Use Of Irrevocable Trusts and other Devices in VA Pension Cases

By Steven C. Perlis

A growing number of my elder law clients have discussed the use of irrevocable trusts to qualify them for VA Aid and Attendance. Currently, gifting away all of most of a client’s net worth prior to applying for improved pension (Aid and Attendance) does not result in a penalty, although VAOPCCPREC 33-97 (VA General Counsel Opinion dated 8/2/97) makes it clear VA Office of General Counsel doesn’t like estate planning for well off clients to get them onto VA improved pension any more than state Medicaid agencies like it when such planning is done to qualify clients for Medicaid.

The key here is found in language in the General Counsel Opinion 33-97, namely: “It follows that only property over which a claimant, or someone with legal authority to ac on the claimant’s behalf, has some control to use for the claimant’s benefit, can reasonably be expected to be consumed for a claimant’s maintenance and thus be includable in the claimant’s estate”. In this case, a special needs trust prohibited payments for the trust beneficiary where payments could instead be paid by an entitlement program. VA General Counsel went through the history of not only VA law on point, but also discussed sections from the federal Medicaid law. The opinion stated that “assets transferred by a legally competent claimant, or by the fiduciary of a legally incompetent one, to an irrevocable “living trust” or an estate planning vehicle of the same nature designed to preserve estate assets by restricting trust expenditures to the claimant’s “special needs”, while maximizing the use of governmental resources in the care and maintenance of the claimant, should be considered in calculating the claimant’s net worth for improved pension purposes.

The lesson from this is that the use of irrevocable trusts, or similar devices (like annuities), should be approached with extreme caution by planning professionals. An elder law attorney with background in handling VA matters should be consulted.