In that there is little guidance in the General Counsel's opinions or Court of Veterans Appeals decisions to rely on the use of an Intentionally Defective Irrevocable Grantor Trust ("IDIGT") as an appropriate VA spend-down tool, it is my opinion that if a qualified veteran or the surviving spouse of a qualified veteran retains the right to monthly income from an IDIGT then the assets contained within the IDIGT are in danger of being counted by the VA. Assets in excess of the "nominal asset standard" will cause an ineligibility dilemma - over resourced.
Note: Under the grantor trust rules, a grantor who retains interests in a trust created by the grantor may be treated as the owner of all or part of the trust and thus taxed on all or a portion of the trust income. Retention of the following powers or interests can cause a trust to be considered a grantor trust: (1) reversionary interests in the income or principal of any portion of a trust that exceed five percent of the value of the trust; (2) the power to control the beneficial enjoyment of any portion of the trust that can be exercised without the approval of an adverse party (excepted is the power to limit distributions of principal to a beneficiary using a "reasonable definite standard"); (3) administrative powers, including the power to deal with trust funds for less than full and adequate consideration and to borrow without adequate interest of security; (4) power to revoke the trust; and (5) income of the trust is or may be distributed to or held for the future use of the grantor or the grantor's spouse, used to discharge a legal obligation of the grantor, or used to purchase life insurance on the life of the grantor or the grantor's spouse. A "defective" trust is an irrevocable trust that intentionally violates one or more of the grantor trust rules.
Additionally, in the event that the qualified veteran or the surviving spouse of a qualified veteran enters a nursing home in the near term of the VA Plan - significantly less than 60 months after the VA Plan was established, the immediate annuity, in that it was not Medicaid compliant, can be valued on the secondary market and sold within his or her family in order to facilitate a Gifting/Medicaid Compliant Annuity Plan in order to accelerate Medicaid eligibility.
