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Veterans’ Assistance Trusts

           From the desk of F. Stephen Glass:

 

 

 

 

 

 

 

 

Veterans’ Asset

Protection Trust

In this article you will learn:

  • What a Veteran Protection Trust does.
  • Grantor and beneficiary roles.
  • Understanding the implications of Medicaid’s Five-Year look back period.
  • Why this type of Trust is viewed as a more conservative approach.

 

What a Veteran Protection Trust does:

The Veterans Asset Protection Trust is an intentionally defective grantor trust and can be considered as an option for people who are wartime Veterans or the surviving spouses of a wartime Veteran.  This trust is designed to meet the eligibility requirements from the Veterans Administration (VA) of a complete gift or complete relinquishment.

 

Typically, the most significant asset for Veterans is his/her residence. As long as that home is retained, it does not count as part of his/her net worth for VA­ eligibility purposes and instead qualifies as a ” non-countable resource.” If a Veteran is collecting a monthly pension benefit, however, and later sells the home, those proceeds will disqualify him/her from receiving any further VA pension benefits. This disqualification requires the Veteran to spend down those proceeds to an allowable asset level.

This is where a Veterans Asset Protection Trust can come into play. If  the residence was placed into the trust before the VA application and later sold by the trustee, the proceeds of the sale in that case would not jeopardize the Veteran ‘s eligibility for pension benefits. Should the Veteran need Medicaid benefits more than five years following the establishment and funding of the trust then the sum of money or property set aside to produce income for a named beneficiary (AKA the

trust “corpus”) will not be part of the Veteran’s Medicaid application, and thus will not be a countable asset when applying for Medicaid.

 

Grantor and beneficiary roles:

The Veteran is the grantor in this type of trust and his or her children are the beneficiaries. The trust grants rights and duties to the trustee so that person may make discretionary distributions to the beneficiaries. is highly recommended to include the appointment of a trust protector. This person is someone who you would grant the power to remove and replace a trustee that is not acting in the best interest of the trust or its intended purpose.

 

Although the name doesn’t suggest it, the Veterans Asset Protection Trust is also an asset protection option that can be used in the Medicaid environment. It’s a good option for clients whose primary goal is Medicaid Asset Protection. This is particularly useful in states that have issues regarding grantor trust status including Massachusetts and New Jersey.

 

 

               Understanding the implications of Medicaid’s Five-Year look back period:

Because this trust can be used in the Medicaid environment, it’s important to note the

potential implications of Medicaid’s five-year lookback period. Medicaid can “look back”

over a period of five years to determine whether of not a person qualifies for benefits

through a financial analysis. If your client must apply for Medicaid before the five-year mark,

then he/she can either be a private pay patient until the five-year mark is reached, or

Medicaid will assess a penalty period, where you would not receive benefits.  The length of

the penalty period depends on the amount of assets transferred and the amount of time

that has passed since the transfer.

 

              Why this type of Trust is viewed as a more conservative approach:

 

Overall, the Veteran Asset Protection Trust is a more conservative trust than some of the other types of asset protection trusts available. It provides all of the benefits of the Medicaid Asset Protection Trust, including the same tax benefits, but income generated is passed off to the lifetime beneficiaries of the trust instead of flowing through to the grantor in his or her individual income tax return.