FORM 1282 — Attachment

QUALIFIED INCOME TRUSTS AND MEDICAID ELIGIBILITY

The Texas Department of Human Services (DHS) provides this information to assist Medicaid clients and their attorneys in gaining a basic understanding of Qualified Income Trusts (QIT). However, DHS attorneys are prohibited from providing legal advice to the public.

Background

Texas is one of several states to use a cap on countable monthly income for eligibility for Medicaid nursing facility benefits. This income cap is considerably less than the average monthly cost of private pay nursing facility care. In an attempt to address this problem, Congress revised 42 U.S.C. Section 1396p to provide for an income diversion trust which would allow a resident caught in the income gap to legally divert income into a trust where it would not be counted for eligibility purposes.

Caution

This information does not apply to trusts, known as "special needs" trusts, created for persons under age 65 who meet the disability criteria for SSI.

The income diversion trust or QIT trust will not address the question of excess resources. The overall limit of $2000 in countable resources still applies and is not changed by this trust provision.

The client must still meet all eligibility requirements of the program, such as the citizenship, residency, and medical necessity.

This information is based on the most recent interpretation of the statute by the federal Health Care Finance Administration (HCFA), but no regulations have been published by HCFA, and the interpretation may change without notice.

Do You Need A QIT?

Some pension income, such as VA pensions, are subject to automatic reduction when a person is in a Medicaid facility and becomes Medicaid eligible. This automatically reduces income below the cap level without the necessity of a trust. Other retirement benefits may have been officially divided into separate checks by a qualified order of a domestic relations court, so that only the portion issued to the client is counted. Texas follows the "name on the check" rule for determining the income of a spouse seeking nursing home care.

Characteristics of the Trust

The QIT statute requires that only pension, Social Security, and other income may be placed in the trust. No resources of any kind can be put in this trust without incurring a transfer-of-assets penalty. 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 regarding management of the trust principal is eliminated and the trust document may be shortened accordingly.

The statute also requires a reversion clause to provide that, at the death of the beneficiary/client, the trustee will pay to the State of Texas from any funds remaining on hand, the un-reimbursed cost of medical assistance provided to the beneficiary/client during his lifetime.

The statute is silent on the subject of the trustee, but it is recommended that the beneficiary/client not be the same as the trustee because of potential problems relating to discretionary distributions. The trust must be irrevocable. The trust may provide for successor or co-trustees, waive bond, and incorporate the Texas Trust Act provisions regarding the powers of the trustees.

After eligibility is determined, the eligibility specialist will provide an applied income calculation which will describe how the trust proceeds are to be used. The trust shall require that the trustee:

  1. Pay to the beneficiary/client a monthly personal needs allowance.
  2. Pay to the spouse (if any) of the beneficiary/client a sum sufficient to provide a minimum monthly maintenance needs allowance.
  3. Pay from funds remaining the cost of medical assistance provided to the beneficiary/client.

The client may direct all of his income to the trust or only a portion of his income. However, after selecting a source of income to be placed in the trust, the entire amount of that source must be placed in the trust and not just a part of it.

The distributions must be made no later than the last day of the month next following the month of receipt.

Establishing the Trust Account

Some Medicaid clients may wish to contact an attorney or other estate-planning entity for help in establishing a QIT. Fees for this service vary widely and are the responsibility of the client or his family. All estate-planning entities operate independently of DHS and have no connections with it.

A QIT account must contain only the income of the Medicaid client. If resources are placed in the trust account, it is not a QIT. However, some banks may require nominal deposits (for example, $10 to $20) for purposes of establishing a financial account to fund the trust. Nominal amounts of the client's resources, or another party's funds, may be used to establish the account without invalidating the QIT or being counted as gift income to the client. Once the trust account is established, however, only the client's income should be directed to the trust.

Effective Date

The income placed in a QIT will be disregarded for eligibility purposes the first month that the client has a valid signed trust and enough income is placed in the account to reduce the remainder below the income cap level. If this is done prior to application, the effective date may be established up to three months prior to application date if all other program requirements are met during the three-months prior period.

Maintaining the Trust

Income directed to the trust is disregarded from countable income when testing eligibility for nursing facility services or home and community-based waiver services. Income must be directed to the trust account during the calendar month in which it is received. Income directed to the trust is not disregarded in determining eligibility for Supplemental Security Income (SSI) or non-institutional medical assistance programs (for example, Qualified Medicare Beneficiaries, Specified Low-Income Medicare Beneficiaries, frail elderly, etc.).

Applied income is based on the client's total income (income directed to the trust as well as income not directed to the trust), less the standard applied income deductions. Costs of trust administration are not budgeted in the applied income calculation.

Income paid from the trust to purchase nursing facility services, home and community-based waiver services, or other medical services for the client is not countable income for eligibility purposes. Income paid from the trust directly to the client, or otherwise spent for his benefit, is countable income for eligibility purposes.

The client who no longer requires a QIT may stop directing his income to the trust account. When a client with a QIT expires, the eligibility specialist determines the amount of payments made on behalf of that client, and sends a notice to the responsible party requesting that DHS be repaid with funds remaining in the trust account, up to the total amount of paid on that client's behalf. Payments made to DHS as residuary beneficiary should be in whole dollar amounts and by cashier's check, money order, or personal check.

Transfer-of-Assets

Income directed to a QIT is not a transfer of assets if used to purchase nursing facility (NF) services or home/community-based waiver services for the Medicaid client. Income paid from the trust to the community-based spouse is not considered to be transferred. Also, the costs of trust administration may be paid from income in the trust account without incurring a transfer-of-assets penalty.

Distributions from the trust which are not made to the Medicaid client or community-based spouse, or for the benefit of either, are subject to transfer-of-assets provisions. Also, monies directed to the trust which are not paid out by the end of the calendar month following the month in which they were deposited to the trust account are subject to transfer-of-assets penalties.