§ 2.6 Medicaid & Elder Law

Qualified Income Trusts (Miller Trusts)

Texas is an income-cap state, which produces a result that strikes most people as indefensible: an applicant whose income falls thousands of dollars short of the nursing home bill can still be refused because that income is a few dollars over a line. The qualified income trust is the mechanism that resolves it.

The name comes from a 1990 case in Colorado, Miller v. Ibarra, which established the arrangement's validity; Congress subsequently wrote it into federal law. In Texas it is usually called a QIT, and the two names refer to the same thing.

The problem it solves

An income-cap state sets a gross monthly income limit — historically three times the federal SSI benefit rate, adjusted annually. Exceed it by any amount and the application fails, regardless of how far short of the cost of care the income falls. There is no partial eligibility and no sliding scale. It is a cliff.

A qualified income trust removes the cliff. Income routed through a properly constituted trust is not counted toward the cap, so an applicant with income above the limit becomes eligible. The money is not sheltered — nearly all of it still goes to the cost of care — but eligibility is established, which unlocks the programme's payment of the balance and the negotiated Medicaid rate.

What the trust must contain

Federal law is specific, and a trust that deviates does not work. It must be composed only of the applicant's income — never resources, never a lump sum of savings, never a spouse's income, never anything else. It must be irrevocable. And it must provide that on the beneficiary's death the state receives the amounts remaining in the trust, up to the total Medicaid paid on their behalf.

Texas Health and Human Services publishes a model form. Using it is strongly advisable, because deviations are a common cause of denial and there is no drafting creativity to be exercised here — the arrangement is a mechanism, not a plan. The federal authority is 42 U.S.C. § 1396p(d)(4)(B).

How it operates month to month

A separate bank account is opened in the trust's name, with its own tax identification number. Each month, income above the cap — or in practice, commonly, an entire income source such as the pension or the Social Security payment — is deposited into that account. Money must actually move; a trust document sitting in a drawer accomplishes nothing.

Funds are then disbursed from the trust account in a permitted order: the applicant's personal needs allowance, the spousal allowance where one applies, health insurance premiums including Medicare, and then the remainder to the facility as the applicant's co-payment. The account should be emptied each month, because a balance carried forward can be treated as a countable resource.

The discipline is unforgiving in a way that surprises families. The deposit must happen every single month, in the month the income is received. A missed month can mean ineligibility for that month, and the resulting private-pay liability lands on the family. Setting up automatic deposit of the relevant income source directly into the trust account is the single most reliable safeguard.

Practical points that cause trouble

The trust must be established and funded in the month eligibility is sought, so timing relative to the application matters. Banks are frequently unfamiliar with the arrangement and some resist opening the account; institutions that regularly serve this need are worth seeking out. The trustee is usually a family member holding a power of attorney, and needs to understand that this is an ongoing monthly obligation rather than a one-off errand — for a resident who may live for years.

Record-keeping matters at recertification. Bank statements showing the deposits and disbursements are what demonstrates compliance, and they should be kept from the outset rather than reconstructed later.

What it does not do

A qualified income trust does not shelter income. Almost all of it still goes to care. It does not affect the resource test at all — the countable asset limits described on the eligibility page apply in exactly the same way. It cannot hold savings, and depositing resources into it is one of the most common ways the arrangement is invalidated. It provides no protection against the estate recovery claim — the state's payback provision is a required term of the trust itself. And it has nothing to do with the five-year look-back, which concerns transfers of resources rather than the routing of income.

It is, in short, a narrow technical fix for a single arbitrary rule. That is all it is, and within that scope it works reliably. Because the drafting is prescribed and the consequences of error are immediate, most families are well served by having a lawyer establish it and by then being taught the monthly routine properly — the ongoing administration is the part that actually fails.