Does The VA Consider Assets Transferred To A Special Needs Trust In Determining Eligibility for VA Improved Pension And Aid And Attendance Benefits?

A growing number of my elder law clients have asked me whether the Department of Veterans Affairs (VA) considers assets transferred to various types of revocable and irrevocable trusts in determining eligibility for Improved Pension and Aid and Attendance benefits.

The answer depends in large part upon the type of trust into which assets are transferred. For example, transfers to special needs trusts are apparently countable by the VA. This is the case even though special needs trusts allow a disabled beneficiary to receive gifts, lawsuit settlements or other funds and yet not lose eligibility for government programs. Such trusts are drafted so that the funds will not be considered as belonging to the beneficiary in determining his or her eligibility for public benefits such as Medicaid.

Unfortunately, applicants for VA improved pension and Aid and Attendance benefits who are also beneficiaries of special needs trusts are, unlike applicants for other types of needs-based government benefits, ineligible for government assistance. VAOPGCPREC 33-97 (VA General Counsel Opinion dated August 2, 1997) In this case, the General Counsel considered the impact of an “irrevocable living trust,” created on behalf of the surviving spouse of a veteran, on the surviving spouse’s eligibility for VA improved pension and aid and attendance benefits. The irrevocable trust was drafted as a special needs trust which prohibited payments to or on behalf of the applicant / beneficiary when payments could instead be obtained from any entitlement program based on need, such as VA pension benefits. Significantly, the opinion stated that the surviving spouse was incompetent, and that no federal fiduciary, court-appointed guardian or conservator had been appointed at the time of pension application.

After discussing the trust language, the VA General Counsel held 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.”

Further, the VA General Counsel held that the surviving spouse could be considered as exercising control over the trust assets even though she was incompetent at the time of the application and had no guardian or conservator appointed:

[P]roperty and income from property may be countable as belonging to a claimant if the claimant possesses such control over the property that the claimant may direct that it be used for the claimant’s benefit. … [T]he surviving spouse could be considered as exercising control over the trust assets if the surviving spouse gave the trustee control over the assets while the surviving spouse retained sufficient mental faculties and provided specific instructions concerning the circumstances under which trust assets would be used for the surviving spouse’s benefit, or if someone lawfully empowered to act on her behalf established the trust. In this manner, the surviving spouse could be considered to exercise “control” over the trust assets even though the surviving spouse is now completely incapacitated.

The reasoning in the opinion is a tad difficult to understand, and impossible to reconcile with the opinions of other courts which have considered special needs trusts. Further, the opinion stands alone in holding that the assets in a properly drafted special needs trust are countable in determining eligibility for government benefits. Unfortunately, this is the state of the law at this time. The lesson for readers is that the use of trusts, or similar devices (like annuities), to achieve VA pension eligibility should be approached with extreme caution by applicants. An elder law attorney with background in handling VA matters should be consulted when such matters arise.