General Information on Income and Net Worth Development

Overview

Introduction

This section contains the following topics:

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1. The Effect of Income/Net Worth on Benefit Entitlement

Introduction

This topic contains information on the effect of income and net worth on benefit entitlement, including

• effect of income on benefit entitlement
• considering Federal tax information (FTI)
• definition of net worth
• applicability of net worth to pension and Parents’ Dependency and Indemnity Compensation (DIC) claims
• purpose of the pension program and the basis for evaluating a claimant’s net worth
• handling a pension claim in which net worth is a factor
• example of determining value of assets, and
• considering net worth in
• Section 306 Pension cases, and
• current-law pension cases.

Change Date

January 30, 2020

IX.i.3.A.1.a. Effect of Income on Benefit Entitlement

In Department of Veterans Affairs (VA) income-based benefit programs, the amount of a beneficiary’s income for VA purposes (IVAP) determines the VA benefit rate payable. The higher a beneficiary’s IVAP, the lower the benefit rate.

Deny a claim for an income-based benefit if a claimant’s IVAP exceeds the applicable income limit or maximum annual pension rate.

References: For more information on

• denying a pension claim when the IVAP is excessive, see M21-1, Part IX, Subpart iii, 1.A.3, and
• general guidance on income inclusions, see M21-1, Part IX, Subpart iii, 1.I.1.a.

IX.i.3.A.1.b. Considering FTI

When Federal tax information (FTI) is available for the end products and claim labels specified in M21-1, Part XIV, 4.A.1.d, claims processors should compare the FTI and Social Security benefit information found in Share to the income reported on the application.

A review of FTI is not required if pension can be denied using

• the income reported on the claimant’s application, or
• other eligibility criteria, including wartime service.

IX.i.3.A.1.c. Definition: Net Worth

Net worth, for claims received on or after October 18, 2018, is the sum of a claimant’s

• assets, and
• IVAP.

Assets do not include the value of

• a claimant’s primary residence, or
• personal effects suitable to and consistent with a reasonable mode of life, such as appliances and family transportation vehicles.

Notes:

• When calculating annual income for net worth, subtract only reasonably predictable medical expenses.
• If the total value of an annuity or similar financial instrument is used when calculating the asset amount, do not include the monthly income derived from the same annuity or similar financial instrument when calculating income for net worth.

References: For more information on

• net worth criteria and definitions, see 38 CFR 3.274
• net worth criteria for claims received before October 18, 2018, see M21-1, Part IX, Subpart iii, 1.J.1.e, and
• the specific exclusions from assets in current-law pension cases, see 38 CFR 3.275(b).

IX.i.3.A.1.d. Applicability of Net Worth to Pension and Parents’ DIC Claims

In claims that involve

• Section 306 Pension or current-law pension, net worth is a factor, and
• Old-Law Pension or Parents’ Dependency and Indemnity Compensation (DIC), net worth is not a factor.

IX.i.3.A.1.e. Purpose of the Pension Program and the Basis for Evaluating a Claimant’s Net Worth

The pension program is

• intended to afford beneficiaries a minimum level of security, and
• not intended to protect substantial assets or build up the beneficiary’s estate for the benefit of heirs.

IX.i.3.A.1.f. Handling a Pension Claim in Which Net Worth Is a Factor

For claims received on or after October 18, 2018, the bright-line net worth limit for pension entitlement is $123,600 for all effective dates of payment prior to December 1, 2018.

The current net worth limit for pension entitlement is listed on the Veterans Pension Rate Table.

This limit is increased by the same percentage as the cost-of-living adjustment in Social Security benefits. Deny or discontinue pension when net worth is above the bright-line limit.

For claims received before October 18, 2018, consider whether it is reasonable, under all circumstances, for the claimant to consume some of their estate for maintenance, and deny the pension claim if a formal finding determines that the claimant’s net worth should be consumed for maintenance.

Reference: For more information on denying a pension claim for excessive net worth, see M21-1, Part IX, Subpart iii, 1.J.4.a.

IX.i.3.A.1.g. Example: Determining the Value of Assets

Claimant’s Financial Situation:

• The claimant owns a duplex with a current market value of $200,000 and occupies half of the duplex.
• The claimant owes $50,000 on the mortgage on the property.
• The claimant owns
• clothing and personal articles worth about $1,000
• a car worth $7,000
• stereo equipment worth $500
• a television set worth $200, and
• furniture worth $800.

Determining Asset Exclusions/Inclusions:

• Automatically exclude $100,000 of the market value of the duplex since half of it is the claimant’s primary residence.
• Reduce the remaining $100,000 of the value of the duplex by the $50,000 mortgage, leaving real property $50,000 for net worth purposes.
• Exclude the value of the claimant’s personal effects, such as the
• clothing and personal articles
• car
• stereo equipment
• television set, and
• furniture.

Total Assets:

The total assets for VA purposes is $50,000 in real property.

IX.i.3.A.1.h. Considering Net Worth in Section 306 Pension Cases

Per 38 CFR 3.263, consider only the net worth of the primary beneficiary for Section 306 Pension purposes.

IX.i.3.A.1.i. Considering Net Worth in Current-Law Pension Cases

For current-law pension purposes consider the net worth of both a Veteran and spouse and also the net worth of a Veteran's or surviving spouse's child per 38 CFR 3.274(c).

Important: If a child’s net worth is determined to be excessive, remove the child from the award as a dependent. Do not deny a Veteran’s or surviving spouse’s claim because of a child’s net worth per 38 CFR 3.274(d).

2. Development of Income and Net Worth-Dependent Cases

Introduction

This topic contains information on the development of income and net worth-dependent cases, including

• income development for
• initial and supplemental claims, and
• Section 306 and Old-Law Pension cases
• income classification descriptions, and
• determining and recording the receipt of income.

Change Date

January 30, 2020

IX.i.3.A.2.a. Income Development for Initial and Supplemental Claims

Since two of the three VA pension programs, Section 306 Pension and Old-Law Pension, receive a protected rate of payment, income development in connection with initial and supplemental claims primarily involves the following two programs:

• current-law pension, and
• Parents’ DIC.

IX.i.3.A.2.b. Income Development for Section 306 and Old-Law Pension Cases

Development of income in Section 306 and Old-Law Pension cases is necessary only to determine continued entitlement to protected benefits.

References: For more information on

• counting income and considering net worth for all three pension programs and Parents’ DIC, see M21-1, Part IX, Subpart iii, 1.A - J, and
• Section 306 and Old-Law Pension, see M21-1, Part IX, Subpart iii, 1.C.

IX.i.3.A.2.c. Income Classification Descriptions

Income can be classified into three separate classifications

• one-time
• recurring, and
• irregular income.

Income Classification Descriptions

One time: A lump sum receipt of income. The receipt of income may occur more than once each year, but each receipt is a separate event.

Recurring: Income that is received on a regular basis and in regular amounts.

Irregular: Income that is received several times a year but at irregular times or in irregular amounts.

IX.i.3.A.2.d. Determining and Recording the Receipt of Income

Use the table below to determine what information is required for each income classification.

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3. Income and Net Worth Reporting Periods

Introduction

This topic contains information on income and net worth reporting periods, including the reporting period for

• Parents’ DIC
• Section 306 and Old-Law Pension, and
• current-law pension.

Change Date

January 30, 2020

IX.i.3.A.3.a. Reporting Period for Parents’ DIC

Income for Parents’ DIC purposes is counted on a calendar-year basis, meaning that benefit entitlement is based on income received between January 1 and December 31 of any given year.

When developing an initial or supplemental claim received after a period of non-entitlement, request

• income information from the date of entitlement through December 31 of the year during which entitlement arose, and
• expected income for the next calendar year.

IX.i.3.A.3.b. Reporting Period for Section 306 and Old-Law Pension

Income for Section 306 Pension and Old-Law Pension is computed on a calendar-year basis. Since there are no new claims for Section 306 or Old-Law Pension, the income at issue is always the amount of income

• received from January 1 through December 31 of the current year, and
• expected during the next calendar year.

IX.i.3.A.3.c. Reporting Period for Current-Law Pension

Current-law pension income is based on 12-month annualization periods. After the initial year, income-counting periods for irregular income and medical expenses coincide with the calendar year. Income is reported on a calendar-year basis.

Use the table below for information on income counting and reporting for

• original claims
• initial and supplemental claims received after a period of non-entitlement, and
• running awards.

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4. Developing for Net Worth

Introduction

This topic contains information on developing for net worth, including

• general information on net worth
• review of asset and income information
• developing for additional net worth information, and
• initiating follow-up development on real estate values.

Change Date

March 19, 2025

IX.i.3.A.4.a. General Information on Net Worth

Net worth is a factor in current-law pension and Section 306 Pension cases. Various application forms contain spaces in which a claimant can provide net worth information.

Note: Net worth is not a factor in Old-Law Pension and Parents’ DIC cases.

IX.i.3.A.4.b. Review of Asset and Income Information

For claims received on or after October 18, 2018, review the asset and income information provided on the application to determine if a claimant’s net worth is at or below the bright-line net worth limit.

Notes:

• Pension entitlement does not exist if the claimant’s net worth exceeds the bright-line net worth limit.
• If the claimant answers No to assets over the dollar amount threshold listed on their application and does not provide an estimate of the total value of their assets, claims processors may use the threshold maximum value listed on the form, plus their income for VA purposes to calculate net worth.

References: For more information on

• the bright-line net worth limit, see M21-1, Part IX, Subpart iii, 1.J.4.a, and
• net worth determinations for claims received before October 18, 2018, see M21-1, Part IX, Subpart iii, 1.J.3.

IX.i.3.A.4.c. Developing for Additional Net Worth Information

If additional net worth information is needed for claims received on or after October 18, 2018, send a locally-generated letter requesting completion of VA Form 21P-0969, Income and Asset Statement in Support of Claim for Pension or Parents’ Dependency and Indemnity Compensation (DIC).

Reference: For information on developing for net worth determinations for claims received before October 18, 2018, see M21-1, Part IX, Subpart iii, 1.J.3.d.

IX.i.3.A.4.d. Initiating Follow-Up Development on Real Estate Values

Initiate follow-up development if the reported value of real estate appears unrealistic. Claimants who have held parcels of real estate for long periods of time may be unaware of current real estate prices and may greatly underestimate the value of their holdings.

If it appears that a claimant is underestimating the value of real property, ask them to furnish evidence of the current market value of the land. Possible sources of this information include the following:

• a formal appraisal of the value of the land, or
• a statement from a
• real estate broker in the area as to the value of comparable real estate in the vicinity
• county farm agent as to the value of comparable rural land in the vicinity, or
• local bank loan officer as to the value of comparable real estate in the vicinity.

Reference: For more information on determining the value of property and its effect on net worth, see M21-1, Part IX, Subpart iii, 1.J.6.