A Miller Trust Can Help When Income Is Too High for Medicaid

Key Takeaways:

• Texas and Arkansas apply a special income limit to certain long-term-care Medicaid applicants, including people seeking nursing facility coverage.
• A Miller Trust, also called a Qualified Income Trust, can allow qualifying income to be handled in a way that satisfies Medicaid income eligibility rules.
• A Qualified Income Trust must meet specific legal and administrative requirements, and improper funding or distributions can jeopardize eligibility.
• A Miller Trust addresses income eligibility only and does not eliminate Medicaid's separate asset, medical-necessity, residency, or other eligibility requirements.

Most families assume that if their income is not enough to pay for nursing home care, Medicaid will eventually cover the difference. In Texas and Arkansas, however, certain long-term-care Medicaid programs impose a special income limit. An applicant can therefore have too much income for Medicaid eligibility while still having far too little to cover the full cost of long-term care.

A Miller Trust, also called a Qualified Income Trust, may provide a solution when income exceeds that limit. The Texas and Arkansas Medicaid Planning Attorneys at Ross & Shoalmire, P.L.L.C. help families determine whether an Income Trust is necessary and how it should fit into a broader Medicaid Planning strategy.

Why Texas and Arkansas Use an Income Cap for Medicaid

Most people assume Medicaid works like other need-based programs, where spending your income down on medical bills eventually qualifies you for help. For certain long-term-care Medicaid programs, Texas and Arkansas use a special income limit rather than a medical spend-down to determine income eligibility. 

Without an applicable Income Trust or other permitted eligibility treatment, countable income above the special income limit can prevent eligibility even when that income is far below the actual cost of care.

This creates a genuinely strange gap. A retiree whose monthly income exceeds the Medicaid limit may still have nowhere near enough income to pay privately for nursing home care. In 1993, federal law established the Qualified Income Trust mechanism for applicants who otherwise exceed a state's special income limit, commonly known as a Miller Trust.

What Is a Miller Trust (Qualified Income Trust)?

A Miller Trust, formally called a Qualified Income Trust (QIT), is an irrevocable trust that receives an applicant's income each month. When qualifying income is properly diverted into a valid Qualified Income Trust, that income is disregarded for purposes of determining eligibility for the applicable institutional or home and community-based Medicaid program. 

A trustee, often a family member, then distributes the trust's funds according to strict rules set by Medicaid.

Do You Need a Miller Trust?

A QIT may be necessary when an applicant's countable monthly income exceeds the applicable Medicaid special income limit and the applicant otherwise seeks coverage under a program that permits use of an Income Trust.

Calculating Your Countable Monthly Income

Medicaid begins with an applicant's income sources, but it applies specific rules to determine what is countable. Families should not rely solely on the net amount deposited into a bank account, because deductions such as taxes or Medicare premiums do not necessarily determine Medicaid countable income, while certain income sources may receive special treatment.

The Income Cap Can Change Each Year

The special income limit for nursing home Medicaid is based on 300 percent of the federal Supplemental Security Income benefit rate. Because that amount can change from year to year and eligibility rules vary by program, families should verify the current limit and the applicant's countable income before filing.

How a Miller Trust Works Once It's Funded

Setting up the trust is only the first step. Once the Trust is funded, the trustee must administer its income and make permitted distributions according to the Medicaid rules that apply in the applicant's state.

Personal Needs Allowance

A small monthly amount is set aside for the applicant's personal expenses, such as clothing, haircuts, and incidentals not covered by the nursing facility.

Community Spouse Income Allowance

If the applicant is married and the other spouse still lives at home, a portion of the trust income can go toward supporting that spouse, provided the applicable Medicaid spousal-impoverishment rules permit an allocation of income to the community spouse.

Nursing Home Patient Liability

The bulk of what remains typically goes toward the applicant's required monthly contribution to the cost of nursing home care, often called patient liability.

What Happens to Leftover Funds

During the beneficiary's lifetime, Trust income must be distributed according to applicable Medicaid rules, which generally include the beneficiary's required contribution toward care. At the Medicaid recipient's death, the Trust must contain the required state payback provision for remaining funds, up to the amount recoverable under the applicable Medicaid rules.

Setting Up a Miller Trust Correctly

Miller Trusts must use precise language to satisfy federal and state requirements, and a poorly drafted trust can result in a Medicaid denial at exactly the moment a family can least afford the delay. Details such as which bank account is used, who serves as trustee, and how funds are deposited each month all matter. Reviewing the basics of Medicaid qualification is a useful starting point, but the trust document itself should be prepared by an Attorney familiar with current Texas and Arkansas rules.

Miller Trusts and the Five-Year Lookback Period

A Miller Trust addresses the income cap, but it does not address Medicaid's separate asset limit or the five-year lookback period that reviews past transfers for less than fair value. 

Families juggling both issues at once, particularly when applying for Medicaid to cover nursing home care, often benefit from combining a Miller Trust with other Medicaid Planning strategies, including protections for a community spouse and, where a family member has a disability, a properly structured Special Needs Trust.

Properly diverted income in a Qualified Income Trust is treated differently from gifts or transfers of assets that may trigger Medicaid's five-year lookback rules.

Texas and Arkansas Apply Their Own Income Trust Rules

Texas and Arkansas both provide an Income Trust pathway for certain long-term-care Medicaid applicants whose countable income exceeds the applicable limit, but each state may use different forms, procedures, documentation requirements, and Trust administration rules. 

Families with connections to both states, or those considering moving a loved one across state lines for care, should confirm which state's rules will actually govern the application before assuming a trust set up in one state will transfer cleanly to the other. The Medicaid Planning Attorneys at Ross & Shoalmire, P.L.L.C. are licensed in both states and regularly help families sort out exactly these cross-border questions.