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Qualified Income Trusts - Diverting Income To Meet State Assistance Rules

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In some states, you're eligible to receive assistance for medical care only if your income is below a certain level. If you have income above this level, you might still need assistance. You might not have enough money to pay for medical expenses and your daily needs. If this is the case, you can divert your income to an income trust that takes charge of the funds and disperses them accordingly.

Income Test States

States like Texas, Alaska and Arizona set a limit on the monthly income for Medicaid candidates and thus are called income test states or income cap states. This limit can vary but typically, it's calculated as 300 percent of Social Security Income. In 2014, this amount was $2,163. Other states set an income limit that they believe is the minimum a person needs for living expenses. If, after incurring medical expenses, the balance of your funds in hand falls below this level, you might qualify for Medicaid.

Income Trusts

Income trusts are also called Miller's Trusts, Qualified Income Trusts or Qualifying Income Trusts. These trusts aren't designed to circumvent qualification laws. They simply handle the applicant's funds appropriately. So, you aren't breaking any rules when you divert your income to an account managed by these trusts.

The trust pays out your basic expenses, which might include a limited amount to a spouse not receiving medical care, insurance co-pays and any other living essentials. Whatever balance is left, goes to your medical expenses. If you have more than one source of income, you can choose to direct the funds from one of these sources. All income from this single source must be paid to the trust.

Setting up the Trust

To set up a qualified income trust, you must draw up legal documents. And, your documents must comply with your state's regulations. You also need to open a bank account, which will receive the income you divert to the trust. This account becomes the trust account. Make arrangements to have income deposited to this trust account on a regular basis. After you complete these formalities, you can apply for Medicaid. Be prepared to present the necessary trust documents to prove that you complied with all mandatory requirements.

Income Trust Conditions

When you set up a Qualified Income Trust you must meet certain conditions for it to remain valid.  For example, the trust:

  • Can manage only the assets and income you receive in your name
  • Must be irrevocable
  • Must be a legal entity complete with your valid signature

The trust deed must clearly specify that on your death, any assets that remain in the trust are to be used to pay off expense amounts that Medicaid incurred for your medical care. Also, make sure that you divert enough income to the trust so that the balance of your income that's left with you is below the prescribed limit and allows you to qualify for Medicaid.

Contact an attorney for help with setting up a Qualified Income Trust.