I regularly speak with other attorney’s, financial planners, and families about the differences between VA Irrevocable Trusts and Medicaid Irrevocable Trusts.
More and more, I’m finding that people misunderstand the crucial differences between Medicaid and VA law as it pertains to VA Irrevocable Trusts.
Many professionals and their clients seem to think that any Irrevocable Trust is sufficient to qualify an applicant for VA benefits.
Specifically, they believe that if the applicant for federal VA benefits doesn’t have access to the principle, the Trust is complaint with VA regulations.
That requirement is necessary but not sufficient.
I think the misunderstanding is one of practice specialty. Many elder law attorneys regularly handle Medicaid planning cases. These attorneys are familiar with the in and outs of federal and state Medicaid law.
But far fewer attorneys regularly deal with VA planning cases. They simply aren’t well versed in VA pension law.
Often times, attorneys fail to plan for VA benefits because they aren’t aware that such benefits exist. Maybe they don’t even know that their client is a veteran or a surviving spouse of a veteran.
Recently, I had to tell a family that the Irrevocable Trust their attorney drafted many years ago failed to take VA regulations into account. As a result, the veteran wasn’t eligible for Aid and Attendance.
Medicaid Irrevocable Trusts are often referred to as Income Only Trusts. These trusts prevent the applicant from accessing the principle, for example a mutual fund, but permit access to the income. So while the applicant can’t touch his stock portfolio, he can receive the dividends from that portfolio.
That drafting is suitable for Medicaid, but not for Aid and Attendance. Under VA regulations, an asset portfolio funded into an Irrevocable Trust will be considered net worth if the applicant has access to the income.
If a veteran or surviving spouse is considering an Irrevocable Trust to preserve assets and qualify for Aid and Attendance, their attorney should be familiar with the similarities and differences between Medicaid and VA benefits.
If a veteran wants to move to an Assisted Living facility, create an Irrevocable Trust, and apply for VA benefits, the planning must take into account not only the reduced access to principle, but the reduced access to income. A sufficient amount of net worth could be left out of the Trust to cover the difference between fixed income and the cost of care.
Changes may be coming to Aid and Attendance. More than ever, a thorough understanding of the similarities and differences between VA benefits and Medicaid is necessary to properly serve the veteran community.
The above is not legal advice and I am not your attorney. Everyone’s situation is different. Consult a knowledgeable attorney before you engage in any planning.