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Irrevocable Trusts for VA Pension Benefits

The VA has a number of programs to help needy veterans and their surviving spouse. The pension program is a needs-based cash benefit to help veterans with extraordinary medical costs. Many people refer to the pension program as "aid and attendance." Elder law attorneys usually use the VA pension program to help pay for an elder's long-term care costs, such as in-home care and assisted living.

The VA made vast changes to the program starting October 18, 2018.  The highlighted changes include:

VA benefits run about $2,200/month for a married veteran to $1,200/month for the surviving spouse of a wartime veteran. See here for the actual numbers, which change annually.

With the new look-back period in place, the VA applicant creates a transfer penalty if assets are gifted within 3 years of the VA application. This means that the veteran, or his or her surviving spouse, may want to consider giving assets away in order to protect them for their children's inheritance. Of course, gifts would need to be done before the applicant needs long-term care.  But outright gifting to children may not be the best way to proceed as problems may occur when the children receive any gifted funds. The basic reasons why you would not want to make an outright gifts to children would be:

  • What if the child got sued?
  • What if the child got divorced?
  • What if the child had an accident or even died?
  • There are tax consequences to gifting assets to children before your death due to a lack of step-up in basis. 

So if you want to protect assets from the nursing home and you want to try to get VA Pension benefits before you get sick, you could give your assets to an irrevocable trust. The irrevocable trust has the following features:

  • You create the trust at least 3-5 years before you need long-term care
  • Your trusted child/children are trustees of the trust during your lifetime
  • The assets are held in trust for your lifetime with your children as income and principal beneficiaries
  • The trust has a separate EIN and must file an annual tax return
  • Assets in the trust protected 3-5 years (3 years for VA benefits, 5 years for Medicaid) after being placed into the trust
  • Assets in the trust only distributed to family upon your death - this means that the most responsible child controls the assets during your lifetime
  • You can control the final disposition upon your death with a special power of appointment
  • You can place your homestead property in the trust and still retain your homestead tax exemption

So why would you not want to create an irrevocable trust?

  • You do not have children you can trust
  • Your main assets would be IRAs (these cannot go into an irrevocable trust)
  • If you are between 60 and 80 years old, you could consider purchasing financial products that contain long-term care insurance rides instead of giving your assets away
  • You do not want to be subject to relying on the government (VA and/or Medicaid benefits)

We create a irrevocable trusts for clients across Florida. Most estate planning attorneys do not know about asset protection planning for VA and Medicaid benefits, so it is possible that your own estate planning attorney does not work in this area.

If you want to learn more, please see:

 

 

 

 

 

D. Rep DeLoach III
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Estate Planning and Board Certified Elder Law Attorney
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