How to Use a Miller Trust for Medicaid Eligibility

A senior’s income and assets must fall below certain levels to qualify for Medicaid coverage of their stay in a skilled nursing facility. If their countable assets exceed $2,000, they will not qualify until the excess is spent down or converted to an asset that is not countable.

For income, the 2018 federal limit for eligible applicants is $2,250 per month. However, many states allow Medicaid applicants to spend down their income on medical expenses to get below the $2,250 limit and thus qualify. These states are known as “medically needy” or “spend-down” states. But what can an applicant do if they live in a state that has a hard income limit and doesn’t allow spend-down? Say their assets are below the eligibility limit, but their countable monthly income is $2,275. In this scenario, the senior has too much income to qualify for Medicaid, but they certainly do not have enough money to pay for a nursing home or other long-term care facility!

It was this very situation that led to the 1990 case of Miller v. Ibarra in Colorado. As a result of the decision in this case, those states that do not permit an income spend-down all offer Medicaid applicants the ability to set up a simple irrevocable trust to hold their excess income. Funds in this trust can be used to pay the Medicaid recipient a monthly personal needs allowance (approximately $60, but this varies by state) and, if applicable, pay their community spouse a minimum monthly maintenance needs allowance (MMMNA). From there, any funds that are left over are used to pay the Medicaid recipient’s nursing home bill. The difference will be covered by Medicaid, assuming the applicant otherwise qualifies. Such a trust is called a Miller Trust (after the court case mentioned above), but it can also be referred to as a Medicaid Income Trust, a (d)(4)(B), an Income-Only Trust, an Income Diversion Trust or a Qualified Income Trust (QIT).

Each state has different rules, but in “income-cap” or “categorically needy” states that don’t allow spend down, at least the excess over the income limit amount must be placed into the trustThe Medicaid applicant cannot be the trustee of this account since they are essentially giving up their rights to the money it contains. The trustee is typically a family member, and each month they use money from the trust to pay the Medicaid recipient’s share of cost (SOC), personal needs allowance, their spouse’s MMMNA, and other medical costs and premiums not covered by Medicaid and Medicare. Assuming some basic rules are followed regarding this process, excess income will not prevent an applicant from qualifying for Medicaid, unless their income is so high that it exceeds the amount that Medicaid would otherwise pay to the nurs­ing home each month for their care.

Keep in mind that a Miller Trust can only be used to hold income going to the individual who is trying to qualify for Medicaid, and many states require this income to be direct deposited into the trust account. Applicants cannot put only portions of certain income sources into the account. For example, you cannot put part of your pension or social security check into the trust—it’s all or nothing. Assets and income sources that do not count towards eligibility limits should not be placed in this account either. This includes a community spouse’s income, VA benefits like Aid and Attendance and housebound pensions, income tax payments and some annuity payments.

At the time of publication, these 24 states are “income-cap” states that permit Miller Trusts:

  • Alabama
  • Alaska
  • Arizona
  • Arkansas
  • Colorado
  • Delaware
  • Florida
  • Georgia
  • Idaho
  • Indiana
  • Iowa
  • Kentucky
  • Louisiana
  • Mississippi
  • Nevada
  • New Mexico
  • New Jersey
  • Oklahoma
  • Oregon
  • South Carolina
  • South Dakota
  • Tennessee
  • Texas
  • Wyoming

If your state is listed above, check to see if it publishes a standard short-form trust document that is essentially a “fill-in-the-blank” form. In some cases, this form may even be available on the state’s Medicaid website. Using such a form means you do not have to hire an attorney to draft a customized trust, but it is still advisable to consult with an expert to assist with Medicaid and estate planning. These are complex matters that can have serious and long-lasting ramifications if done improperly.

Source: By K. Gabriel Heiser