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The Veterans Asset Protection Trust


There’s nothing worse than watching your hard-earned assets dwindle during your golden years. But that is exactly what can occur as a result of spending time in a long-term care facility. Unfortunately, more than half of older Americans will end up in a skilled nursing facility at some point in their later years, one reason it’s essential to find a way to protect yourself financially before it’s too late. At Phelps LaClair, serving the Phoenix Valley, we are elder care attorneys. We’ve got a good understanding of complicated tax laws and other aspects of preserving your estate, and we can work with you to keep your home and your assets safe.

What Are Asset Protection Trusts?

In legalese, an asset protection trust is also called an Intentionally Defective Grantor Trust, where the assets in the trust are handled differently for income tax purposes than they are for estate tax purposes. There are several types of asset protection trusts. Previously, we discussed one of these trusts called the Medicaid Asset Protection Trust, or MAPT. In today’s post, we will look at another type of asset protection trust, the Veterans Asset Protection Trust, or VAPT.

Veterans Asset Protection Trust

Similar to a Medicaid Asset Protection Trust, the VAPT is an irrevocable trust, meaning that once it’s established, it cannot be revoked or canceled. And the assets within this type of trust are no longer owned by the grantor, but by the trust itself.

If you’re a veteran, a properly created VAPT could allow you to protect your assets—including your home—without losing your veteran’s benefits, or becoming ineligible for Medicaid.

Keep in mind though, that Medicaid has a look-back period where they check for any transfer of assets into a trust or to another person (or persons) that has occurred within the five years prior to applying for Medicaid. That means, if you’ve set up your trust within five years of needing Medicaid, the trust may not be effective in shielding your assets from being counted as income. In order to be effective, these types of trusts need to be set up and funded five years before you’ll need any kind of long-term care.

Details about the Veteran Asset Protection Trust

    1. The veteran is the grantor of the trust. The veteran’s children are usually the assigned beneficiaries.
    2. A trustee for the VAPT is established who is not the grantor, and that trustee makes decisions concerning the trust’s assets and their distribution.
    3. By establishing a Trust Protector, at any time you can remove and replace the appointed trustee in the event that you feel they’re not doing their job effectively.
    4. You have no legal ownership of the assets of the trust. The trust is the owner of those assets.
    5. If you’re a veteran and you live in your home, your home does not count as income as relates to your VA benefits eligibility. BUT, if you sell your home while currently drawing a monthly VA pension benefit, your home becomes countable income that may disqualify you from receiving your VA benefits—until you spend down your assets to the VA’s permitted asset level. BUT, if you’ve placed your home into an Asset Protection Trust before you apply to the VA, and at a later time your house is sold by the trustee of your trust, the sale proceeds will not jeopardize your veteran pension benefits.
    6. If your home is in a correctly established VAPT, the proceeds from the sale of your home may be kept by the trust without disqualifying you from your VA benefits or Medicaid benefits.
    7. If the trust’s trustee sells your home, the IRS code on capital gains tax exemption still applies, up to $250,000.00.
    8. After your death, the assets in the trust will receive a stepped-up basis for income tax purposes.


Elder Care Attorneys in Phoenix, Arizona

There is more on the subject of establishing a VAPT, and setting up any trust requires thoughtful consideration of your needs and your financial situation. In our opinion, the best approach is to consult with experienced elder care attorneys who know the law, understand tax code, and can help to walk you through the best type of trust for your specific needs. At Phelps LaClair, located in the Phoenix Valley, we sit down with each of our clients and consider their needs and future plans. From there, we tailor the trust that best suits each family. If you’d like to know more and you’re located around Phoenix, contact our offices today.

Could a Veterans Asset Protection Trust help you maintain your veteran’s benefits?


Give us a call today at (480) 892-2488 or email us at


Images used under creative commons license – Commercial Use (7/16/18) Amy Claxton (Flickr)

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