How to Use a Qualified Income Trust to Secure Medicaid Eligibility

When an institutionalized person applies for long-term care Medicaid benefits the applicant must meet strict income and asset tests.  One barrier to qualification is that the applicant’s income must be less than the private pay rate at the facility in which they reside. However, some states also impose an additional income cap by implementing the requirement of a Qualified Income Trust (QIT). As a result, the QIT has become an essential component of Medicaid planning in income-cap states.

Read More: What You Need to Know About Qualified Income Trusts

The Qualified Income Trust, or Miller Trust as it’s commonly referred to, resulted from the court case Miller v. Ibarra and was later codified by the Omnibus Reconciliation Act of 1992.  The federal requirements outlining the structure requirements of the Miller Trust are currently laid out in 42 U.S.C. 1396p(d)(4)(b), with each state implementing its own additional statute on the specific trust requirements, not to be more restrictive that the federal regulations. There are currently twenty-four states that impose this additional income cap as part of their Medicaid eligibility requirements: Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Iowa, Kentucky, Mississippi, Nevada, New Jersey, New Mexico, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, and Wyoming.

A QIT, is an irrevocable income-only trust held in the name of the Medicaid applicant as Grantor. The purpose of the trust is to allow income over the income cap to be a non-countable resource for Medicaid qualification purposes. This is accomplished by having the portion of the applicant’s income that exceeds the income cap in that state (currently $2,742 in most states in 2023), transferred into this irrevocable trust before being withdrawn to pay for any qualified care expenses of the Medicaid applicant. Other income deductions that are permitted to be paid from the trust include the personal needs allowance, insurance premiums, and any spousal transfer.

When structuring the QIT, it’s important to remember that the selection of the trustee is essential to the success of the qualified income trust and the Medicaid applicant achieving eligibility.  The trustee is tasked with setting up the trust’s bank account and ensuring monthly income payments are received by the trust and the nursing home is getting paid each month.  The trustee should be somebody who can monitor the account and is actively involved with the applicant’s care.  If possible, these monthly transfers should be set up to be withdrawn and deposited automatically through electronic transfers to reduce any risk of human error.

Learn More: Fundamentals of Medicaid Crisis Planning

Another essential requirement to be aware of when structuring this type of trust is that it must include a payback provision to the state. As a result, any funds that remain in the trust upon the applicant’s passing must be distributed to the state Medicaid agency for repayment of benefits expended on the institutionalized individual’s behalf.

Lastly, one obstacle that may delay or impede the creation of a QIT is the lack of a properly drafted power of attorney.  Usually, the Medicaid applicant will establish the QIT themselves, but if they lack the capacity to do so, then an agent or spouse must execute the documents to create the trust on their behalf. In instances where the power of attorney documents does not expressly grant the agent authority to create an inter vivos trust and there is no spouse available then the courts may need to become involved through a guardianship proceeding.  Even if there is an executed power of attorney some states require specific language in the document with proper execution for these powers to be properly granted.

To learn more about structuring QITs for your senior clients in need of Medicaid crisis planning, log in to your Attorney Access account to view our on-demand webinar!