In some states (Texas being one of them), when the income of an applicant for Medicaid exceeds the monthly limit a special type of document is necessary to meet income eligibility rules. Known as “income cap” states, they cap monthly income to $2,313 (for 2019). In these states, if your income is more than the monthly amount Medicaid permits, special rules allow you to redirect your income to a Qualified Income Trust. Most folks know it as a “Miller Trust” (so named for the family that brought the court action that now makes the solution possible) and as a “QIT.”
Why Qualified Income Trusts are Needed In Texas
A Qualifying Income Trust is set up for one reason and one reason only. In it’s most basic form a person gains income eligibility by depositing specific income received into a checking account titled in the trust name.
It’s used to process the Medicaid applicant’s income so that it fits Medicaid’s income rules. The trust must follow special rules for managing the monthly income of the person seeking Medicaid’s help. The instructions contained within the document are what make up the trust. Only income may be deposited into these types of trusts. The trust bank account is prohibited from accepting anything other than income. That is why they are generically referred to as income trusts.
Regulations require depositing income into a Miller Trust checking account authorized by the trust. Rather than using an existing account, I recommend fresh bank accounts with a zero balance. You can use an current account but it’s too risky. In my practice I always help clients set up a new account. Doing so it easier and safer.
Medicaid policy limits the monthly income people can receive and still get nursing home benefits. The Federal government adjusts this upper limit for inflation each year. In 2018, the monthly limit is $2,250. If income of the applicant exceeds the limit, special rules allow their income to be put into a Miller Trust.
When deciding eligibility, the Medicaid agency ignores the income deposited into the Miller Trust bank account. Using this approach reduces countable income. The apparent income reduction helps the person in need of long term care meet the strict income rules.
How Income Flows Through the Trust
A qualified income trust in Texas helps people qualify for Medicaid but it doesn’t shelter income. Money deposited into trust bank account typically flows out of the trust to pay the nursing home. It’s designed to cover part of the care costs. The balance of the nursing home payment comes from Medicaid. If any money remains in the trust after death, the state keeps it to help defray their costs.
Here’s an example of how a QIT works in Texas
Let’s say your dad needs nursing home care. He gets a monthly Social Security payment of $2,400. His income exceeds the Medicaid eligibility limit of $2,313 but is not enough to pay for the care he needs. The rules say that he doesn’t qualify for Medicaid, but the QIT provides a way.
The first step is to hire an attorney to create a Medicaid qualified income trust. You then deposit the Social Security check into the account. This drops the amount of income the state counts against his eligibility. His Social Security income will pay part of his care. Medicaid makes up the difference.
Allowable Expenses from a Qualified Income Trust
The Medicaid agency figures out how much of the long term care costs an individual must pay. They add up the amount of income received each month. From that they allow payments for health insurance premiums. Examples include premiums for Medicare Part B, Prescription Drug plans, group retirement health insurance and dental coverage. Payment of medical expenses not otherwise covered by Medicare and Medicaid is also allowed from through the trust. The trustee (the person managing the trust) cannot use trust funds for any other purpose than what Medicaid allows.
Your dad also gets to keep a $60 out of the $2,400 for his personal needs.
If an applicant has a spouse, the trust can may be able to distribute part of the income to the spouse. This allotment is called the Minimum Monthly Maintenance Needs Allowance. The size of this monthly allowance is determined by the Spousal Income Protection rules. For 2018, the largest allocation in Texas is $3,090 per month.
The trust will typically distribute all deposited funds each month to cover the items detailed above. There is little chance any money will grow in the trust. It is rare for a Medicaid recipient to die with a balance left in the qualified income trust account. If it happens, the state can recover what it spent on the applicant’s care. After the state is repaid, the trustee can distribute the rest to beneficiaries named in the document.
Setting up and managing a Miller Trust is not a “do-it-yourself” project. The rules are too complicated.
Set up the wrong way, you face a real risk of losing thousands of dollars’ worth of benefits. Bear in mind once you lose those benefits, they are lost to you forever. If you have income that’s too high to qualify for Medicaid, a Qualifying Income Trust makes sense. But, it’s critical you execute each step the right way.
Find an experienced Miller Trust attorney to guide you. A skilled attorney will prepare the specific instructions needed for the trust. You’ll get advice on how the trust should be set up and how to fund it. It’s the best way to avoid the pitfalls and get all the benefits out of qualified income trusts in Texas.