This is not necessarily true.
VA regulations (38 C.F.R. 3.276(b)) currently state that if a gift is made of a claimant's property and all control is lost over the gift, it is no longer the claimant's asset. The legal issue is "loss of control." the VA has held in several appellate cases that instructions to the trustee of a trust constitute control. If such instructions are present in the irrevocable trust, all of the assets contained in the trust remain the property of the claimant.
With this data sharing arrangement, VA can track 1099 distributions from both trusts and annuities. Once these distributions are identified, VA is asking for copies of the financial instruments to ensure they do not violate the gifting regulation in 38 C.F.R. 3.276(b).
We have already seen several such requests by VA. If the VA determines that the legal gifting requirements were not met, it is highly likely that all of the benefits received from the VA will have to be repaid,