Today we are issuing this Special Client Alert based on a recent Board of Veterans’ Appeals (BVA) Decision (the “Decision”) about irrevocable trusts and qualifying for Veterans Aid and Attendance (A&A) benefits. If you are a Level 3 client of our firm and a wartime veteran, please read and pay careful attention to this entire article/Special Client Alert, as you need to schedule an appointment to come to our office, and we may need to take action to modify your trust or decant your trust into a revised trust. This Special Client Alert will be your only notification, so it is imperative that you read this entire alert and schedule your consultation if this applies to you.
What the BVA Decision Did
The Decision involved an irrevocable Asset Protection Trust done by a veteran and his spouse in an attempt to shelter assets from being countable in connection with the Veterans Aid and Attendance benefit, and the BVA decided that the trust allowed the veteran and his spouse too much “control” over trust assets to allow the trust to work as an appropriate shelter of those assets.
What You Must Do
Because of this BVA Decision, if you are a Level 3 client of our firm and a wartime veteran and have done Level 3 planning using our Living Trust Plus “Total Protection Trust,” the version of the trust you have may no longer be suitable for you if one of your goals is to be able to qualify for the VA pension benefit known as Veterans Aid and Attendance.
If this applies to you, you must contact our office as soon as possible to schedule a consultation for us to discuss your trust, review your financial and health situation, and reevaluate your asset protection goals. If you are a member of our Lifetime Protection Plan®, there will of course be no charge for this consultation.
How to Determine if This Applies to You
Check your Trust document under the Trust tab in your burgundy binder and look at the one-page document entitled “Estate Planning Particulars” to see if your type of trust includes the words “Total Protection Trust.” If it does, then this Special Client Alert applies to you.
What We Need to Do
We need to examine your trust to ensure that neither you nor your spouse are acting as a trustee or allowed to serve as trustee, and to ensure that the trust does not give you or your spouse the power to remove and replace a trustee, as the BVA Decision found that these powers give too much “control” over the trust by the settlor.
BVA decisions cannot be used as precedent. This means that just because the BVA ruled this way in this case does not mean that the Board is required to rule that way in any other case. However, even though the BVA’s Decision was binding only with respect to the case decided and did not establish precedent, and did not establish VA policies or interpretations of general applicability, it still reflects the mindset of the BVA with regard to irrevocable asset protection trusts, which is why we feel we must take this action for all of our veteran clients who have these types of trusts.
Background — How Changes from Five Years Ago Affected A&A Eligibility
On October 18, 2018, the rules for the Department of Veterans Affairs’ (VA) Aid and Attendance (A&A) program (technically a “special pension with aid and attendance”) changed for all new claims/applications for needs-based benefits.
The biggest change to the eligibility requirements for these programs that occurred nearly five years ago was how the VA considered an applicant’s finances to determine eligibility.
Prior to this update, the VA used limited financial criteria and vague definitions that caused confusion amongst applicants and led to inconsistent determinations of eligibility and ineligibility. Through these updated rules, the VA sought to clarify the eligibility requirements for veterans and their families, improve the integrity and consistency of the pension program, and expedite benefits decisions.
The Recent Decision Focused on Use of Irrevocable Trusts to Protect Assets to Qualify for Veterans’ Benefits
The A&A program requires applicants to have a maximum net worth of $150,538 (figure valid through November 2023, scheduled to change each year based on inflation). As defined by the United States Department of Veterans Affairs (VA), net worth includes annual IVAP (income for VA purposes) and countable assets. The case in question called attention to the common use of irrevocable trusts for veterans hoping to qualify for A&A benefits (and Medicaid, but this article focuses just on A&A benefits). Those involved in the case were not clients of our firm, but the purpose of this Special Client Alert is both educational and to ensure this doesn’t happen to our existing or future clients.
The veteran in the case (Citation Nr: A22005200, Decision Date: 03/24/22) served honorable active military service from July 1962 to July 1966. He died in September 2018. The appellant was his surviving spouse.
The BVA Decided the Veteran and His Spouse Had Too Much Control Over the Trust
The surviving spouse was denied A&A benefits because, in determining her net worth, the VA counted the assets that were transferred to an irrevocable trust prior to the change in the rules in 2018. The veteran’s spouse appealed the VA determination to the Board of Veterans’ Appeals. Although it was an irrevocable trust and the transfer was prior to the new rules, the BVA said the grantor retained too much “control” over the assets in the trust and that the trust assets were therefore still countable.
The BVA looked at several different provisions of the trust to determine that, in its opinion, the grantor retained too much “control” over the assets. All but one of those elements is not present in any of our Living Trust Plus “Total Protection Trusts.” However, one of the “control” elements they addressed is that the trust allowed the settlor/grantor to change who could serve as trustee of the trust, and we have in the past included this provision in our trusts. The BVA stated “the trust . . . gives the grantors an unfettered right to remove and replace a trustee with someone of their own choosing. As such, the grantor retains some control over the trust because the grantor can remove a trustee who is not doing what the grantor wants and replace him or her with someone who will run the trust as the grantor wishes.” This conclusion flies in the face of established case law with regard to Medicaid Asset Protection Trusts, but the BVA is not required to follow case law established in connection with Medicaid.
Note the Current Rules for A&A
Please note that with the current rules, the minimum active duty and wartime service requirements as well as the age/disability requirement remain in place for VA pension programs. However, the 2018 rules established new financial requirements and clarified definitions for key concepts, which are explained below:
- Under the current rules, the VA uses a three-year look-back period to examine your asset transfers. This means that they look back at any asset transfers you made during the 36 months before you applied for the A&A program.
- The VA considers the funding of an irrevocable trust or voluntary purchase of an irrevocable annuity a gift.
- Under the current rules, a claimant is only eligible if the claimant’s net worth is less than $150,538, whether single or married. Net worth is the total of assets (not counting the home (on up to two acres) and any annual income in excess of unreimbursed medical expenses. If, for example, a claimant has assets (not counting the home) totaling $142,000, and IVAP (income minus unreimbursed medical expenses) of $9,000, the net worth is $151,000, and the veteran is ineligible for the benefit.
The current rules took effect for applications and gifts made after October 18, 2018. While this protects individuals who made gifts, set up trusts, or purchased annuities under the old rules from suffering a penalty period for those transactions, the VA still calculates a claimant’s eligibility based on the claimant’s net worth when applying, and this net worth could include assets in your irrevocable trust if your trust allows you to much “control” as determined by the BVA Decision explained above.
Schedule Your Trust Review Appointment Now
Again, if you are a Level 3 client of our firm and a wartime veteran, please schedule your appointment to come to our office ASAP, as we may need to take action to modify your trust or decant your trust into a new trust. This Special Client Alert will be your only notification, so it is imperative that you ACT NOW if this applies to you.
Please call us today:
Northern Virginia Veterans Aid and Attendance Attorney: 703-691-1888
Fredericksburg, VA Veterans Aid and Attendance Attorney: 540-479-1435
Rockville, MD Veterans Aid and Attendance Attorney: 301-519-8041
Annapolis, MD Veterans Aid and Attendance Attorney: 410-216-0703
About Evan H Farr, CELA, CAP
