What is the Difference Between Pooled Income Trusts, Miller Trusts, Qualifying Income Trusts (from a Medicaid Perspective)?
Pooled income trusts and Miller Trusts (another name for qualifying income trusts) are Medicaid planning tools to assist Medicaid applicants in meeting Medicaid’s income limit, and hence qualify for Medicaid benefits. These trusts are created by (or for) seniors and disabled persons, including persons with Alzheimer’s disease and related dementias, who require long-term care, cannot afford the cost of care, but have income over Medicaid’s income limit. However, an important distinction between these two types of trusts is that pooled income trusts are intended for disabled persons, generally minors, while Miller Trusts do not have specific disability or age requirements. Below, we will go into more detail about both types of trusts.
However, first, let’s briefly discuss Medicaid’s income limit and how pooled income trusts and miller trusts are used to help Medicaid applicants lower their countable monthly income to meet Medicaid’s income limit. (Generally speaking, in 2020, the income limit for long-term care Medicaid is $2,349 per month. That said, income limits do vary by the state in which one resides. To see state-by-state specific limits, click here.) As an oversimplified explanation of how these planning strategies work, excess income (income over Medicaid’s income limit) is deposited into a pooled income trust or a qualifying income trust, no longer counting as income by Medicaid. However, in order for either type of trust to be Medicaid-compliant, it must be irrevocable, which means the terms of the contract cannot be canceled or altered.
Neither type of trust violates Medicaid’s 60-month look back period, a period immediately preceding the date of one’s Medicaid application. During this timeframe, Medicaid considers all past transfers. If transfers were made as gifts during the last 5 years, one will be penalized and denied Medicaid eligibility.
Please note that neither pooled income trusts nor Miller Trusts are allowed as a Medicaid planning strategy in every state. To see which states allow qualified income trusts, click here. Persons considering either of these two types of trusts are encouraged to contact an experienced Medicaid planner to discuss if either is a good option for one’s circumstances and state. Find a professional planner here.
Pooled Income Trusts
As stated above, pooled income trusts, also known as (d)(4)(C) trusts, are intended for Medicaid applicants who are disabled (as defined by SSI). While most states require that an irrevocable pooled income trust be created for a disabled individual prior to the age of 65, other states do allow those 65 and over to create this type of trust.
An pooled income trust can be created by the disabled Medicaid applicant, but it can also be established by someone else, such as a parent, legal guardian, or a court. Once created, pooled income trusts are managed by non-profit organizations in the state in which one resides. Although individual pooled income trust accounts are accounted for separately, the contributions of all persons with this type of trust are combined as a single fund for the purposes of managing and investing. This is where the term “pooled” in the trust name comes from.
The money in the trust is intended to help pay the cost of the disabled person’s living expenses, as well as to cover services and items that Medicaid does not. Examples of how funds might be used include purchasing clothing, paying rent / mortgage and / or utility bills, covering the cost between a shared and a private room in a Medicaid-funded nursing home, and paying for additional care assistance above and beyond what Medicaid will cover.
After the death of the Medicaid recipient, the remaining funds in the trust must either remain in the trust to be used to help other disabled persons who have a pooled income trust or be paid to the Medicaid agency in the state in which the beneficiary lived and received benefits. In the case where remaining funds from the trust go to the state Medicaid agency, it is to pay the state back for Medicaid funded care. In some states, it may be possible for a family member to be a beneficiary after the state has been repaid (if any funds remain). Please note that what happens with any funds that remain in an individual’s pooled income trust after his / her death are state specific.
As rules surrounding pooled income trusts depend on the state in which one resides, it is important that persons inquire about the rules in their state. Without the proper knowledge, a Medicaid applicant may not properly set up the trust, and it won’t serve its intended purpose of lowering one’s countable monthly income. Furthermore, pooled income trusts are not a viable Medicaid planning tool in all of the states. In fact, they are generally allowed in only a few states. It is best to consult with an experienced Medicaid planning professional for state specific information.
*Although not relevant to the particular discussion here, it is important to mention that assets can also be put into pooled trusts, which can help Medicaid applicants who over Medicaid’s asset limit to become Medicaid eligible.
Irrevocable Miller Trusts (qualifying income trusts) are also commonly called qualified income trusts (QITs). This type of trust is intended for Medicaid applicants of all ages who require long-term care services, whether it be in their homes, communities, or nursing homes.
The Medicaid applicant, his / her guardian, or power of attorney creates the trust and a trustee is named to manage the account. Often the trustee is an adult child of the Medicaid applicant, but can be almost anyone, with the exception of the applicant himself / herself. Remember, the managing trustee for a miller trust is in contrast to a pooled income trust, which as previously mentioned, is managed by a non-profit organization.
Money that is deposited in a qualified income trust can only be used for very specific purposes. For instance, the money may go towards a monthly personal needs allowance for Medicaid beneficiaries residing in nursing home residences, a monthly maintenance needs allowance for non-applicant spouses, Medicare premiums, or the cost of Medicaid-funded nursing home care.
The state Medicaid agency should be listed as the beneficiary of the miller trust. What this means is that when the Medicaid recipieint passes away, the state will collect any remaining funds in the trust (up to the value for which it paid for long-term care benefits). It is possible for a relative to be a secondary beneficiary, meaning any remaining funds after the state is paid back can go to a family member or a close friend.
Please note that Miller Trusts are not an option in all states. As of 2020, approximately half of the states allow this type of trust. (The states that allow qualifying income trusts are called income cap states. States that do not allow QITs are called medically needy states / spend down states.) To see which states allow Miller Trusts, click here.
As with pooled income trusts, the rules that regulate Medicaid-compliant qualified income trusts vary by state. Furthermore, if the trust is not created correctly, the purpose of creating the trust (lowering countable monthly income for Medicaid qualification) may be defeated. Therefore, it is strongly advised that one consult with a Medicaid planning professional prior to establishing a miller trust.