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

Summary
Someone applying for Medicaid Long Term Care who has income above the state’s limit can still receive benefits. Medicaid rules allow for techniques to help applicants who appear at first to be ineligible, and one approach allowed in about half of states is the Qualified Income Trust, or QIT. These trusts—established with a bank and usually managed by a friend or loved one—hold a Medicaid applicant’s excess income (meaning income above the monthly limit), making them eligible for Medicaid.

What is a Qualified Income Trust (QIT)?

Qualified income trusts (QITs) are a way for someone who earns above the Medicaid income limit to get under that limit and become eligible for Medicaid benefits including long term care in a nursing home, one’s own home, or in assisted living. This is necessary because many individuals are in the situation that they cannot afford their cost of care but are ineligible for Medicaid.

In every state, Medicaid applicants must demonstrate that they are “low-income,” meaning the amount of money they earn each month is under a certain amount to be eligible. In most states, though not all, the Medicaid income limit is $2,523 per month in 2022. Someone who earns more than the limit can still qualify by allocating their monthly income in excess of $2,523 to a Qualified Income Trust. For example, if the Medicaid applicant’s monthly income is $2823 per month, they would allocate $300 each month to the QIT thereby lowering their countable income to $2,523.

 Qualified income trusts are also known by other names, including Miller trusts, pooled income trusts, income diversion trusts, income cap trusts, irrevocable income trusts, d4B trusts, and income only trusts. While there may be subtle variations between these trusts, they can all serve the same objective of helping to qualify for Medicaid.

 

How Do Qualified Income Trusts Work?

 

Setting Up a Qualified Income Trust

The first step is to create a bank account for the recipient with a trust document drawn up at the same time. These are the rules for drafting a QIT:
– A trustee who manages the trust must be named
– State of residence must be named as beneficiary of the trust
– Trust must be irrevocable

To take those one at a time:

The trustee has the power to manage the trust and distribute its money. The trustee of a QIT established for Medicaid eligibility purposes cannot be the Medicaid applicant, but it can be a relative. Often, the spouse or an adult child is named as trustee.

The state must be named as beneficiary for QIT because upon death, the recipient’s estate is obligated to pay back the expenses paid by Medicaid when the recipient was alive. This is known as the Medicaid Estate Recovery Program.

The trust must be irrevocable, meaning it cannot be changed or altered after the account has been opened and the rules for the trust are put into writing.

 

How Much Income Goes Into the QIT?

A Medicaid applicant’s income above the state’s Medicaid income limit goes into the QIT. Monthly deposits out of the recipient’s income are made into the QIT. Direct deposit may be required by the state, or it may not.

More variation on QITs by state: In some states, all of one’s income goes into the QIT, while others only require that a portion of the income (the amount over the Medicaid income limit) goes into the trust.

If the recipient gets income from a single source, like a social security check, then the entirety of that income must go into the trust. If a recipient has multiple sources of income, like social security and a pension, then all that income does not necessarily need to be deposited into the QIT–it depends on the state. It may be that a Medicaid recipient with multiple sources of income can keep one of those checks as long as the amount isn’t above the income limit in that state.

 

For What Expenses Can QIT Money Be Paid Out?

After a beneficiary’s excess income goes into a qualified income trust, there are rules about how the money can be paid out. Money may be withdrawn from the QIT to cover the following:

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 (PNA): If all of one’s income goes into the QIT, then a specific amount may be paid out monthly to cover normal living expenses. The PNA amount varies by state. As an example of how widely PNAs vary, in Florida in 2022 the amount is $130 per month, while in Texas it’s less than half that, at $60 per month.

Monthly Maintenance Needs Allowance (MMNA): If a recipient’s spouse would otherwise not have enough money to live comfortably, then a certain amount can be paid to the spouse every month. MMNAs vary depending on the state, though typically the allowable amount in 2022 is $3,435 per month. More on the MMNA.

An important note is that the type of Long Term Care benefits a Medicaid recipient receives will make a difference as to how the funds are paid out. A recipient of Nursing Home / Institutional Medicaid will probably only receive a PNA, with the rest of their income going directly to the nursing home. In a nursing home context, money from the trust might also be used to pay “share of cost,” meaning to cover healthcare expenses not paid for by Medicaid.

Someone who lives in their own home or assisted living community and receives Medicaid Long Term Care through the state’s regular Medicaid program or through a Home and Community Based Services (HCBS) Medicaid waiver will have more options as far as what’s considered a medical expense, though there are still strict state-specific rules about how QIT funds may be taken out and spent.

 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.

 

Who is Named Beneficiary on a Qualified Income Trust?

The state of residence must be named beneficiary of a Qualified Income Trust. This means that when the QIT is established, documents specify that upon death, the remaining funds are used to reimburse the costs for long term care that the Medicaid program paid out while the recipient was alive. The state cannot receive more money than it paid out when the Medicaid recipient was alive and receiving benefits.

 

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. Even in those states that do not have a QIT cap, however, there is what could be considered a “practical limit.” Single individuals would 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 would not pay more than the cost of nursing in their state plus the state’s allowable Minimum Monthly Needs Allowance (see above).

The reason there are practical limits on QITs for qualifying for Medicaid is this: If you have enough money to cover the cost of living in a nursing home (and supporting a spouse, for those who are married), then Medicaid coverage for Long Term Care is not necessary.

 

Which States Allow a Qualified Income Trust?

In some states, Medicaid recipients can “spend down” their income to become eligible for Medicaid Long Term Care benefits. These states are called “Medically needy” states. Other states do not allow spending down by Medicaid recipients. These states are called Income Cap states, and QITs are an option in income cap states.

Remember, the 2022 income limit in many states (though not all, as Medicaid eligibility criteria can vary) is 300% of the Federal Benefit Rate (FBR), which is $2,523 per month in 2022.

These are the states that allow QITs for Medicaid applicants in 2022 who are over the income limit: Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Iowa, Kentucky, Mississippi, Missouri (but only for HCBS waivers), Nevada, New Jersey, New Mexico, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas and Wyoming.

If you live in a state that does not allow QITs, the Medically Needy Pathway is another way for an applicant with income above the Medicaid limit to be accepted as a recipient of Long Term Care services.

 

Is Professional Help Necessary to Set Up a QIT?

While professional assistance it 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 will be experts in the rules for QITs in one’s states of residence. There are big differences between how QITs work from state to state. If any mistakes are made when setting up the trust, then a denial of benefits or period of Medicaid ineligibility is likely. Especially for Medicaid applicants who are married or have complicated finances.