Using Income Trusts to Qualify for Medicaid

Page Reviewed / Updated - May 2016

Overview: Qualifying Income Trusts

 Income trusts provide a way for individuals whose income exceeds the Medicaid monthly limit to still qualify for Medicaid services.

To be eligible for Medicaid's long term care benefits, an applicant's income and assets must not exceed the allowable limits. Qualified Income Trusts, also referred to as Miller Trusts, and Pooled Income Trusts, are intended for those who have an income greater than qualifications for Medicaid allow, yet don’t have enough income to pay for long term care. They provide a way for Medicaid candidates to convert their monthly income that is in excess of Medicaid's limits into a non-countable form, so that they meet Medicaid's limits. Therefore, they become eligible for benefits.

There are several types of Qualifying Income Trusts and as mentioned above, these may be referred to using several different names, such as Non-Profit Pooled Income Trusts, Miller Trusts, Special or Supplementary Needs Trusts, Income Cap Trusts, and sometimes simply (d)(4)(C). Regardless of the type of trust used, what is important is that the trust be irrevocable. This means that once it has been established, it cannot be undone, except perhaps in some extraordinary situations.

 There are also methods for converting assets (as opposed to income) that are in excess of Medicaid's limit.  These are discussed in greater detail here.

 

How Trusts Work

With a qualifying income trust, the individual hoping to gain Medicaid eligibility will contribute their income that is over the Medicaid allowable limit each month. For example, as of 2016, in most states, the Medicaid monthly income limit for a single individual is 300% of the Federal Benefit Rate, which is currently $2,199. If an individual's monthly income is $2,500, then each month they will allocate $301 into the trust, thereby lowering their countable monthly income to the allowable limit. The individual cannot simply give away the extra income, as that would violate Medicaid's rules. It must be allocated to an irrevocable trust. In some states, Medicaid must be the beneficiary of the trust.

The money in the trust can be used for purposes established at the time of the trust’s creation. Each state has different laws with regards to a qualifying income trust's purposes and beneficiaries. For example, Pooled Income Trusts are managed by non-profit associations. Allocations are combined with other contributors’ resources and are invested and managed as a pool. When the individual in need of care passes away, the remaining resources stay in the pooled trust to help other beneficiaries, or are paid to Medicaid. Alternatively, a Special Needs Trust might be established to help another family member or individual in need.

 

Establishing a Qualifying Income Trust

It is not necessary to use an attorney when creating a qualified income trust. However, for many families it might make sense to do so. There are inexpensive guides and documentation available online to help those wishing to undertake the process themselves. However, because Medicaid eligibility laws are very complicated and specific to each state, one may find those guides do not provide adequate detail for their situation or their geographic area. Since the consequence of an improperly established trust means a denial of Medicaid benefits, for most persons it is advisable to find a Medicaid planning professional to assist in the process.

 

Costs to Create a Qualifying Income Trust

Should an individual use a professional service to establish a trust, they will likely experience 1-2 types of fees. An attorney or other professional will bill the individual on an hourly basis or a flat rate to set up the trust. Typically, the cost is between $1,000 - $2,000, though it could be higher or lower depending on the attorney and state in which the individual resides. The second fee the individual might incur is from the trust itself if they utilize an existing trust, such as those run by non-profit organizations that have enrollment and annual maintenance fees. However, these fees are not significant, and since the primary objective is to lower one's income to a Medicaid-eligible level, these fees should not impact the individual.

 For more information on using qualifying income trusts to gain Medicaid eligibility and to find assistance, please visit our webpage regarding Medicaid Planning.