Appendix XXXVI, Qualified Income Trusts (QITs) and Medicaid for the Elderly and People with Disabilities (MEPD) Information
Revision 21-1; Effective March 1, 2021
This information is offered by the Texas Health and Human Services Commission (HHSC). It helps prospective Medicaid applicants and their attorneys by describing basic information about the use of a qualifying income trust (QIT) (sometimes referred to as a "Miller" Trust) in meeting MEPD eligibility requirements. A model instrument is included at the end of this document. It shows an example of a QIT that meets MEPD requirements when properly completed. This form meets the basic MEPD requirements for a QIT, but it is not the only acceptable QIT form, and it may have consequences beyond Medicaid eligibility that an applicant would want to consider.
HHSC attorneys are prohibited from giving legal advice to the public. MEPD eligibility specialists, supervisors and other HHSC non-attorneys are prohibited from advising anyone by recommending specific actions to become eligible for Medicaid as doing so may constitute the unauthorized practice of law.
HHSC staff has an obligation to inform applicants and other people of MEPD requirements. This information is not intended as legal advice and people seeking information on the legal consequences of these documents are encouraged to consult a lawyer of their choosing. HHSC will only review trust documents connected with the processing of a Medicaid application. The review by HHSC is limited to a determination of whether the trust meets the requirements for a Medicaid QIT.
People with low or limited income may be able to get legal counsel through their local legal aid office, local area agency on aging, local bar association, National Academy of Elder Law Attorneys, lawyer referral service, Advocacy Inc. or the State Bar of Texas.
Eligibility for Medicaid institutional or home and community-based waiver services in Texas includes a requirement that the applicant's countable income not exceed the special income limit. The special income limit for a person is equal to or less than 300 percent of the full individual Supplemental Security Income (SSI) benefit rate. The special income limit for a couple is twice the special income limit for an individual. Effective Jan. 1, 2021, the special income limit is $ 2,382 per month for an individual and $ 4,764 per month for a couple. HHSC's current estimate of the average daily cost of a private pay nursing home stay in Texas for an individual is $213.71 — an amount that is significantly more than the individual special income limit.
Thus, Texas residents who require nursing home care and who have monthly income above the special income limit but below the private pay cost of the care, may have insufficient funds to pay for the needed care. To address this problem, Congress in 1993 amended Section 1917 of the Social Security Act to provide for an income diversion trust, or QIT (see 42 USC § 1396p(d)(4)(B)). The proper use of a QIT allows a person to legally divert the individual's income into a trust, after which the income is not counted for purposes of the MEPD institutional and home and community-based waiver special income limit.
A QIT should not be confused with other types of trusts that are commonly used in connection with the receipt of Medicaid or other public benefits. This information does not address these other types of trusts, such as a "Special Needs" trust that may be created for a person with a disability under age 65 who wishes to shelter assets to become or stay eligible for Medicaid or other public benefits.
HHSC does not count income that is properly diverted through a QIT in determining Medicaid eligibility for institutional or home and community-based waiver services. However, this income is not disregarded in determining eligibility for other Medicaid benefits, such as non-institutional assistance other than home and community-based waiver services, or Medicare Savings Programs. Such income also may not be disregarded in determining eligibility for non-Medicaid public benefits programs.
Although the use of a QIT can overcome the special income limit for Medicaid eligibility as explained above, a QIT will not address other eligibility requirements for institutional and home and community-based waiver services, such as citizenship, residency, medical necessity and the applicant's countable resources. A person with more than $2,000 in countable resources is not eligible for benefits, and the use of a QIT does not affect this resource eligibility requirement.
This information is based in part on informal guidance by the federal Centers for Medicare & Medicaid Services (CMS). CMS has not adopted any federal regulations relating to QITs. Therefore, CMS' guidance and interpretations could change without advance public notice or any opportunity for advance public comment.
The Texas MEPD special income limit applies only to an applicant's countable income. Therefore, to determine the need for a QIT, it is appropriate to first ask whether the income is countable for purposes of Medicaid eligibility, and to ask whether a prospective applicant's income will stay the same upon getting Medicaid assistance for nursing facility care. For example, certain types of Veterans Affairs (VA) benefits do not count. Also, some types of income — such as VA pensions — are subject to automatic reduction when a person living in a Medicaid-certified nursing facility becomes eligible for MEPD. In addition, when retirement income has been legally divided between spouses through a Qualified Domestic Relations Order and each spouse gets a check in their own name, the income of one spouse is not generally counted with respect to the other spouse. Texas follows a "name on the check" rule in counting the income of applicants for nursing home MEPD assistance.
Characteristics of the Trust
Only pension, Social Security, and other income may be placed in a QIT. No resources can be put into this type of trust. Since the trust has no "corpus" as that term is generally understood in the trust field, the need for much of the standard trust language about management of the trust principal is eliminated, and the language of the written trust instrument may be shortened accordingly. A prospective MEPD applicant may divert all their income into a QIT, or if they have income from multiple sources, only the income from certain sources. However, income from any given source must go entirely into the QIT, or not at all.
VA aid and attendance benefits, housebound allowances, and reimbursements for unusual or continuing medical expenses are exempt from both eligibility and co-payment. However, if a person deposits these payments into a QIT account, they are countable for co-payment. If a person receives a VA pension that includes aid and attendance benefits, housebound allowances, or reimbursements for unusual or continuing medical expenses, the person may separate the aid and attendance benefits, housebound allowances, or reimbursements for unusual or continuing medical expenses from the VA pension before depositing the VA pension into the QIT account. Aid and attendance benefits, housebound allowances, or reimbursements for unusual or continuing medical expenses are not income for Medicaid eligibility determinations.
The trust must be irrevocable. CMS has advised that a trust instrument that states the trust is irrevocable, but allows the trust to be revoked through court action, does not meet the irrevocability requirement.
The trust instrument may provide for successor or co-trustees, waive bond, and incorporate the Texas Trust Act provisions regarding the powers of the trustees. The statutory authority for a QIT is silent on who may serve as the trustee, but HHSC recommends that the beneficiary not also serve as the trustee. Among other concerns, HHSC has encountered many instances where a beneficiary did not follow the trust requirements, resulting in the beneficiary losing Medicaid eligibility.
The trust instrument may provide for successor or co-trustees, waive bond, and incorporate the Texas Trust Act provisions regarding the powers of the trustees. The statutory authority for a QIT is silent on who may serve as the trustee, but HHSC recommends not having the beneficiary serve as the trustee. Among other concerns, HHSC has encountered many instances where a beneficiary did not follow the trust requirements, resulting in the beneficiary losing Medicaid eligibility.
The trust instrument must have a reversion clause stating that at the death of the trust beneficiary, the trustee must pay to the state of Texas any funds still in the trust account, up to the full amount of Medicaid assistance that was given to the beneficiary and not otherwise repaid. Payments made to HHSC, as residuary beneficiary, should be in whole dollar amounts and by cashier's check, money order or personal check. These payments are receipted on Form 4100, Money Receipt.
A QIT instrument must require that the trustee pay:
- a monthly personal needs allowance to the beneficiary;
- court ordered guardianship fees;
- a sum sufficient to give a minimum monthly maintenance needs allowance to the spouse (if any) of the beneficiary; and
- the cost of medical assistance given to the beneficiary, from the funds remaining.
The income must be deposited into the trust account during the month in which it is received, and the trustee must make distributions from the trust account no later than the last day of the following month.
HHSC does not deduct any trust administration costs in determining the amount of the beneficiary's income that must be applied to the cost of the beneficiary's medical assistance. Also, HHSC determines the amount that must be applied to the cost of the beneficiary's medical assistance given based on the beneficiary's total income, including any income that is not diverted to the QIT. If there are funds still in the trust account after the above distributions are made, such funds may be applied to the cost of trust administration.
Income paid from the trust to purchase institutional services, home and community-based waiver services, or other medical services for the beneficiary is not countable income for eligibility purposes. Income paid from the trust directly to the beneficiary, or otherwise spent for their benefit, is countable income for eligibility purposes.
Establishing a Bank or Other Financial Account as the QIT Account
In addition to a completed, signed, and dated trust instrument that meets the QIT requirements as determined by HHSC, there must be a trust account set up. A trust account is a bank (or other financial institution, such as a credit union) account used to deposit the income from the sources listed in the QIT instrument. As noted above, the trust account must contain only income and cannot contain resources. Therefore, the bank account must be used only to deposit the income from the sources listed in the QIT instrument.
A person may use an existing account, if they only use the account to deposit the QIT income. A person may need to open a new account if an existing account includes money from sources other than their QIT income. A person may also need to open a new account if an existing account is a joint account and other account holders make deposits to and withdraw from the joint account using the joint account holders' income and resources. If a joint account holder is on the account for convenience and does not use the account for the joint account holder's personal use, a person can use the account for the QIT.
If a person does need to open another account, some banks may require small deposits (for example, $10 to $20) to open a new account. HHSC allows a small amount of the beneficiary's money or money from another person to be deposited to open a new account. The money that a bank requires, as a deposit to open a new account, is not counted as a resource or income to the beneficiary.
Once the trust account is opened, only the beneficiary's income may be directed to the trust account. If the trustee directs to the trust account different sources of income than those identified in the QIT but directs entire sources and the countable income remains within the special income limit, eligibility is not affected. Any deposits made to the QIT bank account from other resources the beneficiary may own will result in the bank account becoming a countable resource. Any deposits to the QIT bank account from another person may be countable income and result in all deposits to the account being countable income and the bank account becoming a countable resource.
HHSC disregards income for Medicaid eligibility purposes the first month that a valid written trust instrument is signed and properly executed, a trust bank account with the beneficiary's Social Security number is set up, and enough of the beneficiary's income is placed into the account to reduce any remaining income to below the special income limit. The trust may be set up with any or all sources of a beneficiary's income, but an entire income source must be deposited. For the initial month that a QIT is established, a partial deposit of the income for which the trust is established will not invalidate the trust and the entire amount of the income source(s) will be disregarded from countable income for that month. A person may have used some of the monthly income to pay expenses prior to the date the QIT is established so the entire source(s) may not be available to open the QIT account. The entire amount of the income source(s) for which the QIT is established must be deposited into the QIT account in all subsequent months or the QIT is considered invalidated.
These things may be done before the beneficiary applies for MEPD, in which case the effective date of the income disregard may be established as much as three months prior to the application filing date (if all other program requirements are met during the prior period).
Transfer of Assets
The phrase "transfer of assets" refers to the general prohibition against an MEPD applicant or recipient transferring assets without compensation. When a transfer of assets occurs, it may result in a penalty period for Medicaid payment for institutional care or ineligibility for MEPD.
Income that is diverted to a QIT is not a transfer of assets if it is used for payment of institutional services or home and community-based waiver services for the MEPD recipient. Also, any distributions to the recipient's spouse and allowable payments for trust administration as described above are not considered a transfer of assets. However, distributions from the trust that are not made to the MEPD recipient or community-based spouse, or for the benefit of either, are considered a transfer of assets.
In addition, if the trustee fails to make distributions from income deposited into the trust account in the month of receipt by the end of the following month, such failure to timely distribute the income is considered a transfer of assets.