Income Trusts

1. What is an income trust?
2. Who needs one?
3. How does one set up an income trust?
4. How does the income trust work?
5. How much income is deposited in the trust account?
6. What happens to the money in the trust account?

1. What is an income trust?

   A Qualified Income Trust (sometimes called a Miller Trust) is a legal instrument that meets the criteria set by the Omnibus Budget Reconciliation Act of 1993 (OBRA '93). This act granted certain exemptions for the treatment of income and assets in determining Medicaid eligibility. There are specific requirements that must be met for the trust to qualify as an income trust; therefore, the department of children & Families legal counsel must approve the trust.

2. Who needs one?

   An individual whose gross monthly countable income exceeds the State's income limit is not eligible for the Institutional Care Program (ICP), Institutional Hospice, or the Home and Community Based Services Programs (HCBS). Such an individual may become eligible for any of these programs if they set up and fund a qualified income trust.

3. How do you set up an income trust?

   Elder Planning Alliance can offer assistance in setting up and income trust. To qualify the trust must:

   • Be established on or after 10/1/93 for the benefit of the individual
   • Be established by one of the following: the individual, the individual's spouse, the individual's legal representative (legal guardian, POA, etc.) or a person, including a court or administrative body, acting at the direction/request of the individual or individual's spouse.
   • Be irrevocable
   • Be comprised only of the individual's income (Social Security, pensions, etc. and...
   • Stipulate the State will receive the balance in the trust upon the death of the individual up to an amount equal to the total medical assistance paid on their behalf.

4. How does the income trust work?

   After the trust document is signed, an income trust bank account (clearly titled as the income trust account) must be established into which only the individual's income is deposited. The trustee(s) named in the trust document will have signature authority on the trust account. Income deposited into the trust account in the month it is received is not counted when determining income counted toward the income limit.

   Sufficient income deposits must be made during each month eligibility is requested so that the individual's countable income (the income that was not deposited in the trust account) is within the program income limit. Failure to deposit sufficient income in a given month will result in ineligibility for that month. Often it is necessary to fund the trust prior to the application eligibility interview with the Department of Children & Families and official approval of the trust by department legal counsel. Note: Federal rules prohibit the direct deposit of federal benefits (Social Security, VA, Civil Service, Railroad, etc.) into an income trust account.

5. How much income is deposited in the trust account?

   The minimum requirement is to deposit the amount of income in excess of the program income limit into the trust account each month. Attempting to deposit the minumum amount is strongly discouraged, though, as Medicaid counts gross income toward the income limit rather than the net amount (the amount received after deductions for Medicare premiums, health or life insurance premiums, income taxes, etc.) an individual usually thinks of as their income. Unexpected items are also counted as income such as interest and dividends. It is better to deposit too much income in the trust account since too little will result in ineligibility.

6. What happens to the money in the trust account?

   In the programs with a potential patient responsibility (ICP, Institutional Hospice and the Assisted Living HCBS program) all income, including income deposited in the trust account, is counted in determining patient responsibility. An allowance is made for the individual's personal needs and the needs of the community spouse/dependents, if applicable. The trustee pays the provider the patient responsibility, disburses funds to the community spouse/dependents (if applicable) and uses the personal need allowance for the individual's needs. Usually, very little money accumulates in the trust account.

   The other HCBS programs have no patient responsibility. The trustee uses the trust fund for the individual's needs. Cash should not be returned to the individual as it would be considered income and could defeat the purpose of the trust.

   Any money remaining in the trust upon the death of the individual is sent to the state, up to the amount equal to the medical assistance paid on behalf of the individual.