Long Term Care of Older Adults: The Qualified Income Trust
By 2030, all Baby Boomers will be more than 65 years old. Long-term care and related medical help will become an even greater concern to them and their loved ones. For millions of Americans, paying for that care may prove nearly impossible without the help of Medicaid.
Not everyone is eligible for Medicaid. In addition to asset limits, Medicaid recipients face income restrictions. Suppose you live in a state with a gross income cap on Medicaid eligibility. In that case, you may need to take advantage of a type of trust called a Qualified Income Trust (QIT) to qualify for Medicaid and ensure your long-term health care services are paid for.
A QIT is not to be confused with a special needs trust, which sets aside funds for a beneficiary with a disability. Instead, a QIT allows a person whose income exceeds Medicaid's income limits to access financial help through Medicaid.
Medicare vs. Medicaid
Many people confuse Medicare, a federal program, with Medicaid, a state and federal program. Medicare is an optional health insurance program available to all Americans aged 65 or older through the Social Security Administration. Your assets and income are not considered for Medicare eligibility purposes. In contrast, Medicaid is a state-run health insurance program for low-income people with limited financial means.
In all states, Medicaid covers long-term nursing home care (Long-Term Care Medicaid). “Waivers" are state-specific Medicaid programs covering Home and Community-Based Services (HCBS) for people outside of nursing homes, including in-home care settings or assisted living.
Long-Term Care (LTC) Medicaid is considered an entitlement program — if you qualify, you are entitled to coverage — while waivers, which cap the number of enrollees, are not. That means you might qualify for HCBS but still be unable to enroll. Waivers may also limit Medicaid services based on your location within a state or your medical diagnosis.
Spend-Down States vs. Income Cap States
States differ in treating applicants with monthly incomes exceeding the Medicaid income limit, which is generally 300% of the Federal Benefit Rate.
In “spend-down states" (also called “medically needy" states), a Medicaid applicant who is over the income limit can spend their excess income on medical and care costs. Once their income is “spent down" to the Medicaid limit, they become eligible for Medicaid for the rest of the spend-down period.
In contrast, “income cap" states (also known as “categorically needy" states) don't permit applicants to spend down their excess income to become eligible for Medicaid. You can use a QIT to help reduce your monthly income to meet the Medicaid limit in such states.
As of 2022, the following states are income-cap states in which QITs are an available strategy to gain Medicaid eligibility:
- Mississippi (only for HCBS waivers)
- New Mexico
- New Jersey
- South Carolina
- South Dakota
What Is a QIT?
QITs go by many names, depending on where you live:
- Qualified Income Trusts
- Miller Trusts
- Income Trusts
- Income Diversion Trusts
- Income Cap Trusts
- Income Only Trusts
- Irrevocable Income Trusts
- d4B trusts
Some of these names are state-specific, but they essentially describe an irrevocable trust that holds only the income of a Medicaid applicant. If you deposit your monthly income into a QIT, the income over the Medicaid limit isn't counted toward your Medicaid eligibility. So you could still qualify for Medicaid.
How Do QITs Work?
To establish a QIT, the Medicaid applicant, their guardian, or a person appointed by them in a power of attorney needs to prepare a trust document and open a bank account. The qualifying applicant designates a person to manage the trust (a “trustee"), who cannot be the applicant themselves but can be a family member (such as an adult child).
The state where the applicant receives Medicaid long-term care benefits must be named the trust beneficiary. QITs are irrevocable, so they cannot be changed once they are made.
Each month, a part or all the applicant's income is deposited into the QIT. The trustee then distributes money from the QIT by the trust document's terms and state law.
How Much Can I Contribute to the QIT?
State law determines how much you can contribute to a QIT. Some states restrict your contribution. Others impose a practical limit, typically the amount you'd have to pay for private nursing care. If you're married, you are limited to a spousal allowance plus the amount you'd have to pay for private nursing care.
Can My Trustee Pay My Bills From the QIT?
Your trustee can pay your medical bills that Medicare or Medicaid does not cover. They can also pay state-approved premiums and medical costs. The trustee generally cannot use money from a QIT to pay non-medical expenses, such as your mortgage, utilities, taxes, or life insurance premiums.
Can the Trustee Withdraw Money from the QIT for Any Other Reason?
The trustee can withdraw money from a QIT for two reasons. In addition to paying your medical bills, the trustee can withdraw money to provide you with a "personal needs allowance" (PNA). The amount of your PNA is defined by state law and can be used to pay for food, clothing, insurance premiums, and entertainment (among other things).
Similarly, suppose you're married, and your spouse's income is below a certain amount. In that case, your trustee can withdraw money from the trust to pay the non-applicant spouse (also called a “community spouse") a monthly maintenance needs allowance. The amount of this allowance also varies according to state law.
What Happens to the Money in a QIT When I Die?
The state that provides you with Medicaid benefits is the named beneficiary of your QIT. When you die, any money remaining in the QIT will be used to reimburse the state up to the amount it paid for your long-term medical care.
Do I Need an Attorney to Set Up a QIT?
Medicaid planning can be complicated. If you believe you may benefit from a QIT, you should strongly consider consulting with an experienced estate planning attorney or elder law attorney. Your attorney will be familiar with your state's Medicaid laws and can advise you on your best options in light of the applicable resource limits.
Should you create a QIT, your attorney can draft the trust documents, help you arrange to deposit your monthly income into the trust account, and ensure that your Medicaid application is complete and properly submitted.
Can I Solve This on My Own or Do I Need an Attorney?
- Complex care situations usually require a lawyer
- A lawyer can reduce the chances of a family dispute
- DIY living wills, powers of attorney, and wills are possible in some simple cases.
- You can always have an attorney review your form
Get tailored advice and ask your legal questions. Many attorneys offer free consultations.