What You Need to Know About Qualified Income Trusts

When applying for Medicaid, most clients aren’t surprised to hear that they will need to comply with certain asset limitations in order to qualify for benefits. However, what some clients may not realize is that there are also limitations surrounding the Medicaid applicant’s income as well, which may require the implementation of a Qualified Income Trust.

When is a QIT needed?

States that impose an income cap on a Medicaid applicant are commonly referred to as “1634 states” or “income cap” states. These states maintain that any amount of the applicant’s monthly income that exceeds the established income cap must pass through a Qualified Income Trust. The income cap typically updates each year and is determined by multiplying the Federal SSI Benefit Rate (FBR) by 300%. The resulting figure provides the income cap that the applicant’s monthly income must either meet or be less than in order to avoid needing to establish a QIT. For 2022, that standard figure is $2,523.00 in most states[1].

What is a QIT?

A Qualified Income Trust (QIT), or Miller Trust, is an irrevocable, income-only trust that holds the income of the Medicaid applicant. This trust functions as a flow-through entity that is used to allow the recipient’s income, or at least their excess income, to be placed into the QIT and used for allowable expenses. In essence, any income received by the individual that exceeds the state’s income cap must be funded through the trust. Types of income received by the Medicaid applicant that may be funneled through this trust include pensions, social security, and other income as well as any accumulated interest. Expenses or deductions that are not permitted to be paid from the funds in this trust include attorney fees, bank fees, and CPA fees.

How does the QIT work?

Once the Medicaid recipient’s income has been deposited into the trust each month, the trustee then disburses the funds to pay for the recipient’s medical expenses and allowable deductions. Most states require only the portion of the recipient’s income that exceeds the income cap to flow through the trust. However, if planning conservatively, your client may want to consider funneling all of their monthly income through this trust in order to avoid any eligibility complications. The QIT should only house the income of the Medicaid recipient and should not be used as a vehicle to shelter excess resources nor include the income of the Community Spouse.

Who are the parties to the QIT? 

In order to be valid, the trust must comply with the strict requirements of Medicaid. The trust must be irrevocable, must have a trustee to manage the trust and must not contain any resources.

These requirements also include naming the appropriate individual as a party to the contract:

• Settlor/Grantor: The person who is setting up the trust. This individual is typically the Medicaid applicant or an authorized representative of the applicant.
• Trustee: The person who manages the funds that are deposited into the trust each month and pays for allowable expenses from the trust proceeds.
• Lifetime Beneficiary: The Medicaid applicant
• Primary Beneficiary: The appropriate State Medicaid agency. Should any funds remain in the trust upon the recipient’s passing, those funds could be claimed by the State Medicaid agency up to the amount of benefits they have expended on the recipient’s behalf.
• Secondary Beneficiary: Upon the recipient’s passing, should any funds remain in the trust after payment of any funds owed to the State Medicaid Agency, the funds would then pass to the listed secondary beneficiary as named on the trust form.

Where do I establish the QIT account?

Once the trust documents have been drafted and executed, you and your client will want to establish a trust checking account. The trust checking account should typically be titled similarly to the name of the trust itself such as “Qualified Income Trust of [recipient’s name].” Since the income that passes through this account will be taxed to the recipient, the trust checking account should utilize the recipient’s social security number as the grantor of the trust. For further guidance on structuring the trust using the recipient’s social security number, please reference IRS ruling 21.7.13.5.8.3.

 Once the trust checking account has been established, you will need to submit a copy of the properly executed trust document, trust checking account information and proof that arrangements have been made to deposit income into the trust on a monthly basis to Medicaid. Failure to do so may result in a denial or loss of Medicaid eligibility.

To learn more about establishing a QIT for your client, contact our office at 866-605-7437 and ask to speak with one of our knowledgeable Benefits Planners.

[1] Delaware is the exception to this standard figure with the income cap for 2022 being $2,102.50.