By 2030, all Baby Boomers will be more than 65 years old. Long-term care and related medical assistance will become an even greater concern to them and their families. For millions of Americans, the challenge of 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. If you live in a state that imposes an income cap on Medicaid eligibility, 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.
Medicare v. 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 age 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 designed specifically 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 that cover Home and Community-Based Services (HCBS) for individuals who live 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 v. Income Cap States
States differ in how they treat applicants with monthly incomes that exceed the Medicaid income limit, which is generally 300% of the Federal Benefit Rate (in 2022, this amount is $2,523/month for an individual).
In “spend-down states" (also called “medically needy" states), a Medicaid applicant who is over the income limit is able to 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. In such states, you can use a QIT to help reduce your monthly income so as to meet the Medicaid limit.
As of 2022, the following states are income cap states in which QITs are an available strategy to gain Medicaid eligibility: Alabama, Alaska, Arizona, Colorado, Delaware, Idaho, Indiana, Mississippi, Missouri (only for HCBS waivers), Nevada, New Mexico, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Wyoming.
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 in excess of the Medicaid limit isn't counted towards your Medicaid eligibility, thereby making it possible to 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 themself but can be a family member (such as an adult child).
The state in which the applicant receives Medicaid long-term care benefits must be named the beneficiary of the trust. QITs are irrevocable, so they cannot be changed once they are made.
Each month, a portion or all of the applicant's income is deposited into the QIT. The trustee then distributes money from the QIT in accordance with the terms of the trust document 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 are not covered by Medicare or Medicaid. 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 things such as food, clothing, insurance premiums, and entertainment (among other things).
Similarly, if you're married and your spouse's income is below a certain amount, 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 Help Setting 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. Your attorney will be familiar with your state's Medicaid laws and can give you legal advice about what your best options are in light of the applicable resource limits.
Should you choose to create a QIT, your estate planning attorney can draft the trust documents, help you arrange to have your monthly income deposited into the trust account, and ensure that your Medicaid application is complete and properly submitted.