How Qualified Income Trusts Can Help Persons Become Eligible for Medicaid Long Term Care

Summary
To qualify for Medicaid Long Term Care, you or your loved one must meet certain financial requirements, including an income limit. But even if your monthly income is over that limit there are ways you can still qualify for Medicaid. One of these ways is by using a Qualified Income Trust (QIT). This article covers the details of QITs, how they work, how to establish them, what their limitations are and which states allow them.

What Is a Qualified Income Trust (QIT)?

A Qualified Income Trusts (QIT) is a financial product that can help you or your loved one qualify for Medicaid if your monthly income exceeds Medicaid’s income limit. Essentially, you establish the QIT with a bank and then deposit your excess income into the trust every month until it meets or is below the income limit. You can only use that money for very specific expenses, and after your death whatever is left will go to the state. We’ll detail the process of creating and using a QIT later in the article, but those are the basics.

QITs can also be referred to as Miller Trusts, Income Trusts, Income Diversion Trusts, Income Cap Trusts, Income Only Trusts, Irrevocable Income Trusts and d4B trusts. Some of these names are specific to certain states. Oregon, for example, calls them Income Cap Trusts. The “Income Cap” name will make more sense after you read the next section about which states allow QITs to be used as a Medicaid planning strategy.

 

Which States Allow a Qualified Income Trust?

States that allow you to use Qualified Income Trusts (QITs) to reduce your income for Medicaid purposes are known as “Income Cap” states, which explains why Oregon calls QITs Income Cap Trusts.

As of 2024, the Income Cap states are Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Iowa, Kentucky, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas and Wyoming.

The rest of the states are known as “Medically Needy” states. They offer a different way for you to reduce your income to meet your income limit, which is known as the “Medically Needy Pathway.” To learn more about the Medically Needy Pathway, click here.

 

Qualified Income Trusts, Income Limits and the 3 Types of Medicaid

There are three types of Medicaid Long Term Care relevant to seniors: Nursing Home Medicaid, Home and Community Based Services (HCBS) Waivers and Aged, Blind and Disabled Medicaid.

Qualified Income Trusts can only be used by Nursing Home Medicaid and HCBS Waivers applicants and beneficiaries. They can not be used by ABD Medicaid applicants or beneficiaries.

These three Medicaid Long Term Care programs can all have different income limits in different states. Plus, income limits can also vary depending on your marital status and if one or both spouses are applying for Medicaid Long Term Care.

As of 2024, the income limit for Nursing Home Medicaid and HCBS Waivers in most Income Cap states is $2,829/month for an individual and $5,658/month combined for a married couple with both spouses applying, but there are some exceptions. When only one spouse in a married couple is applying for or covered by Nursing Home Medicaid or HCBS Waivers, the income of the non-applicant spouse is not counted, and the income limit for the applicant spouse is the same as the individual limit in that state.

 

How to Create a Qualified Income Trust

The first step in creating a Qualified Income Trust is setting up an account and drawing up a trust document with a bank. The person setting up the account and trust is known as the grantor or settlor. This person can be the Medicaid applicant/recipient, their legal guardian or their power of attorney.

The Qualified Income Trust (QIT) must also have a trustee. The trustee can not be the same person who is the grantor, but it can be a relative or friend of the grantor/Medicaid recipient.

The QIT must also name a beneficiary, which has to be the state providing the Medicaid Long Term Care coverage. As mentioned above, the beneficiary will receive all of the funds in the trust after the death of the grantor/Medicaid beneficiary. However, the state cannot receive more money than it paid out when the Medicaid recipient was alive and receiving benefits.

Finally, the QIT must be irrevocable, which means it can not be changed or canceled once it has been established.

To review, here are the four key points to follow when you’re creating a QIT:

  • The person setting up the trust is known as the grantor or settlor and can be the Medicaid applicant/recipient, their legal guardian or their power of attorney.
  •  The trustee (manager of the trust) must be someone other than the grantor, but can be a friend or relative of the Medicaid applicant/recipient.
  •  The QIT beneficiary must be the state that is providing Medicaid Long Term Care coverage.
  •  The QIT must be irrevocable.

 

How a Qualified Income Trust Works

In simple terms, the Medicaid applicant/recipient reduces their income to meet their Medicaid income limit by making monthly deposits into the Qualified Income Trust (QIT). The money in the QIT is exempt and will not count toward the income limit.

Some states require that you deposit all of your income into the QIT, while other states only require you deposit your excess income, meaning your income above the limit. However, if all of your income comes from one source, like a monthly Social Security check, that entire check must be deposited into the QIT. If you have multiple sources of income, you may not have to deposit all of them into the QIT (it depends on the state), but you will not be allowed to split a check and only deposit some of your pension, for example, and keep the rest.

Some states require you use direct deposit with QITs, but not all states.

As you can see, the rules for using a QIT to help you qualify for Medicaid Long Term Care can be complicated and depend greatly on your state. That’s why we recommend consulting with a Certified Medicaid Planner or Elder Law Attorney before attempting to use a QIT yourself.

 For Income, Not Assets: Qualified Income Trusts are designed for Medicaid’s income limits, not the asset limit. In every state, applicants must have assets below a certain amount (usually $2,000) in order to qualify for Medicaid Long Term Care benefits. However, Medicaid rules allow for approaches to help families meet the asset limits as well. More.

Using Funds in a Qualified Income Trust

The monthly income deposited into a Qualified Income Trust only be used for a few very specific purposes. These are:

  • Medical Expenses – If a Medicaid recipient has medical costs that are not covered by their Medicaid Long Term Care benefits, money from the QIT may be used to pay those bills. Covering medical expenses Medicaid won’t pay for is known as “share of cost.”
  • Personal Needs Allowance – If all of your income goes into the QIT, then you are allowed to withdraw a monthly Personal Needs Allowance (PNA). PNA amounts vary by state, but it is not much money. As of 2024, the PNA in Florida, for example, is $160/month. In New Jersey, it’s $50/month, and in Texas it’s $75/month.
  • Monthly Maintenance Needs Allowance (MMNA) – If a Medicaid recipient’s spouse who is not covered by Medicaid and living in the community does not have enough money to live comfortably, then a certain amount can be withdrawn from the QIT every month and paid to the spouse. MMNAs vary depending on the state, though typically the maximum allowable amount in 2024 is $3,854/month. To learn more about MMNAs, click here.

It’s important to note that the type of Medicaid Long Term Care program you or your loved one is covered by – either Nursing Home Medicaid or Home and Community Based Services (HCBS) Waivers – will make a significant difference in how (and how many) funds are withdrawn from the QIT. Nursing Home Medicaid recipients will probably only be able to withdraw a PNA and enough money to cover their Medicare premiums. HCBS Waivers recipients, on the other hand, are likely to have more medical expenses than someone in a nursing home (where Medicaid will cover most expenses), so they will probably need to withdraw more from the QIT. Still, there are strict rules about how QIT funds may be withdrawn and spent.

Is There a Limit on How Much Money Goes into a Qualified Income Trust?

Some states cap the maximum amount of money that can be placed into a QIT, while others do not. Check with your state Medicaid offices or a Medicaid planning professional to find out the rules in your state.

But even in those states that do not have a QIT cap, however, there is what could be considered a “practical limit.” Single individuals should not put more money into their QIT than it would cost to pay privately to live in a nursing home in their state. Married couples should not put more than the cost of nursing home care in their state plus the state’s allowable Monthly Needs Allowance, which we discussed above. The reason for that is, if you have enough money to cover the cost of nursing home care (and supporting a spouse, if you’re married), then you do not need Medicaid Long Term Care coverage.

 

Is Professional Help Necessary to Set Up a QIT?

While professional assistance is not legally necessary, it’s a good idea to retain an expert when establishing a Qualified Income Trust for Medicaid eligibility purposes. QITs are not expensive to set up, and one can do this on their own by working with a bank, but Medicaid planning professionals such as a Certified Medicaid Planner or an Elder Law attorney will be experts in the rules for QITs in your state of residence.

As you’ve just learned, there are big differences between how QITs work from state to state, and the rules can be complicated, especially if you are married or have a complex financial situation. If you make any mistakes while creating or using a QIT, your Medicaid application will likely be denied and you may be penalized with a period of Medicaid ineligibility.