Miller Trusts and Qualified Income Trusts: How Income-Cap States Handle Extra Income

Some states set a hard cap on income for Medicaid long-term care. Earn one dollar over the cap, and the application fails, even if care costs far more than the income. A qualified income trust is the tool federal law gives people in those states. It is often called a Miller trust. The trust does not hide income. It routes income through a set path so the cap test can be met. This guide explains the cap, the trust, and the rules the trust must meet. Our Paying for Care section holds more guides on Medicaid costs.

The problem the trust solves

Most states let a person with income over a limit spend the excess on medical care and still qualify. Income-cap states work in a stricter way. The cap of $2,982.00 a month (Ledger D2) is the top line. A pension and Social Security check that add up to a bit over that line can end the application, though the cost of a nursing home month runs far past it.

That result struck many people as harsh. Federal law allows one fix: a trust made only of the person's income, set up under the rules in the statute. If the income passes through the trust in the right way, the state does not count it against the cap. The person can then qualify, and the income still goes toward the cost of care.

How the money flows each month

The flow has a set order, and it must run each month without a gap.

Miss a month, and the income counts in full for that month. The cap can fail for that month. Most families set up an automatic deposit so the flow never lapses.

• The person's income checks are deposited into the trust account. The full income goes in, in the states that ask for the full amount. Some states ask for only the amount over the cap. Your state sets that detail.
• The trust pays out a small personal needs amount to the person, as state rules allow.
• If there is a spouse at home, the trust may pay an amount to the spouse under the spousal income rules.
• The trust pays the rest toward the nursing home bill. That share is the person's cost share for the month.
• Medicaid then pays the nursing home the balance of the bill for a person who meets each test.

Rules the trust must meet

Federal law sets the shape of the trust. A trust that breaks the shape does not work.

A lawyer in your state can draft the trust to fit your state's exact form. States publish their own forms and steps in many cases. The fee for that work is paid by the family, not by Medicaid.

• The trust holds income only. Savings, a house, and other assets cannot be placed in it to pass the resource test.
• The trust must be irrevocable. Once set up, it cannot be undone at will.
• The state must be named to receive funds left in the trust at death, up to the total Medicaid paid for the person's care.
• The trust needs its own bank account, and records must show each deposit and each payment out.
• The trust must be set up and funded before the state can approve the application. A trust on paper, with no deposits, does not meet the test.

What the trust does not do

The trust solves one test and no more. It does not move assets. The resource standard still counts savings and property in the usual way. It does not erase a gift made in the look-back window. Our guide on the Medicaid spend-down covers lawful ways to use funds down to the standard. It does not raise the care a person gets. It opens the door to Medicaid payment; the care plan is a separate matter.

It also has no use in a state with no income cap. In those states, the spend-down path handles excess income, and no trust is needed for the income test.

Who pays for what

• The person pays a cost share each month from income routed through the trust. That share goes to the nursing home.
• Medicaid pays the nursing home the rest of the bill once the person meets the income test through the trust and meets the other tests (Ledger D2 context).
• Medicare pays for short skilled stays under its own rules. It does not pay for long custodial care, with or without a trust.
• The state receives funds left in the trust at death, up to what Medicaid paid. That rule is a term of the trust itself.
• Private pay covers the lawyer's fee to set the trust up, plus any care cost no program covers.

Sample situation

James lives in an income-cap state. His Social Security and pension checks add up to $3,100 a month. The cap is $2,982.00 a month (Ledger D2), so his income is $118 over the line. Without a trust, his application fails on income alone. His family sets up a qualified income trust. Each month his $3,100 goes into the trust. The trust pays his personal needs amount and sends the rest to the nursing home as his cost share. Medicaid pays the balance of the bill. The income test is met, month by month, as long as the deposits run on time.

Steps to set up a Miller trust

• Confirm your state is an income-cap state. Your state Medicaid office can tell you, and it can give you the state's form or steps.
• Add up your monthly income from each source. Compare the total with the cap of $2,982.00 a month (Ledger D2).
• Have the trust drafted to meet the federal rules and your state's form. Most families use a local elder law attorney for this step.
• Open a trust bank account and set the income deposits to land in it each month.
• File the Medicaid application with the trust papers and bank records.
• Keep the monthly flow exact. A missed deposit can fail the income test for that month.