Add up the assets and the annual income on one sheet of paper before you make a single phone call. The VA does not test them separately. Under 38 CFR 3.274 and 3.275 it adds them together into a single figure called net worth, compares that figure to one limit, and denies the claim if it is over. Households spend weeks worrying about the wrong number because they treat income and assets as two separate hurdles. There is one hurdle.
The deadline that governs is the 36-month look-back created in 2018. Any transfer of a covered asset for less than fair market value made on or after October 18, 2018 and within 36 months of the claim can generate a penalty period of up to five years. That means the calendar decides whether a gift made three years ago is invisible or fatal, and it means that a transfer you are considering today is a decision about the next three years of eligibility.
One rule shapes almost every policy question that follows: the VA excludes the value of life insurance from countable assets for pension net worth. Cash from selling that same policy is counted in full. That asymmetry is the whole game.
In This Article
The single number: how the VA computes net worth
Net worth equals countable assets plus countable annual income. Both halves need care.
Countable assets are the fair market value of everything the claimant and any dependent own, minus mortgages and other encumbrances on the property, and minus the exclusions listed below. Assets held by a spouse are included. Assets held in an irrevocable trust the claimant does not control generally are not, though the transfer into that trust is exactly what the look-back examines.
Countable annual income is income from all sources for the twelve months following the claim, reduced by the exclusions in 38 CFR 3.272. The most powerful of those is the unreimbursed medical expense deduction under 3.272(g): medical expenses paid by the claimant, not reimbursed by insurance, that exceed 5% of the applicable maximum annual pension rate reduce countable income dollar for dollar above that threshold. Assisted living charges, home health aide invoices, Medicare Part B and Part D premiums, supplement premiums, prescriptions, and adult day care commonly qualify.
The result, called Income for VA Purposes, is often far lower than gross income. A veteran with $52,000 of pension and Social Security income who pays $61,000 a year to an assisted living facility may show countable income near zero. This is the mechanism that qualifies most households, and it is routinely overlooked in favor of asset maneuvering that is riskier and less effective.
The net worth limit is indexed each December 1 to the Social Security cost-of-living adjustment. It stood at $159,240 for the period beginning December 1, 2024. Verify the current-year figure with the VA directly; it changes annually and any published number goes stale.
What is excluded from countable assets
The exclusions are narrower than most families assume, and one of them is much broader.
- The primary residence, including a reasonable lot area. Since the 2018 rule, the lot is generally limited to two acres, with additional acreage countable unless it is not marketable. If the home is sold, the proceeds become countable unless reinvested in another residence within the same calendar year.
- Personal effects consistent with a reasonable mode of life — furniture, clothing, one vehicle used for transportation.
- The value of life insurance. The VA does not count cash surrender value toward pension net worth. A whole life policy with $120,000 of accumulated cash value does not push a claimant over the limit.
- Irrevocable burial arrangements within reasonable limits.
Everything else counts at fair market value: bank accounts, certificates of deposit, brokerage accounts, individual retirement accounts and 401(k) balances, annuities, second homes, rental property, land, and the cash value of anything that is not life insurance.
Two of these surprise people. Retirement accounts count in full even though withdrawing from them creates a tax bill. And annuities count, which is why the Medicaid-compliant annuity strategy that works for Medicaid frequently does not work for VA pension. The two programs are not interchangeable, and a plan built for one can defeat the other — the contrast is drawn out in how VA benefits and life insurance interact.
The 2018 look-back and the penalty formula
Before October 18, 2018, VA pension had no transfer penalty at all. A claimant could give away $400,000 on Monday and file on Tuesday. The VA’s final rule, effective that date, closed the gap by adding 38 CFR 3.276.
The look-back is 36 months, measured back from the date the VA receives the pension claim. Only transfers made on or after October 18, 2018 are examined; earlier transfers are outside the rule entirely.
A covered asset is an asset that was part of net worth, that was transferred for less than fair market value, and that would have caused net worth to exceed the limit had it been retained. That last clause matters: if net worth would have been under the limit even with the transferred asset counted, there is no penalty.
The penalty period formula is: the covered asset amount, divided by the maximum annual pension rate for a veteran with one dependent in need of aid and attendance, divided by 12, rounded down to the nearest whole month. The result is capped at five years.
Work it through. Suppose a veteran gifted $90,000 to a grandchild eighteen months ago, and the divisor rate is roughly $33,500 per year, or about $2,800 per month. The covered asset amount of $90,000 divided by $2,800 gives roughly 32 months of penalty. Thirty-two months of denied benefits at an Aid and Attendance rate near $2,300 per month is on the order of $73,000 in foregone benefits — a worse outcome than simply keeping the money. Confirm the current-year rates with the VA before running your own numbers, since the divisor moves every December 1.
Penalty periods can sometimes be cured by returning the asset, and hardship relief exists in limited circumstances. Both are technical and belong with an accredited VA claims agent or attorney rather than a general guide.
| Action | Effect on countable assets | Triggers 36-month look-back penalty? | Effect on countable income |
|---|---|---|---|
| Keep the policy | None — cash value excluded | No | None |
| Sell the policy at fair value | Increases by the net proceeds | No | Sale profit excluded from income |
| Surrender the policy | Increases by the cash received | No | Taxable gain may raise income |
| Gift the policy to a child | Removes it, but it was already excluded | Possibly — VA may review | None |
| Pay documented care costs | Decreases, dollar for dollar | No — value received | May reduce income via 3.272(g) |
Where a life insurance policy actually sits
Four distinct situations, four different answers.
You own the policy and keep it. The cash value is excluded from net worth. Premiums paid are not deductible as medical expenses. Nothing about the policy affects the claim. This is the cleanest position, and it is the default.
You give the policy away. Ownership transfer of a policy with cash value for nothing is a transfer of an asset for less than fair market value. Because the policy would not have counted had you kept it, whether it becomes a covered asset turns on whether net worth would have exceeded the limit with it counted — and since it would not have counted at all, the analysis is more favorable than for cash. It is nonetheless a transfer the VA can question, and it converts a clean position into one that requires explaining. Rarely worth it.
You surrender the policy. The carrier sends you cash. That cash is a countable asset from the moment it arrives, and any gain above basis is taxable income in the year received, which also raises countable income. This is the single most self-defeating move available: it increases both halves of the net worth calculation at once.
You sell the policy to a licensed buyer. A sale at fair market value is not a penalized transfer under 3.276, so no penalty period arises. But the proceeds are countable assets. Under 38 CFR 3.272, profit realized from the disposition of property other than in the course of business is excluded from income — a helpful rule — while the resulting cash is unambiguously an asset. If the household’s net worth was $110,000 and a policy sale produces $95,000, the claim fails.
The mirror image is Medicaid, which counts cash surrender value once the total face value of all policies on the insured exceeds a small state threshold. That is why the same policy can be an asset to protect in a VA plan and an asset to spend down in a Medicaid plan. Households facing both should read how cash value counts toward Medicaid and the Medicaid look-back rules on selling a policy alongside this page, and get one professional to reconcile them.
Every option, ranked for a household chasing Aid and Attendance
1. Document unreimbursed medical expenses properly. Highest return per hour of effort by a wide margin, no transfer risk, no waiting period. Get twelve months of facility and aide invoices and a physician-completed VA Form 21-2680.
2. Keep the life insurance policy exactly as it is. It is excluded. Leave it alone.
3. Spend down on legitimate needs. Paying for care, home modifications, medical equipment, dental work, hearing aids, vehicle repairs, and outstanding debt reduces countable assets without any transfer at all, because you received value. The VA does not penalize buying things you need. Document everything.
4. Pay off a mortgage on the excluded residence. Converts a countable asset into equity in an excluded one. Straightforward, though it reduces liquidity.
5. Reduced paid-up conversion. If the policy premium is the household’s cash-flow problem, converting to a smaller paid-up policy stops the premium permanently while keeping an excluded asset excluded. It does not create countable cash.
6. Extended term. Same idea, different tradeoff: full face amount for a fixed number of years, no further premium, no cash generated.
7. Accelerated death benefit or chronic illness rider. Produces cash when health has declined. The cash counts, so time it against the claim.
8. Policy loan. Cash without a transfer, but the cash counts and the loan reduces the death benefit. Solves liquidity, not eligibility.
9. 1035 exchange. Moves value between contracts. Does not create countable cash, but a hybrid long-term care contract may be treated differently than plain life insurance. Confirm before assuming the exclusion carries over.
10. Life settlement. Generates the most cash of any option, and generates exactly the wrong kind of asset for this test. Appropriate when the household has decided Aid and Attendance is not achievable or not needed, and the coverage is genuinely unwanted.
11. Surrender. Least cash of the cash-producing options, plus a tax bill, plus loss of coverage. Hard to justify.
12. Gift the policy or the money to family. Creates the exact problem the 2018 rule was written to catch.
When selling is the wrong answer
When the claim is pending or planned within three years. The proceeds count, and a sale that closes the month before filing is the reason for a denial. If the household needs both, sequence it with an accredited representative and accept that one may have to give.
When the medical expense deduction would have qualified the household anyway. Run that calculation first. It is free, and it resolves more cases than any asset strategy.
When the policy is the surviving spouse’s plan. Aid and Attendance for a surviving spouse pays at a lower rate than for a veteran. If the veteran’s death will drop household income sharply, the death benefit may be the bridge that keeps the survivor out of Medicaid entirely.
When the face amount is small. Below roughly $100,000 the market thins quickly, and below $50,000 it effectively disappears. A months-long process that ends with no bids costs time the household does not have.
When the veteran is in good health. Offers are priced off life expectancy. A healthy insured produces low offers, and a low offer trades an excluded asset for a small counted one. Worst of both.
When the real problem is care coordination, not money. Sometimes the household is not short of assets at all — it is short of a plan for how to pay for eight hours a day of help. Costing out home care by the hour and mapping out assisted living funding often reveal that the gap is smaller than feared.
When nobody has looked at Medicaid yet. For a household heading toward a nursing home rather than assisted living, Medicaid is usually the larger benefit and its rules run in the opposite direction. Do not optimize for the smaller program and disqualify yourself from the bigger one. When to bring in an elder law attorney is, for most families, right now.
Pine Lake Life Solutions provides education and a free policy review. We do not purchase policies, we are not licensed in every state, and we do not give benefits, legal, or tax advice. Send the policy cover page and we will tell you what you actually hold and whether a sale is even worth considering — frequently the honest answer here is no. (305) 209-7183.
Frequently Asked Questions
Is the net worth limit per person or per household?
It applies to the claimant, and the assets and income of a spouse are included in the calculation. There is not a separate limit for each spouse. For a surviving spouse claiming death pension with Aid and Attendance, the same single limit applies to that claimant’s own net worth. Dependent children’s assets can also be included, which surprises households that moved money into a dependent adult child’s name expecting it to be invisible.
Does an IRA count against the asset limit?
Yes. Individual retirement accounts, 401(k) balances, and similar retirement assets are counted at fair market value for VA pension net worth, even though withdrawing from them produces taxable income. This is a meaningful difference from some Medicaid programs, several of which treat a retirement account in payout status as an income stream rather than a resource. Do not carry an assumption from one program into the other.
Can I move assets into a trust to qualify?
Transferring assets into an irrevocable trust is a transfer, and if made within 36 months of the claim it is examined under 38 CFR 3.276 like any other. Whether it produces a penalty depends on whether the assets are covered assets under the regulation. Trust planning around VA pension is technical, is easy to get wrong, and belongs with a VA-accredited attorney. Trust planning done for Medicaid purposes does not automatically work for VA.
How long does the VA take to decide these claims?
It varies widely by regional office and by how complete the file is at submission. Claims with a fully completed VA Form 21-2680, twelve months of documented medical expenses, and clean asset documentation move considerably faster than claims the VA has to develop. Filing VA Form 21-0966, the Intent to File, preserves the effective date for a year, so a slow decision does not cost benefits as long as that form went in early.
If I sell my policy and spend the money on care, am I back under the limit?
Potentially yes, because assets spent on genuine needs are gone and value was received, so no transfer penalty attaches. The practical problem is documentation and timing. If the proceeds land in an account and sit there while the claim is adjudicated, they count on the date the VA measures. Keep invoices and bank records showing where every dollar went, and expect the VA to ask for them.
Does the VA count the house if my father moved into assisted living?
The primary residence exclusion generally continues while the claimant is in a care facility, though the analysis can change if the home is rented out or listed for sale. If it is sold, the proceeds become countable unless reinvested in another residence within the same calendar year. Timing a home sale against a pension claim deserves the same care as timing a policy sale, and for the same reason.
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Related Reading
- Va Aid Attendance Policy
- Va Benefits And Life Insurance
- Medicaid Lookback Selling Policy
- Cash Value Counts Toward Medicaid
- Spend Down Vs Selling Policy
- Home Care Hourly Cost Funding
- Entering Assisted Living Funding
- Elder Law Attorney When To Involve
- Nursing Home Medicaid Spend Down
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.