Veterans face unique estate planning issues because of the many benefits and programs available through the U.S. Department of Veterans Affairs. In particular, veterans should discuss Aid and Attendance, VA life insurance and VA burial benefits with a professional when they are creating an estate plan.
Veterans face unique estate planning concerns. In addition to the typical considerations, a veteran's access to special benefits and resources must be taken into account when creating an estate plan. The programs available to veterans and their beneficiaries through the Department of Veterans Affairs are wide-ranging and cover, among other things, employment, training, disability benefits, health care, education, life insurance, education, home loans and survivor benefits.
These benefits all have their own eligibility criteria and application process that can be difficult to navigate on your own. An experienced attorney will know how to incorporate these benefits into a veteran's overall estate plan. Below are some of the unique considerations that America's veterans must take into account when estate planning
An estate plan should always take into consideration the potential for future long-term care. For eligible veterans who need assistance performing daily living tasks, Aid and Attendance benefits available through the VA pension program can play a critical role in their long-term care. The benefit provides a monthly allowance to assist veterans and surviving spouses in paying for the help that they need.
To qualify for Aid and Attendance, you must meet the eligibility requirements under three main categories: military service, medical and financial. The benefit is needs-based, so the veteran's net worth must be below a certain amount set by Congress. For 2022, the net worth limit was $138,489. If you do not meet the financial requirements, an attorney may be able to use estate planning tools to reduce assets.
The calculation for net worth is complicated. In general, there are two primary deductions that a veteran can make to his income and assets when determining net worth for the purpose of Aid and Attendance: your personal residence and unreimbursed medical expenses.
- Personal residence - A personal residence with a lot size less than two acres is excluded from the calculation. It is irrelevant whether you are living in the residence or a nursing home. However, if the house is sold while you are receiving benefits, the cash from the sale will count toward the net worth limit, and it could result in the VA cutting off your benefits. To avoid this result, you can work with an attorney to put the home in a Veterans Asset Protection Trust.
- Unreimbursed medical expenses - Any income used to pay for unreimbursed medical expenses can be deducted from your countable income. The statute does not define what qualifies as a medical expense. If you are close to the income limit, it is critical to work with an attorney to deduct the maximum amount of expenses.
If veterans are over the asset limit, attorneys can use estate planning tools to reduce countable assets. Recent rule changes made planning strategies much more complex. Two of the biggest landmines involve the three-year look-back period and the type of trust created.
Three-year look-back period
In 2018, a new rule went into effect, which created a three-year look-back provision. Under the regulation, veterans applying for Aid and Attendance must disclose all financial transactions from the past three years. If veterans transferred assets below market value for the purpose of putting themselves below the asset limit, they could be subject to a five-year penalty during which they are ineligible to receive VA benefits.
There is an exception to the look-back provision. A special needs trust created for a child who is unable to self-support is not subject to the look-back period. Any property placed in the child's trust will not be counted toward the net worth limit.
Additionally, if an asset protection trust is created 36 months before the veteran applies for Aid and Attendance, the property in the trust will not be included in their net worth. For this reason, it is essential to begin estate planning discussions with an attorney early.
Type of trust
Not all irrevocable trusts will allow the veteran to qualify for Aid and Attendance benefits, even if it is set up three years before their application. The veteran must have no control or access over the trust property and income. Even if the veteran is only an income beneficiary, the trust assets may be countable toward net worth. Great care must be taken while drafting to ensure that the trust assets are not counted.
Life insurance is a key part of estate planning for all individuals. Veterans have additional options available through the U.S. Department of Veterans Affairs.
VA life insurance options include:
- Servicemembers' Group Life Insurance
- Family Servicemembers' Group Life Insurance
- Traumatic Injury Protection
- Veterans' Group Life Insurance
- Service-Disabled Veterans Insurance
- Veterans' Mortgage Life Insurance
These life insurance plans are not mandatory and can be supplemented with private insurance. Veterans should discuss with a professional the pros and cons of each plan and if any of the VA options should be a part of their overall estate plan.
Including a funeral plan in your estate plan can help save money and reduce stress for family members. The majority of veterans and their family members are eligible for burial benefits. Eligible veterans have the choice of burial in a VA National Cemetery or a burial allowance for funerals in a private cemetery. The U.S. Department of Veterans Affairs will provide compensation of up to $2,000 for burial expenses of service-related deaths and $300 for non-service-related deaths. Veterans should review eligibility requirements with a professional.