Dear Mr. Premack: My stepfather has two retirement income sources, which put him over the limit for Medicaid assistance with his nursing home expenses. I’ve been advised by the Texas Department of Human Resources to establish a QIT to “launder” some of this money. I asked my local banker about a Miller Trust some months ago. He looked at me like I was from another planet; said he had never heard of such a thing. What is this trust, and how does it work? Thanks in advance. – J.S. by email
Medicaid is a federally designed and funded program administered by each state. It provides basic medical care for people on welfare and it pays for nursing home care for qualified patients. One requirement to qualify is that the patient’s income must be lower than $2163 per month from all sources (2014 figures).
You say your stepfather’s income exceeds the limit. If, for instance, his monthly income is $2300 — $1400 from social security and $900 pension — he would fail to qualify for Medicaid. The Qualified Income Trust (QIT), formerly called a “Miller Trust,” is a legal way to get around the limit. Your banker was right about one thing: someone involved in this process is from another planet, and it isn’t you. Hint: think “Congress.”
A QIT is an awkward approach. It allows Medicaid to pretend that certain funds do not exist when asking how much income your stepfather has. Of course, they know about the funds – and include them in other calculations. Let’s look at an example:
If your stepfather sets up a QIT and puts in his $900 pension, then Medicaid only sees his $1400 social security check. This is below the $2163 cut off, so he qualifies for benefits (assuming all the additional standards, like having modest assets, are also met). Medicaid then shifts gears, asking “how much does he contribute to the nursing home, and how much does Medicaid pay?”
To answer that question, they follow certain rules set out in federal law. The first legal priority is to cover your stepfather’s personal needs allowance of $60. The second priority is to cover your mother’s spousal income allowance of $2931. After that, his must be used to pay for his medical care or nursing home bill.
Now, let’s say that your mother also has some of her own income. If she get social security of, say, $800, then she is legally allowed to 1) keep her $800, 2) keep the $900 from your step-father’s social security, and 3) draw $1231 from the QIT. Then she will have income of $2931 for her own living expenses.
The remaining amount is the QIT is split. $60 per month goes to the nursing home for your stepfather’s personal needs. The balance, $109 per month, is paid to the nursing home to cover part of your stepfather’s monthly expenses. If the nursing home’s total bill is $5000, the Medicaid program will be paying $4891 toward his care. Without a QIT, Medicaid would pay nothing toward his care. All their combined income would go to pay the nursing home and your mother would have no money for food or shelter.
There is no standard “form” for a QIT and Medicaid cannot provide one. You need to hire a knowledgeable attorney to draft the trust. Don’t go to any of the businesses that offer to write QIT’s — they are often motivated by the desire to sell annuities. They are illegally practicing law, and often charge excessively high fees.