Qualified Income Trust Explained
A Qualified Income Trust is a trust that allows a person to qualify for Medicaid benefits even if they make more than the income cap. A person is disqualified from Medicaid benefits if her income exceeds the “income cap” of $2,523 per month (as of January 1st, 2022).
This creates a problem because the cost of nursing home care usually exceeds this amount. This problem is not unique to Texas: 12 other states also have income caps on Medicaid, all of which result in people who make too much to qualify for Medicaid but don’t make enough to afford care without assistance.
In 1993, Congress addressed this by passing the Omnibus Budget Reconciliation Act, which provided relief by allowing a person to transfer income into a qualified income trust (QIT) to qualify for Medicaid benefits. You might encounter conflicting information about this strategy online. Always remember that each state has its own Medicaid program and might differ from others.
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I am often asked why a QIT does not work for some programs but does for others. Fortunately, there is an easy answer. The Omnibus Budget Reconciliation Act only applies to largely federal-funded Medicaid programs, such as Institutional Medicaid and waiver programs like Star+Plus. It does not apply to programs like Non- Waiver Community Care, which is primarily state-funded.
An individual’s QIT is funded by all of her available income, including social security, pensions, and any other income that arrives at least quarterly or has a contractual arrangement for payment. VA benefits may be an exception. Any aid-and-attendance benefits, housebound allowances, or reimbursements for unusual continuing medical expenses that are part of a VA pension are not considered countable income for Medicaid.
Therefore, if you can find a way to itemize your VA benefits, it may be to your advantage to leave this portion out of the QIT. You do not need to obtain a tax identification number for the trust. You should use the individual's social security number. If income accumulates in the individual’s trust, upon her death, it will be paid to the Texas Health and Human Services Commission as reimbursement to the Texas Medicaid Program for benefits provided.
How to Open a Checking Account
After the individual’s trust agreement has been executed, if she then plans to apply for Medicaid benefits, a checking account will need to be opened in the name of the trust. The trust account must contain only your mother’s income. Often, I create a QIT with the anticipation that my client is going to go on Medicaid. However, if your mother is not going into a facility anytime soon, do not open a checking account in the name of the trust.
Banks will generally require a deposit when you open the trust checking account. A small amount of an individual’s or another party's assets may be used to fund the opening of such an account. Only deposit the individual’s income after the account is opened. Any additional amounts will be considered a gift to your mother.
Directing all of the individual’s income to the trust will simplify monthly transfers. If you are unable to direct the income because a source refuses to do so, then you may transfer her income from an outside account into the trust account. It is important that your mother’s income is transferred to the trust checking account in the month that it is received. DO NOT TRANSFER OTHER ASSETS TO THE TRUST.
You may use an existing account as the QIT trust account if you:
- Reduce the account to zero before switching it over,
- Remove all other people on the account, and
- Have the trust instrument reflect ownership of the account.
Distributions from the Trust
The following distributions need to be made by the trustee from the trust on a monthly basis:
- Personal Needs Allowance: This money is for the individual to use for her personal needs. Medicaid updates the personal needs allowance every few years. In Texas, as of 2020, it is $60 per month for nursing home care. You should review the law to see if the amount increases so the individual can purchase more items that she may need. Your mother should not save too much money because she could accidentally disqualify herself from Medicaid.
- Spousal Maintenance: If the individual is married, her spouse has a right to a monthly maintenance needs allowance (this amount changes annually).
- Nursing Home Payment: The trustee must pay the nursing home the remaining amount.
There should not be any funds remaining in the account at the end of the month. If funds do remain in the checking account, they must be retained in the trust and will be paid to the State of Texas upon the individual’s death.
Keep in mind that you will need to reconcile the trust's checking account each month; be sure to save all canceled checks, deposit tickets, and bank statements. You cannot use the individual's income to hire someone to do this. You should not need to file a tax return for this trust because it should not make more than $100 during the year.
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