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Structuring the Veterans Asset Protection Trust

Posted by Thomas Asbury | May 08, 2023 | 0 Comments

The Veterans Asset Protection Trust® ("VAPT") is a powerful tool that protects assets while enabling the Grantor to qualify for needs-based VA-pension benefits. The VAPT is a non-grantor trust with the option to include a grantor residence sub-trust. Why is the VAPT structured this way?

It is set up in this particular way to avoid affecting beneficiaries' eligibility for benefits. The IRS and the VA can speak with each other directly. The VA often examines pension recipients' tax returns to obtain information on their income. As a result, it is prudent to refrain from declaring any "phantom income" from a grantor trust on the grantor's tax return. The eligibility for benefits may be threatened by this increased reported income.

In the VAPT, the sole asset held in the grantor sub-trust is the residence. It is possible to arrange the VAPT such that the house cannot be rented out and that no income will ever need to be shown on the grantor's tax return. In addition, the revenues from the sale of the house must be managed in accordance with the terms of the non-grantor trust. The non-grantor trust is used to hold all trust assets other than the residence, ensuring that any income from assets won't affect beneficiaries' eligibility for benefits.

The VAPT retains significant tax benefits, such as basis adjustments and estate inclusion. These significant tax benefits will still be preserved under the VAPT's provisions, but they won't result in problems with "phantom income." The 121 exclusion is still in effect since the residence is owned by a grantor sub-trust.

People who are eligible to receive VAPT principal and income throughout the remainder of the grantor's life are known as lifelong beneficiaries. The grantor's needs or care may be covered by the lifelong beneficiary with this money. Many different approaches may be used to create the distribution plan for the lifetime beneficiaries. To give those lifelong beneficiaries the best possible asset protection, the plan might also name a Distribution Trustee.

About the Author

Thomas Asbury

Mr. Asbury is a graduate of the Wharton School of Business at the University of Pennsylvania. Before attending law school, Tom worked in the Internet sector as the Webmaster for the NFL’s Jacksonville Jaguars. While in law school, he published a law review article entitled Alternative Sentencing Theory, 3 Fla. Coastal L. J. 41 (2001), which identifies a constitutional framework within which defendants charged with alcohol and drug-related crimes can be remanded to faith-based programs rather than prison for non-violent offences. The logic is quite simple—as sobriety becomes the norm and addictions subside, so too do the often-accompanying crimes. His professional experience includes estate planning, corporate law, compliance law, guardianships, trademarks, probate, trust and probate litigation, including trust and will contests, administrative law, and consulting for business entities. Mr. Asbury has also lectured for NBI Seminars in the areas of Probate, Wills, Trusts, and Estates. Tom has also served on the Penn Admissions Committee for years as an alumni interviewer and is an international lecturer on the focus and philosophy of Ivy League admissions.


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