RALPH S. ROBBINS, CFP©

A CERTIFIED FINANCIAL PLANNING PRACTITIONER

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IRREVOCABLE QUALIFIED INCOME TRUST (QIT)

Income and Medicaid Eligibility

Florida is an “income cap” state with respect to Medicaid benefits in that it disqualifies an individual with income over $2,205.00 per month from receiving benefits for Medicaid nursing home or Home and Community Based Services. 

However, rules allow excess income (the amount of income over the income cap) to be placed in a bank account established by Irrevocable Qualified Income Trust (QIT) to “shelter” the excess income and allow for eligibility.  This trust is sometimes referred to as a “Medicaid Income Trust” or a “Miller Trust” after the case law that sustained its use.

The Irrevocable Qualified Income Trust must be drawn by an attorney licensed in Florida at the behest of the Medicaid applicant or their Power of Attorney.

The bank account must be established and funded the month the recipient is otherwise eligible for Medicaid benefits.  The QIT bank account must be funded in any ensuing month for which Medicaid benefits are requested and income exceeds the cap.

This is a grantor trust whereby the Medicaid recipient is giving up rights to the income he or she is receiving above the specified income cap.  The Medicaid applicant cannot be trustee of their own trust.  Generally a family member will serve as trustee although virtually anyone who agrees to do so may serve.  There will be no compensation for services rendered.

The QIT Structure

The QIT deals only with income, not assets.

IThe flow chart below illustrates the operation of the QIT.  Note that the trust is a “pass through” structure.  Income paid into the trust simply flows through the trust (in the form of a bank account) and is distributed from the trust for the benefit of the Medicaid recipient.    

Payments from the trust must be for the benefit of the recipient as described in the trust document and as agreed to by the Department of Children and Families.  Generally, this means the payments must go to the recipient's "patient responsibility" or "cost of care"; e.g., room, board, level of care charges, insurance premiums, etc.

The trustee will be required to document account activity and purpose and provide such documentation to DCF upon request (trustee responsibilities are discussed below).

 

The flow chart above illustrates the applicant’s income separated into two parts: The “cap amount” which in Florida is currently $2,205.00, and the excess income amount.  The cap amount goes directly to “patient responsibility” or, in other words, the facility or service provider and the excess amount goes into the trust by way of deposit into the trust’s checking account. 

The trustee then depletes the account writing checks to the recipient’s providers.

Supplemental Needs Trusts and Medicaid 

As has been discussed, gifting assets to an individual or a trust within five years of applying for public benefits may create a period of ineligibility.  As with many of the rules, however, there is an exception. 

Section 42 U.S.C. 396p(d)(4)(C) established what are known as Supplemental Needs Trusts (also known as “pooled trusts” or “Medicaid pay-back trusts”) that allow Medicaid recipients to fund (gift to) an account. qualify immediately for benefits with no penalty, and then use both income and principal from the account to pay for goods and services that Medicaid does not provide.

Supplemental Needs Trusts (SNT) are pooled community trusts run by a non-profit organization. Although assets of the trust are pooled for management purposes, it is required that each grantor have a designated account with the trust.  Disbursements can be tailored to the needs of each grantor by prior agreement. The trustee will usually handle all of the administrative functions of the trust including distributions and asset management.  Only the trustee can disburse funds in accordance with the trust agreement. 

When these trusts are “self-settled”, meaning the beneficiary of the trust is the same person who funds it, there will be a "pay back" provision in the agreement.  This provision will require that if, at the demise of the beneficiary any remaining funds in the beneficiaries trust account go first to: 1.  The trust for the benefit of other members or, 2.  The state up to the amount paid by the state for benefits with any residual then going to heirs.

The Supplemental Needs Trust can be used by itself or in conjunction with other techniques.  Benefits of using the trust include: 

  1. Immediate qualification for benefits. No penalty period will be imposed because of the less than fair market value transaction.

  2. Total value of the transfer can be used to pay for ancillary goods and services for the benefit of the recipient (see below).

  3. Funds can be spent on an “as needed” basis rather than received as compulsory income which must be spent in month received (as with other techniques).  This can potentially extend funds for ancillary services by years if required.

  4. If unhappy with a pooled trust funds can be moved to another by simply instructing your trustee to do so.

  5. No need to set up a separate trust.  Only a joinder agreement is required for new beneficiaries.

In general terms, the following is a non-exhaustive list of items that can be purchased with trust assets: 

  • Health and dental treatment and equipment for which there are not funds otherwise available

  • Rehabilitative expenses and occupational therapy services

  • Medical and diagnostic treatment beyond Medicaid benefits, even though not medically necessary or lifesaving

  • Medical insurance premiums

  • Supplemental nursing care

  • Supplemental dietary needs

  • Eyeglasses

  • Travel

  • Entertainment

  • Companionship

  • Private case management

  • Cultural experiences

  • Expenses associated with bringing relatives or friends to visit with the beneficiary

  • Vacations

  • Movies

  • Telephone service and answering machines

  • Television and cable equipment and services

  • Radios, stereos and musical instruments

  • Training and education programs

  • Caretaker Expenses

  • Recreation, entertainment and travel for the beneficiary and a caretaker

  • Purchase of furniture for the beneficiary

  • Purchase of an automobile for transportation to medical treatment

  • Renovations to a house to adapt to the needs of the beneficiary

  • Cost of adapting a car or van to the needs of the beneficiary

  • Reading and educational materials

  • A burial plot and pre-paid burial expenses

The downside to using a Supplemental Needs Trust may include the irrevocable nature of the agreement, the payback to Medicaid, and the cost of establishing and maintaining the agreement (be sure to shop carefully, joinder costs, administration fees and asset management fees vary widely!).

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