I recently responded to a post on a listserv in which the issue of using irrevocable trusts to “protect assets” in order to obtain VA Aid and Attendance pension income was the topic. It caused me to organize my thoughts on this important issue, which are expressed below.
The Veterans Administration has a program called “Aid and Attendance” which offers additional income to Veterans and their spouses who have high care costs. The program has income and asset rules. The asset rules limit the resources the applicant can own. Unlike Medicaid, VA does not impose a penalty on applicants who give away their resources in order to qualify. [See prior posts for discussion of proposed changes to VA asset transfer rules.]
As a result, it has become popular for some planners to advise clients to transfer their resources (or at least so much as would be necessary to meet the asset rules) into irrevocable trusts, which trusts expressly provide that the older adult applicant retains no right to the property in trust. These older adults are told that if they trust their children, then the children will no doubt use the money they control in the trust to pay for the parent’s care if needed – notwithstanding the fact that the children would have no legal obligation to do so, and notwithstanding the fact that the children are undoubtedly the beneficiaries of whatever is not used for their parent’s care.
Whether and when attorneys should be advising clients to engage in such planning is a hot topic.
The idea of telling a vulnerable adult to divest themselves of assets so that they can get a thousand or two thousand dollars a month of additional income is no small thing. Further, and most critically, the idea of telling clients that if you give your money away, it can be used for your benefit in the future is the rub in this type of counseling. The ‘wink and nod’ part of the advice – in which clients are told that they should give their money away by putting it in an irrevocable trust that expressly provides they have no retained rights while suggesting at the same time that the money will be their for their quality of care in the future if they need it, raises serious concerns to me.
Nearly every older person will say that they trust their children (and many of them do), especially when their children are participating in the meeting and/or have suggested that they need to do something to “protect their assets.” I would suggest, if that is the foundation of the planning strategy, why use an irrevocable trust? If in fact your children are going to pay for your care in the best place possible in the future, why not just give them the property/money outright? I would also suggest that the common experiences of attorneys who practice in this area would suggest that many (most?) clients are misplacing their trust – and further that there are very few families that any attorney will counsel in which that attorney would have adequate evidence to make any conclusions about the motives of the parties involved – or how those motives may change over time. Because I see myself as being asked to offer advice with respect to the best interests of the vulnerable person, I am not comfortable leading those clients down this path. And to be sure, in this type of planning, it is largely about where their attorney leads the client. The alternative to such planning is that perhaps their money is used for their care and not preserved for the next generation. And while I appreciate that the preservation of the product of one’s life’s work for their loved ones is also no small thing; for me, in terms of what I see my role being, asset protection is always a secondary consideration to controlling one’s quality of care options.
Medicaid divestment rules are certainly part of the equation, but it is much more than that. As we/I like to tell clients “money = options.” When clients give away money, they paint themselves into a corner – a corner in which they have lost control over their quality of care choices and are left without any options other than what the government will/might pay for.
As with so many things in the practice of law, every lawyer has to decide where their comfort zone ends.