
assets and qualify for VA pension.
    Several commenters expressed confusion regarding how VA would value 
an annuity. We believe the changes above clarify the issue. If an 
annuity cannot be liquidated, then the annuity is not considered an 
asset; however, distributions from the annuity count as income (as 
further discussed below) and the purchase could warrant a penalty 
period. If the annuity can be liquidated for the claimant's benefit, 
the annuity purchase is included as an asset.
    One commenter stated that the purchase of an immediate annuity 
meets the definition of an installment sale. VA's current procedure 
manual defines an installment sale for pension purposes as any sale in 
which the seller receives more than the sales price over the course of 
the transaction. However, there are different types of annuity plans, 
and the seller (annuitant) might not receive more than the sales price 
over the course of the transaction, for example, if the plan terminates 
payments upon the seller's death. Although the commenter draws this 
comparison to an installment sale in furtherance of his argument that 
annuity payments should not be treated as income, Congress has spoken 
explicitly on the question of whether annuity payments are income, as 
further discussed below. See 38 U.S.C. 1503(a) (``all payments of any 
kind or from any source (including . . . retirement or annuity payments 
. . .),'' shall be considered income unless expressly excluded by 
statute). We make no change based on the comment.
    Some commenters noted that Sec.  3.276 does not provide a specific 
exemption for purchase of burial policies or planning for funeral and 
final expenses. VA would regard the purchase of a burial policy as a 
fair market value purchase. In addition, VA deducts from income certain 
family members' final or burial expenses. 38 U.S.C. 1503(a)(3)-(4); 38 
CFR 3.272(h). We make no change based on these comments.

2. Presumption Regarding Asset Transfers (Proposed Sec.  3.276(c))

    Many commenters expressed concerns with the presumption and the 
``clear and convincing'' standard of evidence VA proposed in Sec.  
3.276(c). See 80 FR 3860. Several commenters stated that the 
evidentiary standard set forth in proposed Sec.  3.276(c) conflicted 
with the standard permitted by 38 U.S.C. 5107(b). Section 5107(b), 
commonly known as the ``benefit of the doubt'' rule, states that 
``[w]hen there is an approximate balance of positive and negative 
evidence regarding any issue material to the determination of a matter, 
[VA] shall give the benefit of the doubt to the claimant.'' After 
further consideration, we agree that a claimant should not be subject 
to the ``clear and convincing'' standard when attempting to prove that 
an asset transfer was the result of fraud, misrepresentation, or unfair 
business practice. Accordingly, final Sec.  3.276(c) is retitled and 
revised to simply state that VA will not consider an asset as a 
``covered asset'' if the transfer was 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; it also provides examples of 
evidence that will support the exception. This revision preserves the 
``benefit of the doubt'' for claimants. We thank the commenters for 
their input on this issue.

3. Exception for Trust Established for Child Incapable of Self-Support 
(Proposed Sec.  3.276(d))

    Multiple commenters requested that we expand the trust exception to 
children disabled after age 18, as well as children of the surviving 
spouse (and not the veteran). We decline to do so. Statute defines 
``child'' for VA purposes to include children of the veteran who became 
permanently incapable of self-support before their 18th birthday, not 
after. See 38 U.S.C. 101(4)(A); see also 38 CFR 3.57(a). Nevertheless, 
as noted above, many transfers to any child will result in no penalty 
period. Only when assets are transferred or gifted during the 3-year 
look back period, and the asset would have made net worth excessive, 
will a penalty period be calculated based on the portion of the 
transferred assets that would have made net worth excessive. For 
example, a surviving spouse establishes a $90,000 trust for the 
surviving spouse's disabled child (who is not the veteran's child) one 
year before the surviving spouse claims VA pension. The surviving 
spouse has $20,000 remaining in a checking account. Because the $90,000 
transfer would not have made the surviving spouse's net worth 
excessive, no penalty period is assessed. As noted above, we expect the 
asset transfer changes will affect a very small portion of pension 
claimants.
    One commenter expressed the belief that the exception should apply 
where distributions from the trust to a veteran or spouse are used for 
care rendered to the incapable child, shelter, and other expenses. We 
have considered the suggestion, but ultimately believe that the 
language of proposed Sec.  3.276(d)(2) more precisely executes the goal 
of this limited exception. Therefore, no change is warranted.
    Some commenters stated that VA should overturn a VA precedential 
General Counsel opinion, VAOPGCPREC 33-97, to conform to special needs 
trust laws at 42 U.S.C. 1396p(d)(4)(A) and (C). VA declines to make any 
changes based on this comment. The statute cited by the commenters 
pertains to the treatment of certain special needs trusts under SSI 
law. The statute does not apply to VA. Another commenter asked that VA 
``exempt'' transfers to any trusts allowed under SSI law. As explained 
above and in the supplementary information to the proposed rule, SSI 
employs a significantly lower net worth limit than VA will be using and 
VA need not implement the exact same limits and exceptions as other 
needs-based programs governed by separate statutes.
    Multiple commenters requested that we provide a general hardship 
exclusion. One commenter noted that there are times when individuals 
sell assets under market value because they have to find liquidity and 
a means of meeting their obligations. We interpret this comment to mean 
that if, for example, an individual had property appraised at $10,000, 
the individual might be required to sell the property for $6,000 
because no buyer could be found to purchase the property at the 
appraised value. We believe that our definition of ``fair market 
value'' would adequately cover this situation, and VA would consider 
such a sale to be a transfer for fair market value. More generally, VA 
does not agree that a

[[Page 47255]]

general hardship exclusion should be included because (1) it would 
result in inconsistent benefit decisions, and (2) all pension claimants 
are under hardship, considering the very nature of this needs-based 
benefit. Therefore, we make no changes based on such comments.

4. Penalty Period Calculation and Length (Proposed Sec.  3.276(e))

    Multiple commenters pointed out an error in our proposed penalty 
period calculation that resulted in significantly longer penalty 
periods for surviving spouses and surviving children as compared to 
veterans, as well as longer penalty periods for single veterans as 
compared to married veterans. Many commenters stated that the proposed 
penalty period was discriminatory and violated the Constitution. We 
proposed to use a claimant-specific MAPR as a divisor when calculating 
a claimant's penalty period. We agree that our proposal would have 
produced unfair and undesirable results and are grateful to all of 
those who identified this error. We have amended proposed Sec.  
3.276(e); final Sec.  3.276(e)(1) uses a single divisor for all 
claimants, which will result in equal penalty periods for equal amounts 
of precluded asset transfers regardless of the type of claimant. The 
single divisor is the MAPR in effect on the date of the pension claim 
at the aid and attendance level for a veteran with one dependent. As 
stated in the proposed rule, we divide that amount by 12 and drop the 
cents. We chose this rate because most of VA's pension claimants 
qualify at the aid and attendance level and because a higher divisor 
results in a shorter penalty period. The penalty period calculation 
example at final Sec.  3.276(e)(4) reflects the single divisor. One 
commenter asked the purpose of using the benefit amount to calculate 
the penalty period. Although the commenter was possibly referring to 
our mistake in using the claimant-specific MAPR for penalty period 
calculations, we note that the purpose of the penalty period 
calculation is to approximate the number of months that a claimant 
could have used the assets for his or her own needs rather than 
disposing of them.
    Many commenters wrote that a penalty period of up to 10 years is 
excessive, essentially resulting in a ``permanent'' denial for most 
claimants due to their age and life expectancy at the time of 
application. Some commenters suggested that VA set a maximum of 36 
months as the penalty period. Based on the comments we received, we 
decided to shorten the maximum penalty period to 5 years. Under 
proposed and final Sec.  3.276(e)(2), a penalty period begins on the 
first day of the month that follows the last asset transfer. Therefore, 
having a maximum 36 month penalty period would result in no penalty if 
the asset transfer occurred 3 years before the date of the pension 
claim. Instead, we think a 5 year maximum provides the appropriate 
balance of protecting the integrity of the pension program, while 
avoiding the ``permanent'' denials that could have resulted with a 10-
year maximum penalty, given the age of many pension claimants. We 
further emphasize that, under proposed and final Sec.  3.276(e), only 
that portion of assets that would have made net worth exceed the 
bright-line limit is subject to penalty. We appreciate the public 
comments on this issue.

5. Penalty Period Recalculations (Proposed Sec.  3.276(e)(5))

    Numerous commenters requested that the time limit for curing asset 
transfers be amended and that VA allow partial cures. We agree that our 
proposal did not allow adequate time to cure asset transfers and did 
not allow enough time for claimants to notify VA of the cure. We also 
agree that partial cures are acceptable and should constitute a basis 
for recalculation. We have amended proposed Sec.  3.276(e)(5) to allow 
claimants 60 days following a penalty period decision notice to cure or 
partially cure a transfer and allow 90 days following a penalty period 
decision notice to notify VA of the cure. We are grateful to all of 
those who suggested these changes.

6. Other Comments Regarding Proposed Sec.  3.276, Asset Transfers and 
Penalty Periods

    Several commenters asked why we are making changes regarding asset 
transfers when the impact analysis for the proposed rule stated that 
only 1 percent of claimants transfer assets. VA is making these changes 
to protect the integrity of the pension program and to counteract the 
hundreds of organizations targeting elderly veterans and spouses with 
financial schemes that wrest away these individuals' own assets for the 
promise of qualifying for VA pension. See GAO 12-540. VA believes that 
the changes are an important improvement over past practices, 
regardless of the number of claimants that have transferred assets in 
the past. We note that the 1 percent of claimants estimated to transfer 
assets before claiming pension was simply an estimate--nevertheless, 
whether that estimate is high or low, maintaining the regulatory status 
quo would only serve to condone these financial schemes noted by GAO, 
which are reported to charge seniors up to $10,000 in fees for these 
transfers and then leave these individuals locked out from their 
assets, potentially ineligible for Medicaid for a period of time, and 
exceedingly vulnerable to unforeseen events.
    Multiple commenters expressed concern that the asset transfer 
provisions would be applied retroactively. In order to ease this 
concern, paragraphs (a)(7) and (b) of final Sec.  3.276 explicitly 
state that VA will not ``look back'' to a time before the effective 
date of the final rule. VA will disregard asset transfers made before 
that date.
    One commenter stated that claims are already being denied under 
these asset-transfer provisions. We are unaware of such cases; however, 
we note that VA's previous asset-transfer provision at 38 CFR 3.276(b) 
did state that VA would not regard certain asset transfers as a 
reduction of net worth. For example, VAOPGCPREC 33-97, mentioned above, 
states that VA should include trust assets in net worth calculations if 
the trust assets are available for use for the claimant's support. This 
applied to pre-claim transfers as well, although 38 CFR 3.276(b) did 
not so state. This would also be true under this final rule and we make 
no change based on the comment.
    Many commenters were concerned that any transfer of assets such as 
a gift to family members or charitable donations would cause VA to 
impose a penalty period. Not all gifts and charitable donations are 
prohibited or will result in a penalty period. Only when assets are 
transferred or gifted during the 3-year look back period, and the asset 
would have caused or partially caused net worth to be excessive, will a 
penalty period, not to exceed 5 years, be calculated based on the 
portion of the transferred assets that would have made net worth 
excessive. For example, a veteran gives $90,000 to charity one year 
before she claims VA pension, and she has $10,000 remaining in a 
checking account. Because the $90,000 amount transferred would not have 
made net worth excessive, no penalty period is assessed. Again, we 
expect the asset transfer changes will affect a very small portion of 
pension claimants, while bolstering the integrity of the program.
    Multiple commenters expressed concern that a look-back period would 
delay claims processing and would create undue stress and hardship if 
claimants have to provide VA with 3 years' worth of bank statements and 
other documentation. VA generally will not require 3 years' worth of 
documentation from claimants, but will only require additional 
documentation

[[Page 47256]]

in some instances. VA will use matching programs with other government 
agencies to determine whether an asset transfer constituted transfer of 
a covered asset. In accordance with Sec.  3.277(a), VA may in its 
discretion require documentation. This requirement for document 
production is permissive on the part of VA. Not every case will warrant 
such documentation. We make no changes based on such comments.
    One commenter asked how VA would determine the uncompensated value 
of an asset under Sec.  3.276, and who within VA will make these 
determinations. The commenter also wanted to know if VA will conduct 
application review conferences like Medicaid, and if so, who will 
conduct the conferences. VA has no plans to conduct application review 
conferences under this final rule. Rather, VA adjudicators will render 
determinations on value based on the best available information, though 
they will generally accept, as true, statements that claimants make on 
their application forms, unless there is reason to question the 
statements. We make no change based on the comment.
    One commenter stated that VA does not have educated staff members 
who are able to estimate property values and that the rulemaking gives 
VA claims processors the ability to approve or disapprove pension 
claims based on the claims processor's personal assumption of value. We 
disagree. Final Sec.  3.276(a)(4) defines ``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, and further states that 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. We believe the final rule makes it 
clear that VA does not rely on the personal assumptions of a claims 
processor to value assets and, as previously mentioned, claims 
processors have the authority, under 38 U.S.C. 1506 and 38 CFR 
3.277(a), to request additional information when a claimant's estimate 
of property values is suspect. VA declines to make any changes based on 
the comment.
    One commenter took issue with our proposal to use the best 
available information to determine fair market value, such as 
inspections, appraisals, public records, and market value of similar 
property, if applicable. The commenter apparently interpreted this to 
mean that VA would be hiring third parties to provide such information. 
This interpretation is not accurate, and VA has no intention of hiring 
non-governmental employees to research property values. As indicated 
above, the use of independent sources to assist VA in determining asset 
values, when necessary, is longstanding VA policy authorized by statute 
and regulation, and no change is warranted based on the comment.
    One commenter stated that applicants for DIC should not have to 
disclose asset transfers on VA Form 21P-534, Application for Dependency 
and Indemnity Compensation, Survivors Pension and Accrued Benefits by a 
Surviving Spouse or Child (Including Death Compensation if Applicable). 
The commenter also expressed belief that DIC and survivors pension 
applications should be separate forms. As stated above, in the 
information regarding needs-based benefits, this final rule applies 
only to needs-based benefits; and DIC for surviving spouses and 
children is not a needs-based benefit. We also understand the 
commenter's view that DIC and survivors pension should be separate 
applications; however, 38 U.S.C. 5101(b)(1) provides that, for 
surviving spouses and children, a claim for DIC must also be considered 
a claim for survivors pension, and a claim for survivors pension must 
also be considered a claim for DIC. (Either claim must also be 
considered a claim for accrued benefits.) Accordingly, we make no 
changes based on this comment.
    One commenter noted our mistake in the preamble of the proposed 
rule, with respect to the beginning date of the penalty period. In the 
preamble, we said, ``[u]nder proposed Sec.  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.'' 
80 FR 3849. This was an error because proposed Sec.  3.276(e)(2) 
actually provided that the penalty period would begin on the first day 
of the month that follows the date of the last transfer. 80 FR 3861. No 
changes are necessary in this regard because the proposed regulatory 
text correctly stated the rule and is more advantageous to claimants 
than the erroneous preamble statement.

F. Discussion of Public Comments Regarding Deductible Medical Expense 
Provisions

    We received almost 300 comments that pertained to our proposed 
medical expense provisions. Many predicted dire consequences if the 
proposed regulations were to be implemented, including forcing 
claimants into nursing homes and onto Medicaid, thus increasing costs 
to taxpayers, creating unfunded mandates to States, affecting small 
businesses (such as care facilities), and forcing seniors to avoid 
seeking care or taking prescribed medications due to lack of 
affordability. Based on some of these comments as well as our own 
internal administrative review, this final rule reflects a number of 
changes from the proposed rule that we believe will allay most, if not 
all, of the commenters' concerns.

1. Deductible Medical Expenses for In-Home Care Attendants, Care 
Facilities Other Than Nursing Homes, and Custodial Care

    Statute permits VA to deduct 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 that such amounts exceed 5 
percent of the maximum annual rate of pension (including any amount of 
increased pension payable on account of dependents, but not including 
any amount of pension payable because a person is in need of regular 
aid and attendance or because a person is permanently housebound) 
payable to such veteran, surviving spouse, or child. See 38 U.S.C. 
1503(a)(8). For parents' DIC purposes, VA ``may provide by regulation 
for the exclusion from income under [section 1315] of amounts paid by a 
parent for unusual medical expenses.'' 38 U.S.C. 1315(f)(3).
    Neither statute defines ``medical expenses.'' As we mentioned in 
the preamble of the proposed rule, there is currently no regulation 
that adequately defines ``medical expenses'' for VA purposes--i.e., for 
purposes of the medical expense deduction from countable income for VA 
needs-based benefit calculations. See 80 FR 3850. VA's primary guidance 
on the topic was issued in October 2012 as Fast Letter 12-23, Room and 
Board as a Deductible Unreimbursed Medical Expense. Multiple commenters 
mentioned this fast letter in their comments, discussed further below.

2. Definitions for Medical Expense Deduction Purposes

    We received many comments pertaining to our definitions of various 
terms, including custodial care, health care provider, ADLs, and IADLs. 
We first defined a health care provider to mean 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, as well as a

[[Page 47257]]

nursing assistant or home health aide who is supervised by such a 
licensed health care provider. Some commenters asked us to remove the 
supervision or licensing requirements. We make no changes based on 
these comments. In our view, it is essential that health care providers 
be appropriately licensed. To the extent these comments are based on 
confusion regarding when VA requires an attendant to be a health care 
provider, we note here that in-home attendants are not often required 
to be health care providers. Paragraph (d) of final Sec.  3.278, 
discussed below, makes this clear.
    Numerous commenters urged us to expand our definition of ADLs. Some 
commenters suggested that we use the definition of ADLs from the 
Medicare Benefit Policy Manual which is referenced in Fast Letter 12-
23. The Medicare Benefit Policy Manual, which provides that custodial 
care is not covered under Medicare, describes activities of daily 
living as including, for example, ``assistance in walking, getting in 
and out of bed, bathing, dressing, feeding, and using the toilet, 
preparation of special diets, and supervision of medication that 
usually can be self-administered.'' Medicare Benefit Policy Manual, 
Chapter 16--General Exclusions from Coverage, https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/bp102c16.pdf (last 
visited Feb. 2018). The purpose of this particular reference in the 
Medicare Benefit Policy Manual is to describe custodial care, in 
general terms, rather than to define ADLs. This reference does not 
distinguish between ADLs and IADLs. We reviewed 33 regulations in the 
Code of Federal Regulations that pertained to ADLs. Ten of these were 
in VA's title 38. The other 23 were in titles 7, 20, 24, 29, 32, 42, 
and 45. We also reviewed other sources. A 1963 study limited ADLs to 
``bathing, dressing, going to the toilet, transferring, continence, and 
feeding.'' Sidney Katz, et al., ``Studies of Illness in the Aged, The 
Index of ADL: A Standardized Measure of Biological and Psychosocial 
Function,'' Journal of the Am. Med. Assoc., Vol. 185, No. 12, 914-919 
(Sept. 21, 1963). The IADLs were added later. Since that time, health, 
insurance, and governmental agencies have used these definitions for 
various purposes. There is now considerable variation between sources 
with respect to the activities included as an ADL. After further 
consideration, we have added, in Sec.  3.278(b)(2), ``ambulating within 
the home or living area'' to our list of ADLs. This addition is 
consistent with the U.S. Census Bureau's Survey of Income and Program 
Participation, which lists the following ADLs: ``difficulty getting 
around inside the home, getting in/out of a bed/chair, bathing, 
dressing, eating, and toileting.'' https://www.census.gov/topics/health/disability.html (last visited Feb. 2018). Other governmental 
regulations also include mobility or ambulation to some extent. See 7 
CFR 1944.252; 32 CFR 728.4(h); 38 CFR 51.120(b)(1); 38 CFR 52.2; 38 CFR 
71.15; 42 CFR 409.44(c)(1)(iv); 42 CFR 483.25(c).
    Several commenters asked us in particular to define ``handling 
medications'' as an ADL instead of an IADL. Although we decline to do 
this, we note here that there is a difference between ``medication 
administration'' and other sorts of assistance with taking medications 
such as medication reminders. Medication administration, if performed 
by a health care provider, would be a health care expense under Sec.  
3.278(c)(1). A medication reminder from a provider who is not a health 
care provider would not be a medical expense unless the individual 
requires custodial care and the provisions of final Sec.  3.278(d) 
apply.
    Many commenters also urged us to include IADLs in the definition of 
ADLs or, similarly, to include IADLs alone as medical expenses. We note 
that the final rule liberalizes the circumstances in which payment for 
assistance with IADLs constitutes a medical expense, as discussed 
below. We believe this obviates the commenters' concerns without the 
need for changing definitions in this regard. We have, however, made 
one change to our list of IADLs based on our further administrative 
review. In the proposed rule, we proposed to exclude as an IADL, and as 
a medical expense under proposed paragraph (e)(5), fees paid to a VA-
appointed fiduciary. See 80 FR 3850. Upon further review, we have 
determined that no statute precludes the use of such fees as an IADL. 
Therefore, we removed the last sentence of proposed Sec.  3.278(b)(3), 
``Managing finances does not include services rendered by a VA-
appointed fiduciary.'' In addition, we removed proposed paragraph 
(e)(5), which provided that fees for VA-appointed fiduciary services 
are not medical expenses. We also amended the introductory paragraph of 
Sec.  3.278(e) to refer to paragraphs (e)(1) through (4) instead of 
(e)(1) through (5).
    We received a number of comments regarding our definition of 
``custodial care'' and we have made changes. The commenters believed 
that the proposed rule unfairly excluded, as a medical expense, 
payments for the care of individuals with dementia. Many of these 
commenters said that such individuals would no longer qualify, because 
they may not require assistance with two ADLs. Other comments stated 
that physical disorders should be included. We agree. Final Sec.  
3.278(b)(4)(ii) includes physical, developmental, and cognitive 
disorders along with mental disorders.
    Further, we received several comments from individuals who were 
concerned that the language used in proposed Sec.  3.278(b)(4)(ii) 
(requiring ``regular . . . [s]upervision because an individual . . . is 
unsafe if left alone'') was too limiting. These commenters seemed to 
read the proposed rule to say that the disabled individual could never 
be left alone under any circumstances. To avoid such misunderstandings, 
final Sec.  3.278(b)(4)(ii) now includes supervision ``to protect the 
individual from hazards or dangers incident to his or her daily 
environment,'' the same phrase used in 38 CFR 3.352(a).
    On that point, several commenters appeared to confuse the purpose 
of proposed Sec.  3.278 with the purpose of 38 CFR 3.351 and 3.352(a). 
One commenter stated that proposed Sec.  3.278 conflicts with and 
``amends'' Sec.  3.352. To be clear, Sec. Sec.  3.351 and 3.352(a) 
provide the criteria for determining whether an individual is 
housebound, or requires aid and attendance, as well as the compensation 
or pension rate to apply; those regulations apply to both needs-based 
and non-needs-based benefits, and do not address income calculations or 
deductions. The purpose of Sec.  3.278 is quite different because it 
describes medical expenses that can be deducted from income for 
pension, parents' DIC, and section 306 pension. (These are the only VA 
needs-based benefits for which deductible medical expenses may be used 
to reduce income.) Because the purpose of Sec.  3.278 differs from that 
of Sec. Sec.  3.351 and 3.352(a), it is not essential for Sec.  3.278 
to precisely mirror Sec. Sec.  3.351 and 3.352(a). Nevertheless, there 
is some value in consistent terminology across part 3, and the changes 
in this final rule to proposed Sec.  3.278(b)(4)(ii) provide that.
    One commenter believed that needing regular assistance with only 
one ADL could constitute custodial care. We make no change based on 
this comment. We continue to believe that two ADLs is appropriate, 
particularly given the fact that we have expanded the definition of 
ADLs to include an additional ADL and have added additional types of 
disorders to the definition of custodial care. The final definition of 
custodial care, Sec.  3.272(b)(4), is regular (i) assistance

[[Page 47258]]

with two or more ADLs, or (ii) supervision because an individual with a 
physical, mental, developmental, or cognitive disorder requires care or 
assistance on a regular basis to protect the individual from hazards or 
dangers incident to his or her daily environment. Combined with the 
further changes discussed below, if an individual is shown to require 
regular assistance to be protected from hazards or dangers incident to 
his or her daily environment due to a physical, mental, developmental, 
or cognitive disorder, then assistance with ADLs or IADLs from an in-
home care attendant or within a care facility is a medical expense.
    Multiple commenters discussed the wide variation among States with 
respect to ``assisted living facility,'' ``independent living 
facility,'' and other facility types, both in terms of the type of care 
provided and licensure requirements. We agree with the commenters who 
emphasized that the medical expense deduction should be contingent on 
the sort of care the disabled individual is receiving in the facility 
and the necessity for the individual to be there--not the name of the 
facility. For this reason, we have revised the term and definition used 
for these facilities. The term proposed at Sec.  3.278(b)(8), 
``Assisted living, adult day care, or similar facility,'' is now 
``[c]are facility other than a nursing home'' and defined in final 
Sec.  3.278(b)(7) to mean ``a facility in which a disabled individual 
receives health care or custodial care under the provisions of 
paragraph (d) of this section.'' Such a facility must be licensed if 
facilities of that type are required to be licensed in the State or 
country in which the facility is located. The regulation also provides 
that a facility that is residential must be staffed 24 hours per day 
with care providers and that the providers do not have to be licensed 
health care providers.
    Our proposed definition at Sec.  3.278(b)(8) required residential 
facilities to be staffed 24 hours per day with ``custodial care 
providers.'' Several commenters urged us to clarify whether such 
providers were required to be licensed health care providers. The final 
rule, in Sec.  3.278(b)(7), does not use the term ``custodial care 
provider'' and, as noted above, clarifies that these providers do not 
have to be licensed health care providers.
    We made two additional changes to the definitions section; these 
are discussed in the information pertaining to institutional forms of 
care.

3. Institutional Forms of Care and Fast Letter 12-23

    As mentioned above, in October 2012, VA issued Fast Letter 12-23 to 
its field stations in order to clarify and address inconsistencies that 
had arisen in VA's procedures manual, particularly with respect to when 
room and board in a facility could be considered a deductible medical 
expense. Numerous commenters wrote that Fast Letter 12-23 was more 
liberal in many respects than the proposed rule and urged us to 
incorporate these aspects of the fast letter in this final rule. We 
agree and have significantly revised Sec.  3.278(d)(3) in the following 
ways:
    The title of the paragraph is now ``Care facilities other than 
nursing homes'' instead of ``Assisted living, adult day care, and 
similar facilities,'' consistent with final Sec.  3.278(b)(7). By not 
mentioning any particular facility type in the title, we hope to avoid 
the impression that we are not allowing payments made to certain 
facilities based on the name of the facility. As mentioned above, we 
are focusing on the care that the individual receives within the 
facility and the need for the individual to be in the facility rather 
than the facility name.
    Final paragraph (d)(3) provides clearly that care ``in a facility'' 
may be provided by the facility, contracted by the facility, obtained 
from a third-party provider, or provided by family or friends. Many 
commenters urged us to make this clarification. This provision is 
consistent with Fast Letter 12-23, although the fast letter did not 
address family or friends. Fast Letter 12-23 spoke only to contracts 
that a claimant made with third-party providers. However, we heard from 
a number of commenters telling us that their loved one needed to live 
in a facility to receive care provided by a third party or by family or 
friends and we agree that this is reasonable.
    One commenter expressed extreme dismay that we would permit third-
party contractors to provide the care, believing this would lead to 
``warehousing'' veterans in non-government facilities. We disagree. We 
believe that it is appropriate to allow veterans and their survivors to 
receive care in a facility or from a provider of their choice. We make 
no changes based on the comment.
    The ``general rule,'' now found at paragraph (d)(3)(ii), simply 
provides that payments for health care provided by a health care 
provider are medical expenses. We stress that this rule applies to all 
individuals in a care facility, including those who do not need A&A, 
are not housebound, do not require custodial care, and do not need to 
be in a protected environment. We moved assistance with ADLs to final 
Sec.  3.278(d)(3)(iii), which now incorporates IADLs and is discussed 
below. We note that this general rule is, in fact, no different from 
Sec.  3.278(c)(1), which simply states that payments to a health care 
provider for services performed within the scope of the provider's 
professional capacity are medical expenses.
    Final paragraph (d)(3)(iii) incorporates the intent of Fast Letter 
12-23 by stating that the provider does not need to be a health care 
provider, and that payments for assistance with ADLs and IADLs are 
medical expenses, if the disabled individual is receiving health care 
or custodial care in the facility and either: (A) Needs A&A or is 
housebound; or (B) a physician, physician assistant, certified nurse 
practitioner, or clinical nurse specialist states in writing that, due 
to a physical, mental, developmental, or cognitive disorder, the 
individual has a need to be in a protected environment. This is a 
liberalization from proposed paragraph (d)(3), which would have 
required a veteran or a surviving spouse (or parent for parents' DIC 
purposes) to be in need of A&A or to be housebound in order for VA to 
consider certain medical expenses as deductible; the physician's or 
physician assistant's statement option was only for dependents and 
other relatives. Fast Letter 12-23, however, permits the ``physician's 
statement'' option for veterans and surviving spouses as well. We 
determined that the ``physician's statement'' option should be 
permitted for veterans and surviving spouses because not doing so could 
mean that veterans and surviving spouses might be subject to a higher 
level of disability requirement than their dependents and relatives for 
their ADL and IADL assistance payments to be authorized as medical 
expenses. Also regarding the ``physician's statement'' option, which 
previously only included physicians and physician assistants, this 
final rule expands this option to include certified nurse practitioners 
and clinical nurse specialists as well. We recognize that a claimant's 
primary medical provider may not be a physician or physician assistant.
    On this issue, one commenter stated that the rule should be 
modified to eliminate the need for a statement from a physician or 
physician assistant that ``due to physical or mental disability, the 
qualified relative requires the health care services or custodial care 
that the in-home attendant provides.'' The commenter opined this is 
burdensome

[[Page 47259]]

and potentially demeaning to a person with disabilities. However, as 
another commenter pointed out, there are two groups of individuals who 
avail themselves of the services provided by independent living (or 
similar) facilities: Those who are there for convenience and those who 
are there for necessity. We agree with this latter comment; VA must 
have a way to distinguish between these groups. We do not believe the 
requirement for a statement is overly burdensome, particularly inasmuch 
as we have expanded qualified signers of such statements to physicians, 
physician assistants, certified nurse practitioners, and clinical nurse 
specialists. The requirement is in no way intended to be demeaning.
    We have amended proposed paragraph (d)(3)(i)(B) to now provide, in 
final paragraph (d)(3)(iv), that payments for meals and lodging, as 
well as payments for other facility expenses not directly related to 
health or custodial care, are medical expenses when either of the 
following are true: (A) The facility provides or contracts for health 
care or custodial care for the disabled individual; or (B) a physician, 
physician assistant, certified nurse practitioner, or clinical nurse 
specialist states in writing that the individual must reside in the 
facility (or a similar facility) to separately contract with a third-
party provider to receive health care or custodial care or to receive 
(paid or unpaid) health care or custodial care from family or friends. 
This change is consistent with Fast Letter 12-23; however, as noted 
above, we are including family and friends.
    Final paragraphs (d)(3)(iii) and (iv) also differ from proposed 
paragraph (d)(3)(i)(B) by eliminating the proposed ``primary reason'' 
requirement. The proposed rule stated that medical expenses included 
all payments to the facility when the ``primary reason'' for the 
individual to be in the facility was to receive health care or 
custodial care. We agree with the many commenters who said the proposed 
provision was too restrictive. We believe these liberalizing changes 
satisfy the commenters' concerns.
    Consistent with our revisions to paragraph (d)(3) described above 
as well as to our revisions to paragraph (d)(2) described below, we 
have made two additional changes to the definitions section. First, we 
have removed proposed Sec.  3.278(b)(5), the definition for ``qualified 
relative,'' and renumbered Sec.  3.278(b) accordingly. Under this final 
rule, it is no longer necessary to define a qualified relative. We 
previously proposed, at 80 FR 3850, to define a qualified relative 
because we were distinguishing between (A) veterans, surviving spouses, 
and parents' DIC claimants, versus (B) other individuals, when it came 
to the ``physician's statement'' option. We no longer need the 
definition because under this final rule, as noted above, we have 
liberalized the requirements to allow any disabled individual to 
utilize the type of physician's statement that had been proposed solely 
for qualified relatives. We emphasize that the deletion of the 
definition of ``qualified relative'' in no way limits the scope of the 
individuals whose medical expenses VA may deduct.
    Second, we added a definition of ``needs A&A or is housebound'' as 
final Sec.  3.278(b)(8), to simplify the rest of the regulation and to 
account for another type of individual whom VA may determine to need 
aid and attendance. As briefly mentioned above, in the section titled 
``Terminology Clarifications Regarding VA Pension and Other VA Needs-
Based Benefits,'' VA pays a higher disability compensation (i.e., 
service-connected) rate to veterans when the veteran's spouse needs aid 
and attendance. Usually, disability compensation is a greater benefit 
than pension but sometimes it is not. VA generally pays the greater 
benefit automatically, but veterans always have the option of choosing 
whether they wish to receive pension or compensation. It may be the 
case that a veteran who is entitled to compensation may have a spouse 
who needs aid and attendance and that veteran may have chosen to 
receive pension instead of compensation. (Veterans must have service-
connected conditions rated at least 30 percent disabling to receive 
additional compensation for dependents. See 38 U.S.C. 1115.) These 
spouses were not included in the proposed rule but they are included in 
VA's procedures manual and should be here, as well. Therefore, our 
definition of ``needs A&A or is housebound'' refers to a disabled 
individual who meets the criteria in Sec.  3.351 for needing regular 
aid and attendance (A&A) or being housebound and is a veteran; 
surviving spouse; parent (for parents' DIC purposes); or spouse of a 
living veteran with a service-connected disability rated at least 30 
percent disabling, who is receiving pension.
    Consistent with these changes, this final rule does not include 
proposed Sec.  3.278(e)(3), which previously stated that VA does not 
consider payments for meals and lodging to facilities that do not 
provide health care services or custodial care to be medical expenses. 
Instead, final Sec.  3.278(d)(3)(iv)(B) allows for those payments to be 
medical expenses if specified individuals attest that the individual 
must reside in the facility to separately contract with a third-party 
provider to receive health care or custodial care or to receive such 
care from family and friends.

4. In-Home Care

    Numerous commenters expressed their opinion that our proposal, at 
Sec.  3.278(d)(2), to limit the deductible hourly rate for in-home 
attendants was a bad idea for many reasons: (1) It is patently unfair 
to set a national average as a limit, so there must be a geographical 
component; (2) using an average does not take into consideration 
overtime or holiday time; (3) there was no cap proposed on facility 
costs; (4) the proposed limit was far too low and based on an outdated 
source (the MetLife Mature Market Institute no longer produces its 
Market Survey of Long-Term Care Costs); and (5) the authorizing statute 
(38 U.S.C. 1503(a)(8)) does not permit VA to set a limit on the medical 
expense amount.
    While we disagree with this comment regarding our authority, we 
agree with many of the other commenters, and the final rule does not 
include a limit to the hourly rate of in-home care. We have also 
removed the last sentence of proposed Sec.  3.278(d)(2), which referred 
to the website where VA would publish the hourly rate limit. Several 
commenters suggested alternative in-home care limits such as the 
Genworth Cost of Care Survey or using 150 percent of the limit we 
proposed. We make no changes based on these suggestions because we have 
removed the in-home care hourly rate limit at this time, and we will 
consider whether we should revisit the issue in a future rulemaking.
    One commenter urged us to ``consider adding language to the final 
rule that would ensure greater protection for veterans to ensure they 
are not open to potential liability through the employment of a 
registry model of home care.'' They urged us to require that all home 
care providers employ their home care workforce and thus train, bond, 
and withhold taxes for their employees. They went on to point out that 
some home care providers are simply staffing agencies that link a 
senior or disabled individual with an independent contractor who comes 
into the home without the training or insurance needed to provide real 
protections for the claimant. They believe VA should require the home 
care provider to employ their workforce rather than using independent 
contractors in an effort to eliminate the burden of potential 
liability. We decline to

[[Page 47260]]

implement such a requirement at this time. We do not believe that this 
type of provision would be a logical outgrowth of our proposed rule.
    The final rule, regarding in-home attendants, is much simpler than 
the proposed rule, consistent with the changes we made to the care 
facility provisions, and for many of the same reasons:
    (1) The final rule at Sec.  3.278(d)(2) provides that payments for 
assistance with ADLs and IADLs by an in-home attendant are medical 
expenses, as long as the attendant provides the disabled individual 
with health care or custodial care. The proposed rule would not have 
considered payments for IADLs to be a medical expense for a veteran or 
surviving spouse (or parent for parents' DIC) unless the claimant 
needed A&A or was housebound and providing health care or custodial 
care was the ``primary responsibility'' of the attendant.
    (2) The final rule at Sec.  3.278(d)(2)(i) and (ii) provides that 
the attendant must be a health care provider, unless the disabled 
individual needs A&A or is housebound, or a physician, physician 
assistant, certified nurse practitioner, or clinical nurse specialist 
states in writing that due to a physical, mental, developmental, or 
cognitive disorder, the individual requires the health care or 
custodial care that the in-home attendant provides. The proposed rule 
did not permit a ``doctor's statement'' option for veterans, surviving 
spouses, or parents' DIC claimants.

5. Other Deductible Medical Expense Matters

    Numerous commenters urged us to provide a ``grandfathering 
provision'' for our proposed changes to institutional care and in-home 
care provisions. Although we do not believe that the final rule 
necessitates such a provision, we are providing one because we have no 
desire or intent to harm or displace any person. We do not want to take 
a chance that previous guidance might have been interpreted more 
liberally than this final rule, in any individual case. Some 
commenters, who were residing in independent living facilities, 
expressed hesitation to submit a medical expense deduction claim for 
eyeglasses, for example, for fear that VA would re-consider and 
disallow their existing care facility expenses. We want to allay any 
concern or fear in this regard. Therefore, the final rule provides, in 
an introductory paragraph of final Sec.  3.278(d), that paragraph (d), 
which pertains to institutional forms of care and in-home care, applies 
with respect to unreimbursed medical expense claims for institutional 
forms of care or in-home care received on or after October 18, 2018 
that VA has not previously granted. Previous medical expense grants 
pertaining to institutional or in-home care made before that date would 
continue unless the claimant moves to a different facility or employs a 
different in-home attendant or in-home care agency.
    In paragraph (c) of proposed Sec.  3.278, we provided that 
``[g]enerally, 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.'' One commenter pointed 
out that such a provision effectively restricts payments for medical 
expenses when no improvement is anticipated, such as hospice care. To 
clarify this provision, final Sec.  3.278(c) provides that medical 
expenses for VA needs-based benefit purposes are payments for items or 
services ``that are medically necessary; that improve a disabled 
individual's functioning; or that prevent, slow, or ease an 
individual's functional decline.''
    The same commenter noted that we had not included payments for 
Medicare Part A in Sec.  3.278(c)(5). Most individuals in the U.S. 
qualify for free Part A benefits; however, a small number purchase this 
benefit. Although Sec.  3.278(c)(5) would not have prohibited deducting 
Part A payments as a medical expense, we agree that for the sake of 
clarity and completeness Part A payments should be included, and we 
have added it in the final rule.
    One commenter requested that we include, as a medical expense, any 
expense made necessary due to a claimant's medical condition or 
disability, such as a heated blanket to regulate body temperature for a 
veteran with quadriplegia; cranberry juice to prevent urinary tract 
infections for a veteran with a spinal cord injury; or home 
modifications to allow disabled individuals to live safely in the 
community. We make no changes based on this comment. Although we are 
sympathetic and understand the impetus behind this suggestion, it is 
longstanding VA policy not to consider such expenses to be deductible 
medical expenses. VA's procedures manual provides, ``Mechanical and 
electronic devices that compensate for disabilities are deductible 
medical expenses to the extent that they represent expenses that would 
not normally be incurred by nondisabled persons. Do not allow a medical 
expense deduction for equipment that would normally be used by a 
nondisabled person, such as an air conditioner or automatic 
transmission.'' M21-1MR, V.iii.1.G.43.k (May 20, 2011). We believe this 
policy is consistent with common understanding of medical expenses and 
have decided to continue that policy.
    One commenter found it unjust that proposed paragraph (c)(4) does 
not take into consideration higher mileage rates in certain 
geographical areas when calculating mileage for medical purposes. As 
previously stated in this document, statutory MAPRs are also not 
adjusted by locality. For its mileage rates, VA uses the privately 
owned vehicle mileage reimbursement rates provided by the U.S. General 
Services Administration, which we believe is a reasonable and fair 
standard. We make no changes based on the comment.

G. Discussion of Public Comments Regarding Income and/or Income and 
Asset Exclusions

    We now address comments we received regarding exclusions from 
income or income and assets (or ``corpus of the estate'' for parents as 
dependents and section 306 pension). In 38 CFR part 3, there are 
currently three regulations that address exclusions from income, 
Sec. Sec.  3.261, 3.262, and 3.272, and this rulemaking adds a fourth, 
Sec.  3.279. There are also currently three regulations that address 
exclusions from assets, Sec. Sec.  3.261, 3.263, and 3.275, and this 
rulemaking adds a fourth, Sec.  3.279. The reason for so many 
regulations is that sometimes a statutory exclusion is written in such 
a way that the exclusion applies to all VA needs-based benefits; 
however, sometimes a statutory exclusion is written in such a way that 
the exclusion applies only to some VA needs-based benefits. Sections 
3.261 and 3.262 apply only to: (1) Parents as dependents for 
compensation purposes; (2) parents' DIC; and (3) section 306 pension 
and old-law pension, which are VA's previous and largely obsolete 
pension programs. Section 3.263, also largely obsolete, applies only to 
parents as dependents for compensation purposes and to section 306 
pension. Sections 3.272 and 3.275 apply only to current-law pension. 
Section 3.279 will apply to all VA needs-based benefits (parents as 
dependents, parents' DIC, section 306 pension, old-law pension, and 
pension under the current law). This part of the preamble applies to 
all comments we received on exclusions regardless of where the 
exclusion is listed.

1. Changes to Exclusions

    One commenter noted that our proposed rules did not contain a 
general statutory exclusion, i.e., a ``catch all'' to state that 
regardless of whether or not an exclusion is listed in the applicable

[[Page 47261]]

regulation, VA will exclude any type of payment that is excluded by 
statute. We agree that such a general exclusion is necessary and the 
final rule amends Sec. Sec.  3.261, 3.262, 3.263, 3.272, and 3.275 to 
provide one, and we have added one to final Sec.  3.279.
    Two commenters noted that we failed to list in Sec.  3.279 that 
Federal income tax refunds are excluded income. They are also excluded 
from resources (i.e., assets) for one year after receipt. We have made 
this addition to final Sec. Sec.  3.261, 3.262, and 3.272, and final 
Sec.  3.279 lists this exclusion at paragraph (e)(1). We have also 
renumbered proposed Sec.  3.279(e)(1) through (8) as final Sec.  
3.279(e)(2) through (9), respectively.
    This final rule does not include proposed Sec.  3.272(k), under 
which only the interest component of annuity payments would have 
counted as income in certain situations. See 80 FR 3857. One commenter 
stated that 38 U.S.C. 1503 does not permit VA to count a partial 
payment. The same commenter stated that, as written, the proposed 
addition would be very difficult to implement because often it is 
impossible to calculate the amount of interest in an annuity payment 
due to varying types of annuities. Other commenters argued there is no 
way to determine the interest component of an annuity. Additional 
commenters questioned why income from an annuity purchase worthy of a 
penalty would only count in part. Although some commenters liked the 
exclusion, commenters also noted confusion and conflict between this 
exclusion and the proposed net worth and asset transfer provisions.
    On further review, proposed Sec.  3.272(k) was in conflict with 
several VA precedential General Counsel opinions, which provide that 
distributions from individual retirement accounts (IRAs) and annuities 
are income for purposes of VA's needs-based benefits. See VAOPGCPREC 2-
2010, VAOPGCPREC 1-97, VAOPGCPREC 1-93, and VAOPGCPREC 23-90. As noted 
in those opinions, 38 U.S.C. 1503(a) provides that ``all payments of 
any kind or from any source (including . . . retirement or annuity 
payments . . .),'' shall be considered income unless expressly excluded 
by statute. In consideration of the comments received and the rationale 
contained in the Office of the General Counsel opinions, this final 
rule does not include proposed Sec.  3.272(k). Final Sec.  3.272(k) was 
previously proposed as Sec.  3.272(r). Final Sec.  3.272(r) consists of 
the income tax return exclusion discussed above.
    Final Sec.  3.279 includes some corrections and a clarification, in 
addition to the ``catch all'' statutory exclusion of paragraph (a), and 
the income tax return exclusion of paragraph (e)(1). We have changed 
the title of paragraph (a) from ``Scope of section'' to ``Statutory 
exclusions not countable'' because we believe the new title is more 
descriptive. Final paragraphs (c)(1), (2), and (3) use the term 
``assets'' in the first column rather than the term ``net worth'' as 
proposed. Using the previous term was an oversight. The actual 
statutory language at 25 U.S.C. 1407 and 1408 is ``income or 
resources''; however, VA terminology for resources is now assets.
    Several commenters noted that our proposed rule did not include a 
statutory exclusion found at 38 U.S.C. 1503(a)(5). The statute excludes 
reimbursements for loss; Public Law 112-154 added it to 38 U.S.C. 1503 
in August 2012. We thank the commenters for pointing this out and have 
added this exclusion as final Sec.  3.272(s). We note that we informed 
our field stations of the exclusion soon after the law change.

2. Other Comments Pertaining to Exclusions

    Several commenters referred to a statement we made in the preamble 
of the proposed rule that VA counts distributions from IRAs as income. 
See 80 FR 3854. These commenters opined that counting the distributions 
from IRAs as income penalizes those who have saved money in an IRA more 
than those who have, for example, saved their money in a bank account 
or certificate of deposit. Although we understand this concern, our 
rulemaking may not contradict the precedential General Counsel opinions 
mentioned above, which came to their conclusion after a thorough 
analysis of the legislative history of the pension program. One 
commenter specifically argued that the principal of an IRA should not 
count as an asset. However, 38 CFR 3.263(b) defines net worth as all 
real and personal property owned by the claimant, except the claimant's 
dwelling (single family unit), including a reasonable lot area, and 
personal effects suitable to and consistent with the claimant's 
reasonable mode of life, which would include funds in an IRA. Once the 
principal in an IRA is accessible without penalty, it would count as an 
asset that would be reduced with any distributions, and any 
distributions from that account would count as income. Therefore, we 
make no changes based on such comments.
    One commenter noted that our proposed rule did not amend Sec.  
3.272(e) to incorporate the decision of the United States Court of 
Appeals for Veterans Claims (Veterans Court) in Osborn v. Nicholson, 21 
Vet. App. 223 (2007), which held that interest received from the 
redemption of a Series EE U.S. Savings Bond is excludable from income 
in determining annual income for improved pension (i.e., current-law 
pension) purposes. VA is bound by Osborn and has issued a precedential 
General Counsel opinion, VAOPGCPREC 2-2010, addressing the Veterans 
Court's holding. But we decline to explicitly incorporate that holding 
into Sec.  3.272(e) at this time, because (1) that paragraph's current 
language and Osborn are not in conflict, and (2) such an amendment in 
the final rule would deprive interested parties the opportunity to 
meaningfully comment.
    One commenter took issue with the income exclusions located at 
proposed Sec.  3.279(c)(1), (2), (3), and (6). These exclude from 
income payments to American Indians of up to $2,000 per year received 
from Tribal Judgment Fund distributions, interests in trust or 
restricted lands, or per capita distributions, as well as cash payments 
to Alaska Natives of up to $2,000 per year received from the Alaska 
Native Claims Settlement Act. The commenter disagreed with the $2,000 
cap on such payments. We make no change based on this comment because 
the $2,000 cap is statutory. See 25 U.S.C. 1407, 1408; 43 U.S.C. 
1626(c).
    One commenter stated that there should not be a cap on the 
exclusion at proposed Sec.  3.272(r), which incorporates a statutory 
income exclusion found at 38 U.S.C. 1503(a)(11). The exclusion, now 
incorporated in this final rule at Sec.  3.272(k), provides that VA 
will exclude up to $5,000 per year that a State or municipality pays to 
a veteran as a veterans' benefit due to injury or disease. Because the 
statute specifically provides for the $5,000 cap, no change is 
warranted based on the comment.
    One commenter opined that our proposed exclusion at Sec.  
3.279(b)(1) is erroneous because it ``is inconsistent with 25 U.S.C. 
1408'' and because ``relocation payments under 25 U.S.C. 1408 are 
treated as assets.'' We make no change because the statute cited, 
section 1408, pertains to interests of American Indians in trusts or 
restricted lands and is listed in Sec.  3.279(c)(2), where we note such 
payments are excluded from income (up to $2,000 per year) and assets.
    However, the commenter goes on to quote from 42 U.S.C. 4636, which 
is the

[[Page 47262]]

basis of the relocation payment exclusion listed at Sec.  3.279(b)(1). 
To the extent the commenter is suggesting that payments issued pursuant 
to section 4636 should be excluded from assets, we disagree. The 
statute's plain language, including its title, is clear that payments 
pursuant to section 4636 are excluded from income only. In addition, 
when Congress does not want a payment to be considered as either income 
or as an asset, Congress will instruct that the payment shall not be 
considered as either income or resources. An example of this is 42 
U.S.C. 10602(c) (reclassified as 34 U.S.C. 20102(c)), which uses all 
three terms (income, resources, and assets). Because Congress did not 
exclude relocation payments from resources or assets, we make no 
changes based on this comment.
    One commenter opined that payments received under the Workforce 
Investment Act of 1998 (29 U.S.C. chapter 30) should not be considered 
an asset. This payment type is listed as an income exclusion at 
proposed and final Sec.  3.279(d)(1). Although the authority for this 
exclusion, 29 U.S.C. 2931(a)(2), has been moved to 29 U.S.C. 
3241(a)(2), the statutory text still only excludes these payments from 
income, not assets. Therefore, the only change we make here is to 
update the statutory citation.
    Similarly, the same commenter stated that payments to AmeriCorps 
participants, listed as an exclusion from income at Sec.  3.279(d)(2), 
should not be considered an asset for the annualization period in which 
the payment is received. Since the statutory authority for this 
exclusion, 42 U.S.C. 12637(d), does not authorize the exclusion of 
these payments from assets, we make no changes based on this comment.
    The same commenter expressed the opinion that, if a payment type is 
excluded from income, then it should be excluded as an asset during the 
annualization period in which it is received. We understand the 
commenter's point of view; however, absent statutory authority, there 
is no reason to suppose that excluding a payment from income 
necessarily equates to excluding that payment from assets during the 
annualization period in which the payment is received. Indeed, if that 
was Congress' intent, Congress would have made its intent known. In 26 
U.S.C. 6409, for example, Congress plainly stated that the refund 
payment is not to be considered income and is not to be considered a 
resource for the annualization period of receipt. No such statement is 
present for the statutes pertaining to AmeriCorps or Workforce 
Investment payments. Without an instruction from Congress, we decline 
to subtract certain types of payments, once received, from assets. To 
the extent this commenter believes this practice constitutes double-
counting, we disagree. Double counting would be including a payment as 
income and assets in the year of receipt; these payments are being 
excluded from income, but included as assets. The income exclusion 
still benefits the claimant inasmuch as it affects his or her pension 
rate. 38 U.S.C. 1521.
    One commenter stated that, due to the fact that payments from the 
Retired Serviceman's Family Protection Plan are excluded from income, 
Survivor Benefit Plan payments should likewise be excluded from income. 
The Retired Serviceman's Family Protection Plan was the Department of 
Defense (DoD) survivor program that was in effect before September 21, 
1972, which was replaced by the Survivor Benefit Plan. Payments under 
the Retired Serviceman's Family Protection Plan are specifically 
excluded under 10 U.S.C. 1441. There is no similar statutory exclusion 
for the Survivor Benefit Plan in 10 U.S.C. chapter 73 or in any other 
statute. See 10 U.S.C. 1450(h). Therefore, we make no change based on 
this comment.
    The same commenter stated that life insurance payouts provided 
under the Servicemembers' Group Life Insurance (SGLI) and Veterans' 
Group Life Insurance (VGLI) should be excluded. Under 38 U.S.C. 
1503(a)(12), the lump-sum proceeds of any life insurance policy on a 
veteran are excluded--but only for survivors pension purposes. This 
exclusion is currently located at Sec.  3.272(x) and, as proposed, will 
be relocated to Sec.  3.272(q) by this final rule. Given the statute, 
we make no change based on this comment.
    This commenter also stated that death transitional payments such as 
death gratuities or ``transitioning child allowances'' should be 
excluded. The death gratuity is a payment that DoD pays when a service 
member dies on active duty. Congress has provided for the exclusion of 
the death gratuity for parents' DIC purposes at 38 U.S.C. 
1315(f)(1)(A). It was previously called the ``six months' death 
gratuity'' and is listed as an exclusion in Sec.  3.261(a)(12). 
However, there is no statutory authority to exclude death gratuity 
payments from current-law survivors pension, so we make no change based 
on this comment. We note that it would be extremely rare for a survivor 
to receive a death gratuity payment and also receive VA survivors 
pension. When a service member dies on active duty, his or her survivor 
is generally entitled to receive DIC from VA, which is a greater 
benefit than survivors pension. As previously discussed, DIC for 
surviving spouses and children is not a needs-based benefit and is not 
part of this final rule.
    Likewise, we believe the ``transitioning child allowance'' that the 
commenter mentions is the additional DIC amount paid to a surviving 
spouse under 38 U.S.C. 1311(f) when the surviving spouse has a child or 
children under the age of 18. A surviving spouse receiving DIC and the 
``transitioning child allowance'' would not receive VA pension, see 38 
U.S.C. 5304(a), and therefore there would be no need for the suggested 
exclusion for the ``transitioning child allowance.'' We make no changes 
based on this comment.
    The same commenter noted that proposed Sec.  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. 
The commenter stated that this exclusion should cover VA education 
benefits. We note that under 38 U.S.C. 1503(a)(9), educational and 
vocational rehabilitation expenses for books, fees, tuition, and 
materials are deductible from income for pension purposes, as are 
transportation fees in certain situations. Therefore, if a veteran uses 
his or her education benefit to pay for school and supplies (or 
allowable transportation fees), then the amounts paid would be 
deducted. Similarly, when a VA educational benefit is payable directly 
to the school, VA considers it received by the veteran and then paid to 
the school, so VA does not count it as income. However, if the 
educational benefit includes a stipend to pay for living expenses or 
dormitory fees, then such payments are countable income for pension. 
Thus, while there is no statute that excludes all VA education 
benefits, portions of educational expenses will not count as income. VA 
regulations note this exclusion at Sec.  3.272(i).
    The same commenter also noted that payments ``under the Atomic 
Commission appear to be missing from the list of exclusions.'' We 
believe the commenter is referring to payments under the Radiation 
Exposure Compensation Act of 1990, which are excluded from income for 
current-law pension, parents' DIC, and parents as dependents for 
compensation purposes. Such payments are not excluded from income for 
section 306 or old-law pension purposes; therefore, the exclusion is 
not listed in Sec.  3.279. Rather, this exclusion is listed in the 
portions of Sec. Sec.  3.261 and 3.262 that apply to

[[Page 47263]]

parents' DIC and parents as dependents, and it is listed in Sec. Sec.  
3.272 and 3.275 for current-law pension. Therefore, no change is 
necessary based on this comment.
    The same commenter questioned our proposal to remove the statutory 
exclusion of payments received under the Medicare transitional 
assistance program and any savings associated with the Medicare 
prescription drug discount card, saying our explanation was confusing. 
These programs no longer exist. See 42 U.S.C. 1395w-141(a)(2)(C). 
Therefore, we decline to incorporate them into proposed Sec.  3.279. 
While there are undoubtedly payments listed in Sec.  3.279 that 
individuals no longer receive, the drug card program was not actually a 
``payment'' in the common use of the word, and the statute specifically 
provides that the program has ended. We do not believe we are 
disadvantaging any VA claimant by not listing this exclusion in 38 CFR 
part 3. The statute for the new program, the Medicare coverage gap 
discount program, does not address the program's effect on other 
Federal programs. See 42 U.S.C. 1395w-114a. The program impacts the 
price of prescription drugs; it is not a payment that individuals 
receive. The only impact the program could have on those receiving VA 
needs-based benefits is to possibly decrease an individual's 
unreimbursed medical expenses. In any case, as noted, the statutory 
authority for the Medicare coverage gap discount program does not 
include any exclusionary language, as did the previous program. 
Therefore, we have not included information about the new program in 
final Sec.  3.279, and we make no changes based on the comment.
    One commenter expressed the belief that child support payments 
should not be countable income for VA pension purposes. We decline to 
make any change based on this comment. Section 1503 of 38 U.S.C. 
provides that all payments of any kind or from any source count unless 
excluded, and there is no statute that excludes these payments.

3. Distribution and Derivation Tables for Exclusions

    As an aid to readers of this supplementary information, we are 
providing the following distribution and derivation tables. Table 2 is 
a derivation table for the ``chart'' portion of new Sec.  3.279. It 
lists the provisions in previous Sec.  3.272 that were the basis for 
new Sec.  3.279. Provisions that are new to part 3 are listed as new. 
The derivation table providing this information in the proposed rule 
had one error that has been corrected here.
    Tables 3 and 4 are distribution and derivation tables for previous 
and revised Sec.  3.272. We note here that ``previous Sec.  3.272'' is 
current until the effective date of this final rule.

      Table 2--Section 3.279 Derivation From Previous Sec.   3.272
------------------------------------------------------------------------
                                             Derived from previous Sec.
             New Sec.   3.279                    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)(9)...............  New.
------------------------------------------------------------------------


               Table 3--Previous Sec.   3.272 Distribution
------------------------------------------------------------------------
                                            Distributed to or no change
          Previous Sec.   3.272                     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--Section 3.272 Derivation
------------------------------------------------------------------------
                                           Derived from, no change, or
         Revised Sec.   3.272                        ``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)..............................  Previous 3.272(q).
3.272(p)..............................  Previous 3.272(s).
3.272(q)..............................  Previous 3.272(x).
3.272(r)..............................  New.
3.272(s)..............................  New.
3.272(t)..............................  New.
------------------------------------------------------------------------

H. Discussion of Public Comments Regarding Other Matters

1. Other Regulatory Changes

    One commenter stated that the supplementary information in our 
proposal pertaining to Medicaid-covered nursing home care for veterans, 
surviving spouses, and surviving children was so ``vague and convoluted 
as to be unintelligible.'' See 80 FR 3855. Although we make no changes 
based on the comment, we are providing additional information here for 
clarity. This final rule, consistent with the proposed rule, amends 38 
CFR 3.551(i) and 3.503 to implement statutory changes to 38 U.S.C. 
5503(d). This statute, which provides for a reduced pension rate where 
a pension recipient is receiving Medicaid-covered nursing home care, 
previously applied only to veterans and surviving spouses with no 
dependents, but was amended in 2010 to apply also to surviving 
children. 38 U.S.C. 5503(d)(5)(B). This statutory change will now be 
reflected in Sec.  3.551(i). The proposed and final rule also amends 
the effective-date provision of Sec.  3.503 to state that VA does not 
create overpayments in such cases unless there is the willful 
concealing of information, consistent with 38 U.S.C. 5503(d)(4). 
Finally, because of the multiple changes to the expiration date of 
section 5503(d), as proposed, final 38 CFR 3.551(i) references the 
statute rather than stating the specific date. We proposed to do this 
to avoid multiple future changes in the regulation.
    One commenter took issue with our proposal to amend 38 CFR 
3.277(c)(2) to replace the word ``shall'' with the permissive word 
``may'' with respect to annual Eligibility Verification Reports (EVRs). 
See 80 FR 3849. The commenter believed this change would allow VA to 
``target'' certain individuals, leading to a ``Big Brother'' mentality. 
We make no changes based on this comment because the change simply 
reflects the statutory terminology of 38 U.S.C. 1506. VA does not 
currently require annual EVRs from any pension recipient; Congress has 
given VA discretionary authority to require or not to require them.
    One commenter expressed concern regarding that discretion, stating 
that an adjudicator may withhold payment if there is an appearance of 
fraud. Although there remains some discretion when it comes to 
individual adjudicators discerning fraud, we believe this rulemaking 
generally provides clearer guidance for pension entitlement decisions 
than existed previously, which will promote consistent benefit 
decisions, streamline processes, and constitute an important

[[Page 47264]]

improvement over past practices. We make no change based on the 
comment.

2. Costs, Savings, and Time

    One commenter suggested this final rule will increase annual 
reporting forms and reviewing documents from the past, which would lead 
to higher administrative costs. As stated, VA has no plans to require 
annual EVRs or increase the number of documents to be submitted and 
reviewed; thus, VA makes no changes based on this comment.
    One commenter stated that VA has wasted significant amounts of time 
on requests for information on income matches, and elderly claimants 
must spend money on accountants to review records for years in which 
EVRs were filed. As stated, VA is not requiring annual EVRs, so we 
anticipate no reporting burden on all pension recipients. VA conducts 
income matches with the IRS and the Social Security Administration 
before awarding pension benefits, which reduces VA reliance on self-
reported and unverified information from claimants. VA is moving toward 
a more streamlined claims process, which will benefit pension claimants 
and VA alike.
    One commenter questioned if VA has considered the costs associated 
with this rulemaking, as well as the other requirements discussed by 
Executive Orders 12866 and 13563. As we stated in the proposed rule, 
VA's impact analysis, which includes the costs associated with this 
rulemaking, is published on https://www.va.gov/ORPM/RINs_2900_AO.asp 
(RIN2900-AO73). Our discussion of Executive Orders 12866 and 13563 is 
below.
    A few commenters mentioned a November 2013 Congressional Budget 
Office (CBO) cost estimate for a Senate bill introduced in the 113th 
Congress, S. 944, which, among other things, would have enacted a 3-
year look-back period for VA pension. Commenters noted that the CBO 
estimate showed a cost and questioned why our impact analysis for the 
proposed rule showed a savings. Although we are not obligated to 
compare the two estimates, we first note that the CBO cost estimate was 
based on its assumption that VA would have to hire 70 additional claims 
processors. VA does not believe that additional claims processors will 
be required; in fact, we believe that somewhat fewer claims processors 
will be needed, given the bright-line net worth limit implemented here 
that was not present in S. 944. Those personnel will be re-directed to 
other mission-critical activities. Second, to the extent the CBO and 
our impact analysis have different estimates regarding the savings to 
be gained through a look-back period, we reiterate here that the 
impetus for the look back is preserving the integrity of the pension 
program--consistent with Congress' directive that pension be reserved 
for those with financial need--not a specific desire to ``save money'' 
in the pension program.
    One commenter noted that GAO reported that VA's asset transfer 
provisions would cost taxpayers more money and increase the need for 
additional claims processors. We make no change based on the comment; 
we found no evidence of GAO making such a statement and, as stated 
above, we do not believe more claims processors will be required under 
this final rule.
    One commenter suggested that VA should commission an independent 
study to weigh administrative expense against savings. VA has completed 
a cost benefit analysis that analyzed the costs and savings of this 
rule, is not required to complete an independent study, and declines to 
do so.
    One commenter requested that VA consult with additional 
professionals before implementing this rule, specifically the National 
Governors Association (NGA), with regard to the effect of this rule on 
State Medicaid budgets. We thank the commenter for the suggestion and 
appreciate the input; however, VA declines to consult with the NGA at 
this time. VA has considered the recommendations of GAO with regard to 
ensuring the integrity of the pension program, has heard from a variety 
of interested parties through the notice and comment process coincident 
with this rulemaking and believes that no further consultation is 
necessary for implementation. Another commenter recommended that we 
consult with additional professionals, because this rule would cause 
significant internal cost to VA, to include adding claims processors. 
We make no change based on the comment. Again, we disagree that more 
claims processors will be necessary, we have completed a cost benefit 
analysis, and we do not believe further consultation is necessary for 
implementation.
    Several commenters stated that VA is cutting benefits to save 
money, instead of helping claimants receive pension benefits. However, 
VA is not cutting benefits; as stated, we believe that more claimants 
will qualify for pension under this final rule. One commenter stated 
that, instead of taking away veterans' benefits, legislators should 
assess financial penalties for those who defer military service, which 
the commenter argued should cover the cost of VA and our veterans' 
needs as well as pay the national war debt. As stated, VA is not taking 
away any veterans' benefits. We make no changes based on these 
comments.
    Several commenters expressed concern that this rulemaking would 
discourage claimants from applying for VA pension benefits, that the 
rulemaking would result in unnecessary delays, and that more appeals 
would result. VA disagrees with these comments. VA is streamlining its 
claims process to increase efficiency and decrease claims processing 
times. VA believes that this rule provides clearer pension entitlement 
criteria that will encourage claimants to apply for pension and 
decrease appeals. Therefore, VA does not make any changes to this 
rulemaking based on these comments.
    Several commenters referred to a purported VA estimate of an extra 
30 minutes per applicant to process claims. These commenters stated 
that it will take more time to review 36 months of financial documents. 
VA does not anticipate adding an additional 30 minutes to the 
processing time for each application and will generally not request 36 
months of financial documents. We believe the processing time for 
pension claims will decrease with a bright-line net worth limit and 
other aspects of this final rule. The Paperwork Reduction Act section 
of the proposed rule did state that the ``[e]stimated respondent 
burden'' for VA Form 21P-8416 would be 30 minutes per form (consistent 
with past versions of VA Form 21P-8416), but it never stated that this 
rulemaking would require VA claims processors to spend 30 additional 
minutes on each claim. We make no change based on these comments.

3. Applicability, Effective Date, and Related Matters

    A commenter asked how VA would treat applicants who have a claim 
pending on the effective date of this final rule. As explained above in 
the information pertaining to asset transfers, VA will not review asset 
transfers that occurred before the effective date of this final rule. 
Moreover, as explained above in the information pertaining to medical 
expense definitions, the new provisions pertaining to institutional 
forms of care or in-home care will only apply to claimants who move to 
a different institution or change in-home providers. In addition, if a 
claimant is receiving pension on the effective date of this final rule, 
although his or her net worth exceeds the net worth limit under final 
Sec.  3.274(a), the claimant will continue to receive pension, unless 
he or she loses

[[Page 47265]]

pension for another reason. If a claimant has a pension application 
pending on the effective date of this final rule, VA will advise claims 
processors not to deny pension if the claimant's net worth is below the 
net worth limit under final Sec.  3.274(a). However, an administrative 
determination will still be required under the previous provisions when 
a claimant's net worth exceeds the net worth limit. The income and 
asset exclusions, in final Sec.  3.279, that we are incorporating in 
regulations have been statutory law for some time, and we have applied 
them since enacted; explicitly noting them in regulation now provides 
the public with one location for all the exclusions. Similarly, the 
Medicaid nursing home provisions in final Sec. Sec.  3.551(i) and 3.503 
chronicle in regulations provisions that VA has been applying since 
October 13, 2010, in accordance with section 606 of the Veterans 
Benefits Act of 2010, Public Law 111-275.
    One commenter suggested that veterans of World War II or the Korean 
Conflict, as well as their surviving spouses, should be grandfathered 
in as a class of potential claimants, and all pension recipients should 
be exempt. We make no change based on this comment. It is unclear why 
those two groups in particular--or even all current recipients--should 
be exempt from the new rules, especially when the new rules will 
benefit many elderly claimants. Another commenter expressed concern 
that this rulemaking would permit VA to audit every claim and deny 
those already receiving benefits. This is not the case; VA has no 
intention of systematically denying benefits to claimants who are 
currently receiving pension benefits. Therefore, we make no change 
based on such comments.
    Numerous commenters asked VA to extend the comment period. 
Consistent with existing Executive Orders, VA provided a comment period 
of 60 days. See E.O. 12866 section 6(a), 58 FR 51735, 51735 (1993) 
(``[E]ach agency should afford the public a meaningful opportunity to 
comment on any proposed regulation, which in most cases should include 
a comment period of not less than 60 days.''); E.O. 13563 section 2(b), 
76 FR 3821, 3821-22 (2011) (``To the extent feasible and permitted by 
law, each agency shall afford the public a meaningful opportunity to 
comment through the Internet on any proposed regulation, with a comment 
period that should generally be at least 60 days.''). VA received over 
850 comments. The comments were from current and prospective VA pension 
claimants, individuals from the estate and financial planning industry, 
and others. Given the number of comments received from such a wide 
range of individuals, VA found that extending the comment period would 
not likely result in any additional information VA has not already 
considered in issuing this final rule. Therefore, VA declined to extend 
the comment period.
    Several commenters stated that these rules should not be effective 
until one year or longer after date of publication. These commenters, 
however, failed to identify a compelling reason for such an extension, 
and we do not believe that the final rules are so onerous as to require 
such a delayed effective date.

4. Notice and Outreach

    One commenter stated that the proposed rule contained an incorrect 
telephone number. The phone numbers listed in the proposed rule are the 
correct numbers to VA's Office of Regulation Policy and Management and 
Pension and Fiduciary Service. Therefore, no change to this rulemaking 
is warranted based on this comment.
    One commenter noted that this rulemaking does not appear on the 
Office of Management and Budget's (OMB's) website and asked why VA has 
not submitted this rulemaking for review as required by Executive 
Orders 12866 and 13563. VA did submit this rulemaking for OMB review, 
and this rulemaking appears on OMB's www.reginfo.gov site.
    One commenter stated that VA failed to provide notice of the 
proposed rule on social media. Another commenter believed that VA 
should mail out notice of the proposed rule to all veterans. One 
commenter requested a Senate hearing on this rulemaking. In issuing 
this rulemaking, VA complied with the procedural requirements of the 
Administrative Procedure Act. 5 U.S.C. 551-559. Section 553(b) requires 
that a proposed rule be published in the Federal Register. As 
previously stated, on January 23, 2015, VA published the proposed rule 
in the Federal Register. The Administrative Procedure Act does not 
require any agency to provide notice of a proposed rule on social media 
or to mail a copy of the proposed rule to the public. The 
Administrative Procedure Act also does not require a Senate hearing. 
Therefore, no change to this rulemaking is warranted based on these 
comments.
    One commenter suggested further outreach and collaboration, and 
another commenter wondered how VA would make the public aware of the 
new eligibility requirements. Again, VA published the proposed rule in 
the Federal Register and gave a 60-day comment period. See 80 FR 3840. 
VA received over 850 comments from a wide range of individuals. VA will 
update its website and issue press releases to ensure the public is 
aware of this final rule. Therefore, no change to this rulemaking is 
warranted based on this comment.
    Several commenters mentioned that VA should focus on outreach 
programs to make veterans more aware of VA pension instead of focusing 
on ``taking it away.'' As noted above, VA disagrees that this rule 
focuses on taking away veteran's benefits. Moreover, VA publishes 
benefit information at https://www.benefits.va.gov, which provides 
information regarding all VA benefits available to veterans, their 
dependents, and survivors. Information specific to VA pension is 
currently found at https://www.benefits.va.gov/pension. VA is constantly 
attempting to provide outreach to veterans, consistent with the 
statutory authority for outreach found at 38 U.S.C. chapter 63. 
Inasmuch as this final rule does not pertain to chapter 63, we make no 
changes to the rule based on the comments pertaining to this matter.
    Several commenters seemed to believe that VA is amending its 
pension program through an Executive Order. VA is amending its 
regulations through the rulemaking process that is governed by the 
Administrative Procedure Act. See 5 U.S.C. 551-559. In the preamble to 
the proposed rule and in this document, VA addressed Executive Orders 
12866 and 13563, but these orders are not the authority for issuing 
regulations. Therefore, no change to this rulemaking is warranted based 
on these comments.
    One commenter wanted to know what is being done to make sure claims 
are granted properly now and in the future. VA is continuously working 
with regional office personnel to make sure claims are processed 
properly. We make no change based on this comment.

5. Accreditation, Financial Advisors, and Related Matters

    A few commenters seemed to think that this rulemaking would 
eliminate the involvement of attorneys and financial advisors from 
assisting VA claimants in applying for VA benefits. A few commenters 
stated that VA should regulate how financial advisors and organizations 
are allowed to assist veterans with their claims for VA benefits. While 
these comments pertain more to VA's accreditation program than its 
pension program, it is important to note that VA does regulate those 
who assist on veterans' claims through its rules pertaining to 
accreditation. 38 CFR

[[Page 47266]]

14.626-14.636. In order to assist ``in the preparation, presentation, 
and prosecution of claims for VA benefits,'' an individual must be 
accredited by VA. 38 CFR 14.629(b)(1). VA does not accredit individuals 
for the purpose of promoting their separate business interests, such as 
marketing financial products. Accreditation is granted solely for the 
purpose of assisting VA claimants with their claims for VA benefits. 
See 38 CFR 14.626. Those who are accredited are held to standards of 
conduct prohibiting fraud, deception, and other unlawful or unethical 
conduct. 38 CFR 14.632. While VA cannot predict the effect of this 
final rule on the number of financial advisors assisting with claims, 
there is no reason to believe that it will impact the number of VA 
accredited representatives available to assist with claims. No change 
to this rulemaking is warranted based on these comments.
    Several commenters suggested that VA should focus on ensuring that 
VA accredited representatives are competent and preventing unaccredited 
individuals from assisting VA claimants and charging for their 
services. One commenter noted that States have the authority to 
investigate those individuals who sell unsuitable financial products to 
consumers. Others expressed similar sentiment that VA should focus on 
pension poaching organizations, rather than ``penalizing'' claimants. 
VA takes the accreditation of representatives very seriously and, as 
noted above, has implemented regulatory provisions governing the 
accreditation program (outside of this rulemaking). See 38 CFR 14.626-
14.636; see, e.g., 73 FR 29852 (2008). VA does not recognize an 
unaccredited individual as a claimant's representative. If VA 
determines that an unaccredited individual is assisting claimants with 
applications for VA benefits, VA notifies such individual to cease the 
unlawful practice. If VA determines that an accredited individual is 
improperly charging a fee or violating its standards of conduct, VA may 
suspend or cancel the individual's accreditation. See 38 CFR 14.633.
    If individuals fail to cease an unlawful practice, VA will report 
to Federal, State, or local agencies or offices that enforce 
unauthorized practice, unfair business practice, or consumer or senior 
fraud laws. Over the past year, VA has enhanced its coordination with 
the U.S. Department of Justice, the Federal Trade Commission, and State 
Attorney General offices to combat ``pension poaching'' and other scams 
targeting veterans and their family members. VA coordination with 
enforcement agencies is the best response to unauthorized or unlawful 
practices in this realm. This rulemaking does not in any way detract 
from these efforts; therefore, VA is not making any changes to this 
rulemaking based on these comments.
    Several commenters stated that this rulemaking would make applying 
for pension benefits more difficult. The commenters believed the more 
difficult application process would drive claimants to seek out advice 
from consultants and estate planning attorneys, which would increase 
abuse. To prevent such abuse, one commenter recommended allowing VA 
accredited agents and attorneys to charge fees for assisting with a 
claimant's initial application. VA disagrees that this rulemaking makes 
applying for pension benefits more difficult. With this rulemaking, VA 
is providing additional guidance on the qualifying criteria and 
allowable medical expenses beyond what is currently available. 
Claimants have the option to seek assistance from VA accredited 
representatives, and we see no reason why VA claimants will have a more 
difficult time finding representation. Moreover, VA is bound by the 
statutory prohibition of representatives charging fees at the time of 
initial application. 38 U.S.C. 5904(c). Therefore, VA does not make any 
changes to this rulemaking based on these comments.

6. Outside the Scope

    Several commenters made statements regarding their own claim for 
benefits. These comments are outside the scope of this rulemaking, and, 
therefore, VA makes no changes based on these comments. One commenter 
spoke in support of equitable relief for claimants who encounter unique 
situations, citing an example of a claimant who inherited money from a 
child and lost pension entitlement even though the claimant used the 
money to pay the child's burial expenses and distributed the remainder 
to siblings. While we do note that equitable relief is available for 
certain cases under 38 U.S.C. 503, this comment is outside the scope of 
this rulemaking; therefore, VA makes no change to the final rule based 
on it.
    One commenter asked that VA consider providing in its pension award 
letters a break-down of VA pension benefits between the portion 
considered to be basic pension and the portion considered to be the 
additional A&A allowance for purposes of reporting income to State and 
local agencies. This comment is outside the scope of this rulemaking, 
which does not pertain to decision award letters; therefore, VA makes 
no change to the final rule based on it.

I. Technical Corrections

    We are making a technical correction to Sec.  3.262(t) to include 
the authority citation, which was inadvertently omitted from the 
proposed rule.
    We are making a technical correction to Sec.  3.270. The proposed 
revisions to Sec.  3.270 were stated incorrectly in the proposed rule. 
See 80 FR 3857. Section 3.270 is a regulation that tells readers which 
sections apply to current-law pension and which sections apply to VA's 
other needs-based benefits. The error pertained to a distinction 
between the word ``to'' and the word ``through.'' For example, the 
previous heading for paragraph (a) was ``Sections 3.250 to 3.270.'' 
This meant Sec.  3.250 and up to (but not including) Sec.  3.270 apply 
to VA's older programs. We erroneously proposed to amend the paragraph 
title as ``Sections 3.250 through 3.270 and sections 3.278 through 
3.279.'' This was an error because Sec.  3.270 describes the 
applicability but does not itself apply to any benefit. Similarly, the 
previous heading for paragraph (b) was ``Sections 3.271 to 3.300.'' We 
erroneously proposed to amend the heading to ``Sections 3.271 through 
3.300.'' Section 3.300, ``Claims based on the effects of tobacco 
products,'' does not pertain to any needs-based benefit. This final 
rule clarifies that Sec. Sec.  3.250 through 3.263 and Sec. Sec.  3.278 
through 3.279 apply to benefit programs that were in effect before 
January 1, 1979, and Sec. Sec.  3.271 through 3.279 apply to current-
law pension.
    We are making a technical correction to Sec. Sec.  3.274(a) and 
3.278(c)(4) to insert the VA website address where VA will publish the 
net worth limit and the privately owned vehicle mileage reimbursement 
rate. The proposed rule simply used a placeholder for a to-be-
determined VA website address. Moreover, we inadvertently omitted 
headers in proposed Sec. Sec.  3.274(b)(1), 3.275(b)(1) and (b)(2); 
this final rule corrects those omissions.
    We are making a technical correction to proposed Sec.  3.274(e), 
which as proposed included a heading at Sec.  3.274(e)(3). On review, 
the information contained in proposed Sec.  3.274(e)(3) was more 
appropriate as a note to paragraph (e), and we have re-designated it 
accordingly. Therefore, final Sec.  3.274(e) does not include the 
introductory language, ``[e]xcept as provided in paragraph (e)(3) of 
this section,'' because final Sec.  3.274 does not contain a paragraph 
(e)(3). Moreover, final Sec.  3.274(f)(3) and (4) have been slightly 
altered, in a non-substantive way, for readability.

[[Page 47267]]

    Final Sec.  3.275(b)(1)(ii)(B) and (C) are slightly different than 
proposed in order to conform to final Sec.  3.278. Final Sec.  
3.275(b)(1)(ii)(B) refers to ``[a] care facility other than a nursing 
home'' instead of ``[a]n assisted living or similar residential 
facility that provides custodial care,'' to accord with the new title 
of Sec.  3.278(d)(3). Final Sec.  3.275(b)(1)(ii)(C) refers to ``[t]he 
home of a family member for health care or custodial care'' instead of 
``[t]he home of a family member for custodial care'' to accord with the 
new language of Sec.  3.278(d)(2).
    Proposed Sec.  3.276(b) mistakenly referenced Sec.  3.277(b) as 
VA's authority to obtain additional documentation necessary to 
determine the annual income and the value of the corpus of the estate. 
That authority is actually in Sec.  3.277(a), and final Sec.  3.276(b) 
corrects this mistake. We also updated the examples in paragraphs 
(a)(3) and (4) of proposed (now final) Sec.  3.276.
    We are making a technical correction to Sec.  3.278(b)(1) by 
changing the proposed conjunction between (i) and (ii). We are spelling 
out the acronym ``aka'' used in proposed Sec.  3.279(a), and making a 
technical correction to Sec.  3.279(e)(9) to correctly refer to 
subchapter I instead of subchapter 1 as the authority for excluding as 
income annuities received under the Retired Serviceman's Family 
Protection Plan.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (at 44 U.S.C. 3507) requires 
that VA consider the impact of paperwork and other information 
collection burdens imposed on the public. Under 44 U.S.C. 3507(a), an 
agency may not collect or sponsor the collection of information, nor 
may it impose an information collection requirement unless it displays 
a currently valid OMB control number. See also 5 CFR 1320.8(b)(3)(vi).
    In the proposed rule, we stated that proposed 38 CFR 3.276 and 
3.278 constitutes a collection of information under the provisions of 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). We also 
noted in the proposed rule that VA submitted a copy of the proposed 
rule to OMB for its review of the collection of information, and 
requested public comments on the collection of information provisions 
contained in 38 CFR 3.276 and 38 CFR 3.278.
    VA received a comment stating that neither the pension application 
nor development forms request information regarding living expenses. A 
claimant's completion of VA Form 21-8049, Request for Details of 
Expenses (OMB Control number 2900-0161), has been an administrative 
requirement for claims processors to make net worth determinations. VA 
agrees with the comment that some of the information requested on this 
form will no longer be necessary for net worth determinations. 
Therefore, VA determined the information collection from VA Form 21P-
8049, Request for Details of Expenses (OMB control number 2900-0107), 
is no longer necessary and VA will discontinue use of the form. The 
discontinuance of this form will be pursued through a separate 
administrative action. Considering the last PRA approval usage and the 
discontinuation of the form, there will be an estimated decrease in 
burden hours by 5,700 and an annual incremental information burden cost 
savings of $136,002.00.
    Under 38 CFR 3.276, the collections of information are currently 
approved by OMB under the assigned OMB control numbers 2900-0001, 2900-
0002 and 2900-0004. Specifically, under 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.
    Prior to the creation of the Fully Developed Claims (FDC) program, 
all initial applications for Veterans Compensation and/or Pension 
claims had to be filed using VA Form 21-526 (OMB Control Number 2900-
0001). In the administration of the FDC program, VA created two new, 
streamlined forms: VA Form 21-526EZ for Veterans Compensation claims 
(now under OMB Control Number 2900-0747) and VA Form 21P-527EZ for 
Veterans Pension claims (now under OMB Control Number 2900-0002). The 
creation and use of those two forms has resulted in the obsolescence of 
VA Form 21-526. Therefore, VA is pursuing discontinuance of VA Form 21-
526.
    For VA Form 21P-527EZ (OMB control number 2900-0002), VA estimates 
839 new claimants/respondents in 2018, which represents the Veteran 
portion of the total caseload impacted by provisions under 38 CFR 
3.276. The estimated completion time remains 30 minutes. VA therefore 
estimates the total incremental information collection burden costs to 
claimants/respondents to be $14,409.28 (592 burden hour x $24.34 per 
hour).
    For VA Form 21P-534EZ (OMB control number 2900-0004), VA estimates 
1,617 new claimants/respondents in 2018, which represents the survivor 
portion of the total caseload impacted by the provisions under 38 CFR 
3.276. The completion time for VA Form 21P-534EZ remains 30 minutes. VA 
therefore estimates the total incremental information collection burden 
costs to claimants/respondents to be $16,648.56 (684 burden hour x 
$24.34 per hour).
    Under 38 CFR 3.278, the collections of information are currently 
approved by OMB under the assigned OMB control numbers 2900-0161. 
Specifically, 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.
    We are adding a parenthetical statement after the authority 
citations in the amendatory language of this final rule to all of the 
sections containing information collections, so that the control 
numbers are displayed for each information collection.

Regulatory Flexibility Act

    The Secretary hereby certifies that this final rule will 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 final rule will directly affect only individuals and will not 
directly affect small entities. Therefore, pursuant to 5 U.S.C. 605(b), 
this rulemaking is exempt from the final regulatory flexibility 
analysis requirements of section 604.

Effect of Rulemaking

    Title 38 of the Code of Federal Regulations, as revised by this 
final rulemaking, represents VA's implementation of its legal authority 
on this subject. Other than future amendments to this regulation or 
governing statutes, no contrary guidance or procedures are authorized. 
All existing or subsequent VA guidance must be read to conform with 
this rulemaking if possible or, if not possible, such guidance is 
superseded by this rulemaking.

Executive Orders 12866, 13563, and 13771

    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)

[[Page 47268]]

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 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 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 revised impact analysis can be found as a supporting 
document at https://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 website at 
https://www.va.gov/orpm by following the link for `VA Regulations 
Published.
    This rule is considered an Executive Order 13771 deregulatory 
action. The estimated cost savings of the rule, expressed in 2016 
dollars and discounted back to the 2016 equivalent, is $0.0937 million.

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 final rule will 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 final rule are 64.104, Pension for Non-
Service-Connected Disability for Veterans; 64.105, Pension to Veterans 
Surviving Spouses, and Children; and 64.110, Veterans Dependency and 
Indemnity Compensation for Service-Connected Death.

Signing Authority

    The Secretary of Veterans Affairs, or designee, approved this 
document and authorized the undersigned to sign and submit the document 
to the Office of the Federal Register for publication electronically as 
an official document of the Department of Veterans Affairs. Jacquelyn 
Hayes-Byrd, Acting Chief of Staff, Department of Veterans Affairs, 
approved this document on June 4, 2018, for publication.

    Dated: September 9, 2018.
Michael P. Shores,
Director, Office of Regulation Policy & Management, Office of the 
Secretary, Department of Veterans Affairs.

List of Subjects in 38 CFR Part 3

    Administrative practice and procedure, Claims, Disability benefits, 
Pensions, Veterans.

    For the reasons set forth in the preamble, VA amends 38 CFR part 3 
as follows:

PART 3--ADJUDICATION

Subpart A--Pension, Compensation, and Dependency and Indemnity 
Compensation

0
1. The authority citation for part 3, subpart A, continues to read as 
follows:

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


0
2. Amend the table in Sec.  3.261(a) as follows:
0
a. Remove entries (35) through (37) and (39) through (42).
0
b. Redesignate entry (38) as entry (35).
0
c. Revise newly redesignated entry (35).
0
d. Add entries (36) and (37).
    The revision and additions read as follows:


Sec.  3.261  Character of income; exclusions and estates.

* * * * *
    (a) * * *

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Pension: old-law       Pension: section 306
              Income                  Dependency (parents)    Dependency and indemnity    (veterans, surviving     (veterans, surviving        See--
                                                               compensation (parents)    spouses and children)    spouses and children)
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                      * * * * * * *
(35) Income received under Section  Excluded................  Excluded................  Included...............  Included...............            Sec.
 6 of the Radiation Exposure                                                                                                                    3.262(t)
 Compensation Act (Pub. L. 101-
 426).
(36) Income received from income    Excluded................  Excluded................  Excluded...............  Excluded...............            Sec.
 tax returns.                                                                                                                                   3.262(u)
(37) Other amounts excluded from    Excluded................  Excluded................  Excluded...............  Excluded...............            Sec.
 income by statute.                                                                                                                             3.262(v)
                                                                                                                                            Sec.   3.279
--------------------------------------------------------------------------------------------------------------------------------------------------------

* * * * *

0
3. Amend Sec.  3.262 as follows:
0
a. Add a sentence to the end of paragraph (l) introductory text.
0
b. Remove paragraphs (s), (u), (v), (x), (y), (z), and (aa).
0
c. Redesignate paragraphs (t) and (w) as paragraphs (s) and (t), 
respectively.
0
d. Revise newly redesignated paragraph (t).
0
e. Add new paragraphs (u) and (v).
    The additions and revision read as follows:


Sec.  3.262  Evaluation of income.

* * * * *
    (l) * * * For the definition of what constitutes a medical expense, 
see Sec.  3.278, Deductible medical expenses.
* * * * *
    (t) Radiation Exposure Compensation Act. For the purposes of 
parents' dependency and indemnity compensation and dependency of

[[Page 47269]]

parents under Sec.  3.250, there shall be excluded from income 
computation payments under Section 6 of the Radiation Exposure 
Compensation Act of 1990.

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


    (u) Income tax returns. VA will exclude from income payments from 
income tax returns. See Sec.  3.279(e)(1).

(Authority: 26 U.S.C. 6409)


    (v) Statutory exclusions. Other amounts excluded from income by 
statute. See Sec.  3.279. VA will exclude from income any amount 
designated by statute as not countable as income, regardless of whether 
or not it is listed in this section or in Sec.  3.279.

0
4. Amend Sec.  3.263 as follows:
0
a. Remove paragraphs (e), (f), (g), (h), and (i).
0
b. Add new paragraph (e).
    The addition reads as follows:


Sec.  3.263  Corpus of estate; net worth.

* * * * *
    (e) VA will exclude from the corpus of estate or net worth any 
amount designated by statute as not countable as a resource. See Sec.  
3.279.
* * * * *


Sec.  3.270   [Amended]

0
5. Amend Sec.  3.270 as follows:
0
a. In the heading to paragraph (a) by removing ``3.250 to 3.270'' and 
adding in its place ``3.250 through 3.263 and 3.278 through 3.279.''
0
b. In the note to paragraph (a) by removing ``Sec. Sec.  3.250 to 
3.270'' and adding in its place ``Sec. Sec.  3.250 through 3.263 and 
3.278 through 3.279''.
0
c. In the heading to paragraph (b) by removing ``3.271 to 3.300'' and 
adding in its place ``3.271 through 3.279.''

0
6. Amend Sec.  3.271 by adding paragraph (i) to read as follows:


Sec.  3.271  Computation of income.

* * * * *
    (i) Waiver of receipt of income. Potential income that is not 
excludable under Sec.  3.272 or Sec.  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))



0
7. Amend Sec.  3.272 as follows:
0
a. Add a sentence to the end of paragraph (g) introductory text.
0
b. Remove paragraphs (k), (o), (p), (r), (t), (u), (v), and (w).
0
c. Add new paragraph (k).
0
d. Redesignate paragraphs (q), (s), and (x) as paragraphs (o), (p), and 
(q), respectively.
0
e. Revise the authority citation in newly redesignated paragraph (q).
0
f. Add new paragraphs (r), (s), and (t).
    The additions and revision read as follows:


Sec.  3.272  Exclusions from income.

* * * * *
    (g) * * * For the definition of what constitutes a medical expense, 
see Sec.  3.278, Deductible medical expenses.
* * * * *
    (k) 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))

* * * * *
    (q) * * *

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


    (r) Income tax returns. VA will exclude from income payments from 
income tax returns. See Sec.  3.279(e)(1).

(Authority: 26 U.S.C. 6409)


    (s) Reimbursements for loss. VA will exclude from income payments 
described in 38 U.S.C. 1503(a)(5).

(Authority: 38 U.S.C. 1503(a)(5))


    (t) Statutory exclusions. Other amounts excluded from income by 
statute. See Sec.  3.279. VA will exclude from income any amount 
designated by statute as not countable as income, regardless of whether 
or not it is listed in this section or in Sec.  3.279.

0
8. Revise Sec.  3.274 to read as follows:


Sec.  3.274  Net worth and VA pension.

    (a) Net worth limit. For purposes of entitlement to VA pension, the 
net worth limit effective October 18, 2018 is $123,600. 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 website at 
www.benefits.va.gov/pension/.
    (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. 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 Sec.  3.275.
    (3) Annual income calculation. VA will calculate a claimant's or 
beneficiary's annual income under Sec.  3.271, and will include the 
annual income of dependents as required by law. See Sec. Sec.  
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 Sec.  3.272(g).
    (4) Example of net worth calculation. For purposes of this example, 
presume the net worth limit is $123,600. A claimant's assets total 
$117,000 and annual income is $9,000. Therefore, adding the claimant's 
annual income to assets produces net worth of $126,000. 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 Sec.  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--

[[Page 47270]]

    (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 Sec.  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 Sec.  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. 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 Sec.  3.3(a)(3) and (b)(4).

    Note to Paragraph (e).  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 
any item or service for which fair market value is received unless the 
item or items purchased are themselves part of net worth. See Sec.  
3.276(a)(4) for the definition of ``fair market value.'' 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.
    (2) How annual income decreases. See Sec. Sec.  3.271 through 
3.273.
    (3) Example 1. For purposes of this example, presume the net worth 
limit is $123,600 and the maximum annual pension rate (MAPR) is 
$12,000. A claimant has assets of $115,000 and annual income of $9,000. 
Adding annual income to assets produces a net worth of $124,000, which 
exceeds the net worth limit. However, the claimant is a patient in a 
nursing home and pays annual unreimbursed nursing home fees of $29,000. 
Reasonably predictable unreimbursed medical expenses are deductible 
from annual income under Sec.  3.272(g) to the extent that they exceed 
5 percent of the applicable MAPR. VA subtracts the projected 
expenditures that exceed 5 percent of the applicable MAPR (here, 
$28,400) from annual income, which decreases annual income to zero. The 
claimant's net worth is now $115,000; therefore, net worth is within 
the limit to qualify for VA pension.
    (4) Example 2. For purposes of this example, presume the net worth 
limit is $123,600 and the MAPR is $12,000. A claimant has assets of 
$123,000 and annual income of $9,500. Adding annual income to assets 
produces a net worth of $132,500, which exceeds the net worth limit. 
The claimant pays reasonably predictable annual unreimbursed medical 
expenses of $9,000. Unreimbursed medical expenses are deductible from 
annual income under Sec.  3.272(g) to the extent that they exceed 5 
percent of the applicable MAPR. VA subtracts the projected expenditures 
that exceed 5 percent of the applicable MAPR (here, $8,400) from annual 
income, which decreases annual income to $1,100. This decreases net 
worth to $124,100, which is still over the limit. VA must deny the 
claim for excessive net worth.
    (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 Sec.  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 Sec.  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

[[Page 47271]]

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)



0
9. Revise Sec.  3.275 to read as follows:


Sec.  3.275   How VA determines the asset amount for pension net worth 
determinations.

    (a) Definitions pertaining to assets--(1) Assets. 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 Sec.  
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 Sec.  3.276, 
claimant means a pension beneficiary, a dependent spouse, or a 
dependent or potential dependent child as described in Sec.  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 does not 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) Primary residence. 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 after pension entitlement is 
established, any net 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 Sec.  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 Sec.  3.278(b):
    (A) A nursing home or medical foster home;
    (B) A care facility other than a nursing home; or
    (C) The home of a family member for health care or custodial care.
    (2) Personal effects. 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) Statutory exclusions. Other amounts excluded from assets by 
statute. See Sec.  3.279. VA will exclude from assets any amount 
designated by statute as not countable as a resource, regardless of 
whether or not it is listed in this section or in Sec.  3.279.

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



0
10. Revise Sec.  3.276 to read as follows:


Sec.  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 Sec.  
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 Sec.  
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. For purposes of this example, presume the net worth 
limit under Sec.  3.274(a) is $123,600. A claimant's assets total 
$115,900 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 $145,900, which 
exceeds the net worth limit. The claimant's covered asset amount is 
$22,300, 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. For purposes of this example, presume the net worth 
limit under Sec.  3.274(a) is $123,600. A claimant's annual income is 
zero and her total assets are $125,000, 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) A voluntary asset transfer to, or purchase of, any financial 
instrument or investment that reduces net worth by transferring the 
asset to, or purchasing, the instrument or investment unless the 
claimant establishes that he or she has the ability to liquidate the 
entire balance of the asset for the claimant's own benefit. If the 
claimant establishes that the asset can be liquidated, the asset is 
included as net worth. 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 instrument 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

[[Page 47272]]

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. This 
definition does not include any date before October 18, 2018.
    (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. 
However, VA will disregard asset transfers made before October 18, 
2018. In accordance with Sec.  3.277(a), 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) Exception for transfers as a result of fraud or unfair business 
practice. An asset transferred 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 will not be considered a covered 
asset. Evidence supporting this exception may include, but is not 
limited to, 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 
Sec.  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.
    (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 5 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 maximum 
annual pension rate (MAPR) under 38 U.S.C. 1521(d)(2) for a veteran in 
need of aid and attendance with one dependent that is in effect as of 
the date of the pension claim, divided by 12, and rounded down to the 
nearest whole dollar. The monthly penalty rate is located on VA's 
website at www.benefits.va.gov/pension.
    (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 Sec.  3.31.
    (4) Example of penalty period calculation. VA receives a pension 
claim in November 2018. The claimant's net worth is equal to the net 
worth limit. However, the claimant transferred covered assets totaling 
$10,000 on August 20, 2018, and September 23, 2018. Therefore, the 
total covered asset amount is $10,000, and the penalty period begins on 
October 1, 2018. Assume the MAPR for a veteran in need of aid and 
attendance with one dependent in effect in November 2018 is $24,000. 
The monthly penalty rate is $2,000. The penalty period is $10,000/
$2,000 per month = 5 months. The fifth month of the penalty period is 
February 2019. The claimant may be entitled to pension effective 
February 28, 2019, with a payment date of March 1, 2019, 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 some or all covered assets 
were returned to the claimant before the date of claim or within 60 
days after the date of VA's notice to the claimant of VA's decision 
concerning the penalty period. If covered assets are returned to the 
claimant, VA will recalculate or eliminate the penalty period. For this 
exception to apply, VA must receive the evidence not later than 90 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 at the time of transfer under the 
provisions of Sec.  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-
0002, and 2900-0004.)


Sec.  3.277   [Amended]

0
11. Amend Sec.  3.277(c)(2) introductory text by removing ``shall'' and 
adding in its place ``may''.

0
12. Add Sec.  3.278 to read as follows:


Sec.  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; or
    (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 (ADLs) mean basic self-care 
activities and consist of bathing or showering, dressing, eating, 
toileting, transferring,

[[Page 47273]]

and ambulating within the home or living area. 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 (IADLs) mean 
independent living activities, such as shopping, food preparation, 
housekeeping, laundering, managing finances, handling medications, 
using the telephone, and transportation for non-medical purposes.
    (4) Custodial care means regular:
    (i) Assistance with two or more ADLs; or
    (ii) Supervision because an individual with a physical, mental, 
developmental, or cognitive disorder requires care or assistance on a 
regular basis to protect the individual from hazards or dangers 
incident to his or her daily environment.
    (5) Nursing home means a facility defined in Sec.  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.
    (6) 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.
    (7) Care facility other than a nursing home means a facility in 
which a disabled individual receives health care or custodial care 
under the provisions of paragraph (d) of this section. A facility must 
be licensed if facilities of that type are required to be licensed in 
the State or country in which the facility is located. A facility that 
is residential must be staffed 24 hours per day with care providers. 
The providers do not have to be licensed health care providers.
    (8) Needs A&A or is housebound refers to a disabled individual who 
meets the criteria in Sec.  3.351 for needing regular aid and 
attendance (A&A) or being housebound and is a:
    (i) Veteran;
    (ii) Surviving spouse;
    (iii) Parent (for parents' DIC purposes); or
    (iv) Spouse of a living veteran with a service-connected disability 
rated at least 30 percent disabling, who is receiving pension.
    (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; that improve a disabled individual's 
functioning; or that prevent, slow, or ease an individual's functional 
decline. 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 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 website at www.benefits.va.gov/pension/. 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 needs-based 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 A, 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 in-home care. As provided in 
paragraph (d) of this section.
    (d) Institutional forms of care and in-home care. This paragraph 
(d) applies with respect to claims for a medical expense deduction for 
institutional forms of care or in-home care received on or after 
October 18, 2018 that VA has not previously granted.
    (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 assistance with ADLs and IADLs by an 
in-home attendant are medical expenses as long as the attendant 
provides the disabled individual with health care or custodial care. 
Payments must be commensurate with the number of hours that the 
provider attends to the disabled person. The attendant must be a health 
care provider unless--
    (i) The disabled individual needs A&A or is housebound; or
    (ii) A physician, physician assistant, certified nurse 
practitioner, or clinical nurse specialist states in writing that, due 
to a physical, mental, developmental, or cognitive disorder, the 
individual requires the health care or custodial care that the in-home 
attendant provides.
    (3) Care facilities other than nursing homes. (i) Care in a 
facility may be provided by the facility, contracted by the facility, 
obtained from a third-party provider, or provided by family or friends.
    (ii) Payments for health care provided by a health care provider 
are medical expenses.
    (iii) The provider does not need to be a health care provider, and 
payments for assistance with ADLs and IADLs are medical expenses, if 
the disabled individual is receiving health care or custodial care in 
the facility and--

[[Page 47274]]

    (A) The disabled individual needs A&A or is housebound; or
    (B) A physician, physician assistant, certified nurse practitioner, 
or clinical nurse specialist states in writing that, due to a physical, 
mental, developmental, or cognitive disorder, the individual needs to 
be in a protected environment.
    (iv) Payments for meals and lodging (and other facility expenses 
not directly related to health care or custodial care) are medical 
expenses if:
    (A) The facility provides or contracts for health care or custodial 
care for the disabled individual; or
    (B) A physician, physician assistant, certified nurse practitioner, 
or clinical nurse specialist states in writing that the individual must 
reside in the facility (or a similar facility) to separately contract 
with a third-party provider to receive health care or custodial care or 
to receive (paid or unpaid) health care or custodial care from family 
or friends.
    (e) Non-medical expenses for VA purposes. Payments for items and 
services listed in paragraphs (e)(1) through (4) of this section are 
not medical expenses for VA needs-based benefit purposes. The list is 
not all-inclusive.
    (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.
    (4) Assistance with IADLs. Except as provided in paragraph (d) of 
this section, payments for assistance with IADLs are not medical 
expenses.
    CROSS REFERENCES: For the rules governing how medical expenses are 
deducted, see Sec.  3.272(g) (regarding pension) and Sec.  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-
0002, 2900-0004, and 2900-0161.)

0
13. Add Sec.  3.279 to read as follows:


Sec.  3.279   Statutory exclusions from income or assets (net worth or 
corpus of the estate).

    This section sets forth payments that Federal statutes exclude from 
income for the purpose of determining entitlement to any VA-
administered benefit that is based on financial need. Some of the 
exclusions also apply to assets (pension), also known as net worth or 
the corpus of the estate (section 306 pension and parents as dependents 
for compensation). VA will exclude from income or assets any amount 
designated by statute as not countable as income or resources, 
regardless of whether or not it is listed in this section.

----------------------------------------------------------------------------------------------------------------
                                                         Assets (corpus of
       Program or payment               Income              the estate)                   Authority
----------------------------------------------------------------------------------------------------------------
(a) COMPENSATION OR RESTITUTION
 PAYMENTS:
    (1) Relocation payments.     Excluded............  Included............  42 U.S.C. 4636.
     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.
    (2) Crime victim             Excluded............  Excluded............  42 U.S.C. 10602(c).
     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.
    (3) Restitution to           Excluded............  Excluded............  50 U.S.C. App. 1989b-4(f).
     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.
    (4) Victims of Nazi          Excluded............  Excluded............  42 U.S.C. 1437a note.
     persecution. Payments made
     to individuals because of
     their status as victims of
     Nazi persecution.
    (5) Agent Orange settlement  Excluded............  Excluded............  Sec. 1, Public Law 101-201.
     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.).
    (6) Chapter 18 benefits.     Excluded............  Excluded............  38 U.S.C. 1833(c).
     Allowances paid under 38
     U.S.C. chapter 18 to a
     veteran's child with a
     birth defect.
    (7) Flood mitigation         Excluded............  Excluded............  42 U.S.C. 4031.
     activities. Assistance
     provided under the
     National Flood Insurance
     Act of 1968, as amended.
(b) PAYMENTS TO NATIVE
 AMERICANS:
    (1) Indian Tribal Judgment   Excluded............  Excluded............  25 U.S.C. 1407.
     Fund distributions. All
     Indian Tribal Judgment
     Fund distributions
     excluded from income and
     assets 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.
    (2) Interests of individual  Excluded............  Excluded............  25 U.S.C. 1408.
     Indians in trust or
     restricted lands.
     Interests of individual
     Indians in trust or
     restricted lands excluded
     from assets. First $2,000
     per year of income
     received by individual
     Indians that is derived
     from interests in trust or
     restricted lands excluded
     from income.
    (3) Per Capita               Excluded............  Excluded............  25 U.S.C. 117b,
     Distributions Act. First                                                25 U.S.C. 1407.
     $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 assets while funds are
     held in trust.
    (4) Submarginal land.        Excluded............  Excluded............  25 U.S.C. 459e.
     Income derived from
     certain submarginal land
     of the United States that
     is held in trust for
     certain Indian tribes.
    (5) Old Age Assistance       Excluded............  Excluded............  25 U.S.C. 2307.
     Claims Settlement Act. Up
     to $2,000 per year of per
     capita distributions under
     the Old Age Assistance
     Claims Settlement Act.
    (6) Alaska Native Claims     Excluded............  Excluded............  43 U.S.C. 1626(c).
     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;

[[Page 47275]]

 
        (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.
    (7) Maine Indian Claims      Excluded............  Excluded............  25 U.S.C. 1728.
     Settlement Act. Payments
     received under the Maine
     Indian Claims Settlement
     Act of 1980.
    (8) Cobell Settlement.       Excluded for one      Excluded for one      Sec. 101, Public Law 111-291.
     Payments received under      year.                 year.
     Cobell v. Salazar, Civil
     Action No. 96-1285 (TFH)
     (D.D.C.).
(c) WORK-RELATED PAYMENTS:
    (1) Workforce investment.    Excluded............  Included............  29 U.S.C. 3241(a)(2).
     Allowances, earnings, and
     payments to individuals
     participating in programs
     under the Workforce
     Investment Act of 1998.
    (2) AmeriCorps               Excluded............  Included............  42 U.S.C. 12637(d).
     participants. Allowances,
     earnings, and payments to
     AmeriCorps participants
     under the National and
     Community Service Act of
     1990.
    (3) Volunteer work.          Excluded............  Excluded............  42 U.S.C. 5044(f).
     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.
(d) MISCELLANEOUS PAYMENTS:
    (1) Income tax refunds.      Excluded............  Excluded for one      26 U.S.C. 6409.
     Income tax refunds,                                year.
     including the Federal
     Earned Income Credit and
     advance payments with
     respect to a refundable
     credit.
    (2) Food stamps. Value of    Excluded............  Excluded............  7 U.S.C. 2017(b).
     the allotment provided to
     an eligible household
     under the Food Stamp
     Program.
    (3) Food for children.       Excluded............  Excluded............  42 U.S.C. 1780(b).
     Value of free or reduced-
     price for food under the
     Child Nutrition Act of
     1966.
    (4) Child care. Value of     Excluded............  Included............  42 U.S.C. 9858q.
     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.
    (5) Services for housing     Excluded............  Included............  42 U.S.C. 8011(j)(2).
     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.
    (6) Home energy assistance.  Excluded............  Excluded............  42 U.S.C. 8624(f).
     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.
    (7) Programs for older       Excluded............  Included............  42 U.S.C. 3020a(b).
     Americans. Payments, other
     than wages or salaries,
     received from programs
     funded under the Older
     Americans Act of 1965, 42
     U.S.C. 3001.
    (8) Student financial aid.   Excluded............  Excluded............  20 U.S.C. 1087uu, 2414(a).
     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.
    (9) Retired Serviceman's     Excluded............  Included............  10 U.S.C. 1441.
     Family Protection Plan
     annuities. Annuities
     received under subchapter
     I of the Retired
     Serviceman's Family
     Protection Plan.
----------------------------------------------------------------------------------------------------------------


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


0
14. Amend Sec.  3.503 by adding paragraph (c) to read as follows:


Sec.  3.503   Children.

* * * * *
    (c) Medicaid-covered nursing home care (Sec.  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 Sec.  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))


0
15. Amend Sec.  3.551 by revising paragraph (i) to read as follows:


Sec.  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 Medicaid-covered 
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.

(Authority: 38 U.S.C. 5503)

* * * * *


Sec.  3.660   [Amended]

0
16. Amend Sec.  3.660(d) by removing ``Sec. Sec.  3.263 or 3.274'' and 
adding in its place ``Sec.  3.263''.

[FR Doc. 2018-19895 Filed 9-17-18; 8:45 am]
 BILLING CODE 8320-01-P