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The Montana Estate Lawyer

Friday, July 27, 2018

The Veterans Asset Protection Trust

The Veterans Asset Protection Trust can be an applicable and beneficial option for many of our elderly clients who are looking for long-term planning options. The Veterans Asset Protection Trust is an intentionally defective grantor trust and can be considered as an option for clients 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. 

When it comes to assets, the most significant for a Veteran is often his or her residence. As long as a Veteran retains that home, it does not count as part of his or 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 or her from receiving any further Veterans’ pension benefits. This disqualification remains intact until the Veteran spends the proceeds down 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, 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.

The Veteran is the “grantor” or trustmaker 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. It is also advisable to include the appointment of a trust protector. This person is someone who could be appointed and granted the power to amend the trust to correct scrivener’s errors, remove ambiguities or respond to changes in the law, and could also be granted the power remove and replace a trustee that is not acting in the best interest of the trust or its intended purpose.

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. Essentially, Medicaid can look back over a period of five years when running the financial analysis to determine whether or not a person qualifies for benefits.  Therefore, the client will need to create the trust, transfer the assets to it (fund the trust), and not require Medicaid benefits for at least five years. After the five-year mark, the client’s assets will be fully protected and will qualify for Medicaid. If the client must apply for Medicaid before the five-year mark, then he or she can either be a private pay patient until the five-year mark is reached or Medicaid will assess a penalty period, where the client will 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.

Jon


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