A Tool for Veterans’ Estate Planning: Veterans Asset Protection Trusts

This Veterans Day, we want to talk about something that doesn’t get enough attention: the estate planning issues unique to veterans and their families. Military service creates benefits, complications, and opportunities that a generic estate plan simply doesn’t address, including a powerful planning tool most families have never heard of: the Veterans Asset Protection Trust.

Our office is proud to serve those who served, which is why veterans’ matters are a dedicated part of our practice.

Why Veterans’ Estate Planning Is Different

A veteran’s financial picture often includes assets and benefits civilians don’t have:

• VA disability compensation and pension benefits
• Survivors’ benefits (Dependency and Indemnity Compensation)
• Servicemembers’ Group Life Insurance (SGLI) or Veterans’ Group Life Insurance (VGLI)
• Military retirement pay and the Survivor Benefit Plan (SBP)
• VA home loans and burial benefits

Each interacts differently with your estate plan. Some pass by beneficiary designation outside your will entirely. Some end at death. Some continue for a surviving spouse only if elections were made correctly years earlier. An estate plan that ignores these pieces isn’t complete.

VA Pension and Aid & Attendance: The Benefit Worth Planning For

One of the most underused veterans’ benefits is the VA pension with Aid & Attendance, a monthly, tax-free benefit that can help wartime veterans (and surviving spouses) pay for in-home care, assisted living, or nursing home care.

The catch: eligibility is needs-based. The VA applies both an income test and a net worth limit (adjusted annually), and since late 2018 it also applies a three-year look-back period to asset transfers. Give assets away the wrong way within that window, and the VA can impose a penalty period of up to five years before benefits begin.

This is exactly the problem the Veterans Asset Protection Trust was built to solve.

The Veterans Asset Protection Trust (VAPT)

A Veterans Asset Protection Trust is a specialized irrevocable trust designed to move assets out of a veteran’s “net worth” for VA pension purposes legally and permanently so that a veteran with savings or a paid-off home can still qualify for Aid & Attendance when care is needed.

Here’s how a properly structured VAPT works:

Assets transferred to the trust stop counting toward the VA net worth limit. Once the look-back period has run, the home, savings, or investments held in the trust are no longer the veteran’s assets in the VA’s eyes, preserving eligibility for a benefit that can amount to tens of thousands of dollars per year toward care costs.

The veteran gives up direct access. That’s the point and the price. To work, the trust must be irrevocable, and the veteran generally cannot be a beneficiary or serve as trustee. Typically the children (or other trusted family) serve as trustee and are the beneficiaries. A veteran can usually retain the right to live in a home held by the trust for life.

It’s drafted as a “grantor trust” for tax purposes. This is where good drafting earns its keep. Even though the assets are out of the veteran’s name for VA purposes, the trust is intentionally designed so that, for income tax purposes, it’s still treated as the veteran’s. That preserves three valuable tax outcomes: the trust’s income is taxed at the veteran’s (usually lower) individual rates, the capital gain exclusion on the sale of a primary residence is preserved, and when properly drafted, assets receive a step-up in basis at the veteran’s death, wiping out lifetime capital gains for the children who inherit.

It can be built to satisfy Medicaid, too. Here’s the strategic detail that matters most: VA pension planning has a three-year look-back, but Medicaid has a five-year look-back. And many veterans who start with assisted living (where Aid & Attendance helps) eventually need nursing home care (where Medicaid takes over). A well-drafted VAPT is structured to work for both programs, so the same transfer that starts the VA clock also starts the Medicaid clock. Planning for one without the other is the most common and most expensive mistake in this area.

Is a VAPT Right for You?

A VAPT is a powerful tool, not a universal one. It tends to make sense when:

• A wartime veteran (or surviving spouse) is in their 60s, 70s, or 80s and care needs are foreseeable but not immediate. The look-back periods reward planning done three to five years ahead
• There are meaningful assets to protect, commonly a paid-off home plus savings above the VA net worth limit
• There are trusted children or family members to serve as trustee
• The veteran is comfortable genuinely giving up control of the transferred assets

It tends not to fit when care is needed immediately (other strategies may apply), when assets are already below the eligibility limits, or when the veteran isn’t ready to part with control. An honest evaluation up front is part of the job, and exactly what our free, no obligation consultation is for.

Beneficiary Designations: Where Military Plans Go Wrong

The most common (and most painful) mistake with veterans’ estates is an outdated SGLI/VGLI beneficiary designation. Life insurance passes to the named beneficiary regardless of what your will says. We’ve seen policies still naming an ex-spouse, a deceased parent, or a sibling from decades ago.

The same goes for the Survivor Benefit Plan: elections made at retirement are difficult to change, and your plan should be built around them, not in ignorance of them.

A simple Veterans Day action item: pull your designations and confirm they match your wishes. It takes twenty minutes and prevents heartbreak.

The Core Documents Every Veteran Needs

A VAPT supplements (but never replaces) the foundation every thorough plan needs:

• A will or revocable living trust that coordinates with your military benefits (see wills vs. living trusts)
• Financial power of attorney, which is critical for spouses managing VA paperwork during incapacity
• Advance health directive and HIPAA release (see our Wills & Trusts page
• Guardianship designations for minor children

For disabled veterans receiving needs-based benefits, or families with disabled dependents, special needs trusts may also be essential to preserve eligibility.

Burial and Memorial Benefits

Veterans may be entitled to burial in a national or state veterans cemetery, a government headstone or marker, a burial flag, and certain allowances. Recording your wishes (and telling your family where to find your DD-214) spares them research during the hardest week of their lives. This is exactly the kind of information our Client Care Plan helps families organize in advance.

A Note for Surviving Spouses

If you’ve lost a veteran spouse, you may be entitled to benefits you haven’t claimed, including surviving spouses of wartime veterans can qualify for Aid & Attendance in their own right, and VAPT planning works for them too. You may also be navigating Maryland’s probate process at the same time. Our office handles both sides: the estate administration and the planning for what comes next. Start with our guide to first steps after a loved one’s passing.

Frequently Asked Questions