There are three categories of Veterans Benefits:
- Health Care through the Veterans Health Administration,
- Compensation for Service Connected Disabilities through the Veterans Benefits Administration; and
- Improved Pension for Wartime Veterans (or their Widows) through the Veterans Benefits Administration.
Types two and three above are tax free, monthly financial payments to the claimant (Veteran or Widow). Compensation is designed to pay for the “loss” the Veteran suffered due to an injury, illness or disease incurred or aggravated because of their service. The claimant’s income and asset values are not considered when applying for Compensation.
In contrast, eligibility for Improved Pension is directly related to how much the claimant makes in income and how much they have saved in assets. Assuming the Veteran meets the military criteria and is disabled (age 65 and above), the claimant must also meet the income and asset standards.
The asset limit is roughly $80,000, excluding the home, personal belongings and vehicles. Many Veterans have in excess of $80,000, but also have very high medical expenses quickly depleting their assets, leaving them with no other option but to move to a nursing home and apply for Medicaid. The strong desire to maintain a scintilla of quality of life and remain in one’s home, creates the situation where people want to preserve some of their assets and still qualify for VA Benefits. In the Medicaid benefits universe, the use of Special Needs Trusts is available for certain classes of trust beneficiaries.
That begs the question, are Special Needs Trusts Permitted for VA Benefits Improved Pension cases? Before answering the question, it is important to understand that there are two different types of Special Needs Trusts. There are “First Party” and “Third Party” Special Needs Trusts (SNT). A first party SNT is funded with the money from the person who has the disability, who is also the creator or grantor. A third party SNT is created and funded by a person on behalf of another person (i.e. a parent for a child).
In 1993, the Omnibus Budget Reconciliation Act (OBRA 93) was established. OBRA 93 codified that assets placed into an irrevocable trust would still be counted as an asset for Medicaid purposes if there are any circumstances where payment from the trust could benefit the individual. However, OBRA 93 also made two very clear exceptions.
(1) Individuals who are under the age of 65 and disabled, may create a first party SNT and retitle their assets to the SNT and the assets would be sheltered and exempt from Medicaid eligibility.
(2) Assets held in a third party SNT for the benefit of a person receiving Medicaid are exempt from eligibility.
There is no statutory law that prohibits or permits the funding of a SNT for VA purposes. The creation and the funding is not actually the issue though. Rather, whether the principal funds inside the SNT is “countable” when applying for the VA Improved Pension (with Aid and Attendance) benefits is the issue. The only authority to answer this question is a VA Office of General Counsel Opinion, VAOPGCPREC 33-97, dated August 29, 1997, well after OBRA 93 was enacted.
In the opinion, the VA recognizes that OBRA 93 made changes to the trust laws; however, the opinion is completely void of any acknowledgement or understanding of the two exceptions related to special needs trusts. The VA opined that the assets in a special needs trust are “countable” when applying for Improved Pension. Further, the VA made no distinction between first party or third party trusts, even though the case at hand was a first party trust created by a widow of a veteran.
Due to what appears to be the VA’s lack of understanding or deliberate ignorance of special needs trust laws and the desire to rule against the claimant, advocates are left with one opinion from which to provide legal advice to clients. The assets in a special needs trust are countable.
There is good argument to have the opinion overturned for third party SNTs. However, the claimant must be willing to endure a lengthy appeal. An attorney who agrees to take the case to an appeal must be prepared to argue before the Unites States Court of Appeals for Veterans Claims, or higher. Lack of having a willing claimant and an experienced attorney is likely the reason this bad law is still on the books today. Until challenged and overturned, the VA Office of General Counsel Opinion will remain the law of the land.
If you want to learn more about VA Benefits Planning & Accreditation, join me in Charlotte, NC, February 4th for a Live VA Course. I'll be teaching the necessary information for accreditation, providing updates and practical tips based on current VA practices. For registration information contact Kyle Russ at kruss@lawyerswithpurpose.com.
Victoria L. Collier, Certified Elder Law Attorney, Fellow of the National Academy of Elder Law Attorneys, Co-Founder, Lawyers with Purpose, LLC, Co-Founder, Lawyers for Wartime Veterans, LLC and author of 47 Secret Veterans’ Benefits for Seniors…Benefits You Have Earned but Don’t Know About.
**Before attending this course you must have submitted an Application for Accreditation, VA Form 21a, to the Office of General Counsel and received approval.
