Pennsylvania Irrevocable Trust

A Pennsylvania Irrevocable Trust can come in many different shapes and sizes.  Depending on the creator’s goals and specific situation, a Pennsylvania Irrevocable Trust can be drafted in a variety of ways.  The specific language of the trust will depend on a variety of circumstances that are unique to the person creating the trust.

This article will broadly focus on two situations in which a Pennsylvania resident might benefit from creating a Pennsylvania Irrevocable Trust.  In future articles I will discuss in more detail the features of these trusts and the nexus between the two benefits.

A Pennsylvania Irrevocable Trust For VA Aid And Attendance

The Department of Veterans Affairs offers a generous pension benefit to veterans and surviving spouses of veterans that meet eligibility requirements.  Before granting benefits, the VA will review the applicant’s net worth.  Excessive net worth can result in a denial of benefits and prevent the applicant from receiving aid and attendance pension benefits for years.  This is a negative result that is easily avoided.

Currently, unlike Pennsylvania Medicaid, the VA does not have a “look-back” law in place.  This means that someone applying for VA benefits can transfer assets into a Pennsylvania Irrevocable Trust and apply for VA benefits shortly after.  Instead of spending down hundreds of thousands of dollars, the applicant can qualify for VA pension almost immediately.

Please keep in mind that VA Pension rules may be changing.  Creating a Pennsylvania Irrevocable Trust to qualify for Aid and Attendance benefits is complex and should not be undertaken without the assistance of an expert.

A Pennsylvania Irrevocable Trust For Medicaid

A Pennsylvania Irrevocable Trust is also a useful tool to preserve assets if you or a family member might eventually require skilled nursing care.  We recommend advanced planning to prepare for eventual Medicaid eligibilityAdvanced planning for Medicaid eligibility means that the person creating the trust is not a resident in a skilled nursing facility.  They are usually reasonably healthy.  Advanced planning for Medicaid is perfect for those in their 60’s and 70’s.

Healthy Pennsylvania residents that want to protect assets can create an Irrevocable Trust.  After five years, those assets are now protected.  If the creator of the trust requires skilled nursing, the assets now owned by the trust do not have to be spent-down before Medicaid eligibility begins.  The assets are also not vulnerable to Pennsylvania Estate Recovery.  Brokerage accounts, bank accounts, and real estate can all be transferred into a Pennsylvania Irrevocable Trust.

A Pennsylvania Irrevocable Trust can also be used to protect the primary residence when crisis planning is needed.  Crisis planning means the person creating the trust is already, or about to be, in a skilled nursing facility.  Under certain circumstances, the applicant’s primary residence can be transferred into an irrevocable trust.  Done properly, this planning strategy can protect the primary residence from Pennsylvania Estate Recovery.  Importantly, a properly drafted trust will ensure that the step-up in basis and capital gains tax benefits are still in place.

Differences Between VA And Medicaid Trusts

There are crucial differences between a Pennsylvania Irrevocable Trust intended to qualify an applicant for VA benefits and one created to protect assets from Pennsylvania Estate Recovery.  Discussing the overlap between VA and Medicaid eligibility with a qualified elder law attorney is important.  Furthermore, the Aid and Attendance rules may change in the near future.  Before attempting to create an irrevocable trust to qualify for benefits, make sure you understand how one type of trust can impact VA or Medicaid benefit eligibility.

Please contact VA Legal Team to discuss asset protection strategies for you or a family member.