Preparing a Qualifying Income Trust (QIT) in Kentucky

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Need for QIT. Kentucky residents who are in long term care facilities or institutional Hospice, or receiving community-based waiver services, can no longer qualify for Medicaid through "spend down". These individuals must now meet the "special income standard", which is three times the amount of the Supplemental Security Income benefit. Kentucky's current (2009) special income standard is $2022 per month for an individual. Since the monthly cost of nursing home care in Kentucky can easily exceed $5000, the income cap means that there are many people whose incomes are too high for Medicaid who nonetheless cannot afford the cost of their ongoing medical care. Medicaid recipients who are over the income limit can become eligibile for Medicaid by establishing a Qualified Income Trust, often called a Miller Trust.

Background and Legal Authority. In the 1990 case of Miller v. Ibarra, 746 F. Supp. 19 (D. Colo 1990) a Colorado court permitted nursing home residents in that state to shelter their excess income, above the Medicaid income-eligibility cap, in a trust created for that purpose. Congress codified that holding in the OBRA 93 budget bill, Pub. L. No. 103-66, 107 Stat. 312 (1993), by revising 42 U.S.C. Section 1396p (Section 1917 of the Social Security Act) to provide for an income diversion trust that would allow a resident caught in the income gap to legally divert retirement or other income into a trust, where it would not be counted for Medicaid eligibility purposes. (This excess income is still counted, once the person has qualified for Medicaid coverage, to determine how great a share of the monthly health expenses the Medicaid recipient must bear.)

Income which is directed to a QIT is not considered a transfer of assets if timely used to purchase nursing facility services or home/community-based waiver services for the Medicaid recipient or to pay allowed support to the community-based spouse. Monies directed to the trust which are not promptly paid out (for example, by the end of the month in which they were deposited to the trust account) are subject to transfer-of-assets provisions, and are therefore required to be paid to the Department for Medicaid Services to the extent of any unreimbursed Medicaid expenditures.

The Miller income-diversion trust, or QIT (Qualifying Income Trust) is not the same as a "special needs" trust created for a person under 65 who meets the disability criteria for Supplemental Security Income, see 42 U.S.C. Section 1396p(d)(4)(A). Nor is it a means of addressing the question of excess resources. The overall limit of $2000 in countable resources still applies and is not changed by the QIT law.

The requirements for a QIT in Kentucky are set forth at 907 KAR 1:650 and in Kentucky Cabinet for Families and Children Department for Community Based Services Field Operations Manual Volume IVA [Word file].

Characteristics of the Trust.

  • The trust must be an irrevocable trust created in Kentucky for the benefit of an individual.

  • Money deposited to the trust must be maintained in a separate account opened for this purpose.

  • Only pension, Social Security and other income is to be placed in the trust. The amount of income put into the trust must be at least the total countable income above the special income standard. At the option of the Medicaid applicant/recipient, their entire income can be placed in the trust. The trust consists only of this income and accumulated interest, if any; no resource of any kind (such as money from a savings account of the beneficiary) can be put in the trust without incurring a transfer of resource penalty.

  • The income placed in the trust is not considered available income for determining Medicaid eligibility. It is, however, considered income available for paying toward the individual's medical care.

  • The trust must provide that, at the death of the beneficiary, the trustee will pay the state of Kentucky any funds remaining on hand up to the amount of un-reimbursed medical assistance provided to the beneficiary during the beneficiary's lifetime. Any money left over after the state has been reimbursed will go to the beneficiary's estate.

  • The only allowable expenditures from the trust are for the beneficiary's personal needs allowance, community spouse or family support, health insurance premiums, and the patient liability amount to the nursing home or medical faciltiy. All other expenditures must be pre-approved by the DMS case worker.

  • Expenditures are to be made monthly, or by the end of the month after the month in which the funds were placed in the trust.

Hardship. The State Medicaid Manual [Word file] also provides for disregarding the trust provisions of the statute if they would work an undue hardship, defined as depriving the individual of medical care such that his/her health or his/her life would be endangered or he/she would be deprived of food, clothing, shelter, or other necessities of life.

In keeping with the State Medicaid Manual provisions regarding hardship, the Kentucky Department for Medicaid Services must, at a minimum, provide:

  • Notice to recipients that an undue hardship exception exists;

  • timely process for determining whether an undue hardship waiver will be granted; and

  • A process under which an adverse determination can be appealed.


Reviewed August 2009