One of the most common questions we hear from families is, “The nursing home told me I need a Miller Trust. What does that mean?”
What is a Miller Trust?
A “Miller Trust” – also known as a Qualified Income Trust or “QIT”– is a Medicaid planning tool Congress authorized for states whose Medicaid programs have an income cap, such as Texas. It is a type of trust processes the Medicaid Applicant's income each month so that Medicaid will exclude it when calculating the Applicant's eligibtility. A properly drafted QIT allows the Applicant to qualify even if they are over the income cap. The document creating the trust must require the Trustee to pay the nursing home a monthly co-payment equal to the Applicant’s monthly income minus certain deductions. Medicaid will then pay the difference between the co-payment amount and the nursing home’s monthly charges.
How it works
The first step to creating a Miller Trust is drafting a Trust Agreement. The Agreement must contain specific language to satisfy Medicaid’s rules.The Agreement must state that the Medicaid Applicant assigns all their monthly income to the Trust. The Agreement must state the Applicant is the sole beneficiary of the Trust for as long as they continue to receive Medicaid benefits. The Agreement must name a Trustee to administer the Trust, which cannot be the Applicant.
The Agreement must state the Trust is irrevocable and prohibit the Trustee from distributing any trust funds except for:
- A $60 monthly personal needs allowance for the Applicant,
- Certain distributions to the Applicant’s spouse and/or dependents,
- Expenses for health insurance, such as Medicare supplement plans, dental, and vision,
- Distributions for the Applicant’s benefit unless such distributions would result in the recipient losing Medicaid eligibility,
The remainder after all the above deductions and expenses is called the Applicant’s “Applied Income.” The Trustee must pay the entire Applied Income to the nursing home each month.
The Agreement must also name the State of Texas as a remainder beneficiary after the Applicant dies. This is to reimburse the State for benefits it paid for the Applicant’s care.
The Applicant must provide a copy of the Agreement to the Texas Health and Human Services Commission (HHSC), where it will be reviewed by a staff attorney to ensure compliance. The application will be denied if the Agreement does not meet all the legal requirements.
Who Signs the Trust Agreement?
The Applicant typically signs the Agreement. However, many Applicants are incapacitated due to a medical condition and unable to sign. In such cases the Applicant’s agent under a properly drafted Power of Attorney may sign. There are many generic power of attorney forms available for download on the internet, but few provide sufficient authority to allow the agent to sign an irrevocable trust on behalf of the Applicant. If the Applicant is unable to sign and there is no power of attorney then a court-ordered guardianship may be required.
“Applied Income” is a technical term in Medicaid planning. It means Applicant’s net income after all permitted deductions. Typically, the Applied Income is what the person will pay the nursing home each month as a co-payment. Medicaid will pay the gap between Applied Income and the nursing home’s monthly charges.
Applied Income is a fundamental concept in QITs because the Trust Agreement must specify the Applicant’s Applied Income down to the penny. Calculating the Applied Income is difficult due to the many exceptions and exemptions under Medicaid’s policies.Special care must be taken to calculate the amount correctly. A properly drafted Trust Agreement will have a detailed Schedule showing all income sources, all deductions, and the Applied Income calculation.
Managing the Trust
The Trustee must be extremely careful to manage the trust properly. It requires monthly action by the Trustee the entire time the Applicant receives Medicaid benefits.The Applicant may lose eligibility and be asked to pay restitution to the State if the Trustee fails to manage the trust properly.
The Trustee should open a separate checking account for the trust. The Trustee should deposit all the Applicant’s income from each source (social security, pensions, etc.) in the account each month.
The Trustee must use the trust checking account to pay the nursing home each month. The Trustee must also make all required distributions from the trust to the beneficiary, such as the $60 personal needs allowance, expenses for health insurance and Medicare supplements, and any other allowed distributions. The Trustee must also take care to ensure no improper distributions are made. For instance, Medicaid’s rules prohibit the use of trust funds to pay for income tax, life insurance premiums, and union dues, to name a few.
Critically, the Trustee may never use the Trust for his or her personal expenses, meals, or entertainment. The Trustee owes the Applicant fiduciary duties, including the duties of good faith, fair dealing, and loyalty. The Trustee must place the Applicant’s interests above their own in all dealings with the Trust. The Trustee must fully disclose all material facts that might affect the Applicant’s rights as the Trust’s beneficiary. The Trustee has a duty to account to the Applicant for all transactions involving the Trust. Breaching these duties can expose the Trustee to serious liability to the Applicant.
What about VA Benefits?
Special care must be taken in drafting a QIT if the Applicant receives VA benefits, particularly under the Aid & Attendance Program. Aid & Attendance is a monthly benefit paid to veterans with recurring medical expenses. Though very helpful to many seniors, this program is rarely enough to cover long-term care in a nursing home.
The benefit is divided into two components – “pension” and “aid”. The “pension” amount is included in determining the Applicant’s Medicaid eligibility. The “aid” amount is not. Usually the Applicant must request an award letter from the VA to obtain a breakdown of their benefit. The Trust Agreement must be carefully drafted to allocate these amounts correctly. Failing to take VA benefits into consideration when creating a QIT can lead to a Medicaid denial.
The veteran is required to notify VA once they are approved for Medicaid. VA will then reduce the veteran’s benefit to a $90 allowance. This often leads to confusion because many Applicants are over the income limit solely because of their Aid and Attendance income but may not be after their benefitis reduced to the $90 allowance. Those veterans generally need a QIT to qualify for Medicaid but the QIT may not be required once they are approved.
It often takes months for VA to process the conversion, during which time the veteran continues to receive their full benefit. This money usually must be reimbursed back to VA. However, the excess money builds up in the QIT account while the conversion is pending, leading to tremendous confusion about how much the Applicant should be paying the nursing home. A carefully drafted QIT can avoid these problems.
Do I need a Miller Trust?
If the person applying for Medicaid has more than $2,349 in gross monthly income they need a Miller Trust to qualify for Medicaid. Contact the Michels Law Firm to speak with an experienced elder law attorney today.