Qualifying Income Trusts: Questions and Answers

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1. I have been (or my family member has been) notified that Medicaidis requiring the establishment of a Qualifying Income Trust. What is this?

This is an arrangement which allows a person whose income is too high to qualify for Medicaid to "shelter" some of their income in order to become eligible.

2. But I am (or my family member is) already on Medicaid, so why do I need to make a change?

Up until recently, Kentucky used a "spend-down" to allow people to qualify for nursing-homeor community-based "waiver" care (waiver services are provided at home to people who would otherwise need to be in a nursing home.) People whose income exceeded the eligibility limit for Medicaid could qualify anyway if the cost of their medical care exceeded their income over a period of time. With the recent elimination of the spend-down for these individuals, Kentucky has been required to begin allowing certain applicants and recipients to establish QITs, another way for the same group of people to qualify for Medicaid.

3. Who can qualify for Medicaid by using Qualifying Income Trusts (QITs)?

Those whose monthly income is not high enough to pay for their nursing-home level of medical care, but who are nonetheless over the "special income standard" beneath which a person qualifies for Medicaid.

4. What is the "special income standard"?

The special income standard is three times the SSI benefit level. In Kentucky that amounts to $2022 (2009 amount) for an individual.

5. What is involved in setting up a QIT?

  • A special bank account must be opened, and nothing may be put in the account except the income (not resources) of the person needing Medicaid coverage. This person, the potential Medicaid recipient, is the Beneficiary of the trust.
  • A trust document must be signed by the Beneficiary, or someone authorized to sign using a power of attorney or order appointing a guardian, and the person the Beneficiary names as the Trustee. The Trustee will oversee the account, and only the Trustee will be allowed to write checks on the account.
  • The trust document must be submitted to the case worker at the Department for Medicaid Services. The worker will confirm that the beneficiary's payment plan meets the Department's requirements.

 

6. Does the Beneficiary have to put all of their income in the QIT?

No. The Beneficiary must put in at least the amount of his or her income which is over the special income standard. The amount below that ($2022 for individuals in 2009) can be kept out of the trust if preferred.

7. How much does the Department for Medicaid Services have to say about how the non-QIT money is spent?

Everything. The QIT is a legal fiction which allows a person to become eligible for Medicaid. Once eligibility is established, the person's entire income, not just the QIT income, must be spent the way Medicaid requires it to be spent.

8. What are the requirements for how the Beneficiary's income is spent?

According to the regulations and policy manual, the money in a QIT may be spent only on the following things: The Beneficiary's personal needs allowance ($40/month for those in a nursing home, $694 (2009 amount) for those receiving services under a Home and Community Based Waiver); the allowance for the community spouse, if there is one; medical expenses of the Beneficiary which are not covered by Medicaid; and the Patient Liability amount, which is the Beneficiary's share of the nursing home cost of care. If the Trustee wants to spend money on something other than these specific needs, they must get written approval from Medicaid.

If some of the Beneficiary's income has been kept out of the trust, then that income also must be spent for the same things; in this way the QIT beneficiary is no different from any other Medicaid recipient receiving nursing care.

9. What are the pros and cons of putting all of the Beneficiary's income into the QIT?

The accounting will be simpler if you assign all of the income; rather than there being two different accounts for payment of the same set of bills, there would be one account managed by one person, the Trustee, who would distribute the Beneficiary's total income each month, presumably for the same set of expenditures.

On the other hand some families find it easier to leave existing direct deposit and automatic withdrawals to pay qualified expenses unchanged and opt for only the "excess" income to go into the QIT. There may also be times when the patient liability is less than the total income in a month, and having the excess income outside of the trust may make it possible to use this money to pay other qualified expenses of the Medicaid beneficiary.

There is also a possible technical problem with putting all the Beneficiary's income into the QIT, in that the Beneficiary's assignment of his or her income to the QIT (not legal for Social Security benefits) could be construed to mean that the trust has the legal right to be paid, and the transfer of this legal right from the Beneficiary to the trust is a transfer of assets requiring a period of disqualification. (One obvious way to avoid this problem would be for the Medicaid recipient's benefits or income checks to go first to the recipient directly, or to the recipient's bank, and then be paid to the QIT - which gets back to the inconvenience of maintaining two or more bank accounts.)

10. Who can serve as Trustee?

Anyone but the Medicaid beneficiary can serve as trustee. Most often the trustee is a trusted family member, friend or the accounting staff at the nursing home.

11. What if a person has no one to serve as trustee, or can't get a QIT drawn up for some other reason?

If the trust is not submitted, the application will be denied. If the beneficiary is incapacitated, the appointment of a guardian may be sought. If no one is willing and able to act as guardian, the Cabinet for Health and Family Services could be appointed as guardian, and will then establish the trust and serve as trustee.

12. When does the trust end?

The trust terminates at the death of the Medicaid beneficiary. The QIT must be irrevocable, meaning that the Beneficiary, or the person who set up the trust, cannot change it or end it. The law provides that the trust can end only at the Beneficiary's death, at which time any funds remaining in the account will be paid over to DMS, up to the amount of all unreimbursed Medicaid expenditures for the Beneficiary. There is still some uncertainty about what will become of the trust if the Beneficiary no longer needs nursing-level care and stops receiving Medicaid. We have been told by various DMS staff that the trust account can be closed, or that the Beneficiary can simply stop funding the trust. It is doubtful that a bank will allow a dormant account with no or minimal income to remain open, but this problem is not addressed in DMS's procedures at this time.



Reviewed August 2009