(The following is part of a discussion, taken from a listserv, or electronic bulletin board, concerning benefits available for veterans, their dependents and survivors from the Department of Veterans Affairs (“VA)”.)
Question: Assume the following facts – an applicant for needs-based pension benefits from the VA signs a deed gifting income-producing real estate to an adult child while retaining a life estate interest in the property so that the income is owned by and paid to the applicant. How would the VA evaluate eligibility? Does the VA count the income produced by the real estate as income to the applicant? My first thought is that the agency would count the income paid to the claimant but the real estate in the adult child’s name would not be countable as it is no longer owned by the applicant. Any help is appreciated! Thank you.
Answer 1: As the life estate is in property other than the primary residence, the life estate is not an exempt asset and must be declared as such on the VA application. I am not aware that the VA has any single formula in the M21-1MR for calculating the value of a life estate. A prudent approach may simply be to use the VA’s life expectancy table, apply the age of the claimant against the life expectancy chart and then calculate the lease/rent value of the properties and apply that against the life expectancy. There would still have to be a present value computation to get the overall value of the life estate, but it’s an approach that uses VA’s own tables and follows logic.
Answer 2: The General Counsel opinion 33-97 would count the total value of all of the properties in which the claimant owned a life estate.
Answer 3: Not only is the life estate interest likely countable, the remainder interest may be as well.
Answer 4: I believe that the decision in VAOPGCPREC 15-92 is instructive. In that case, the claimant gave property to three adult children and retained a life estate interest in the property, which was producing income. The VA held that the value of the entire land (not just the proportionate share) was a countable resource because the “claimant possesses such control over the property that the claimant may direct it to be used for her own benefit; …. and/or the funds (income from the property) have actually been allocated for the claimant’s estate.” However, if the property were split 50/50 wherein each had an undivided interest, then only the interest held by the claimant would count as an asset. That is not the case with life estates. The life tenant has the right to the use and enjoyment of the entire property until his/her death. The only restriction on the life tenant is selling more than he/she owns (the life interest). The life tenant still gets tax benefits, etc. as if the tenant owned the entire property. Thus, joint ownership and life estate interests are different and treated differently by the VA.