The Veterans Asset Protection Trust (VAPT) is a powerful tool that can protect assets while enabling the Grantor to qualify for needs-based VA-pension benefits. The VAPT is a nongrantor trust with the option to include a grantor residence subtrust. Why is the VAPT structured this way?

Happy Veterans Day! In honor of our veterans, let’s take a look at the structure of the Veterans Asset Protection Trust (VAPT). The VAPT is a powerful tool that can protect assets while enabling the grantor to qualify for needs-based pension benefits. There are two sub-trusts within the VAPT – one is a grantor sub-trust and the other is a non-grantor sub-trust. Why is it structured this way? The Veterans Affairs (VA) has a direct line of communication with the IRS. The VA routinely checks the tax returns of pension recipients, to get income information. Because of this, it is best to avoid any “phantom income” from a grantor trust being reported on the grantor’s tax return. This additional reported income may jeopardize eligibility for benefits.

The Veterans Asset Protection Trust can be a beneficial option for many of your elder law clients that 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 Veterans is typically 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.