Articles
Primarily for Tennessee Lawyers:
A Primer for Qualified Income Trusts
by William King Self, Jr., CELA
The Tennessee Department of Tenncare eliminated the “medically needy” income exception for long term care Medicaid as of April 29, 2005. Formerly, applicants could be financially eligible for Medicaid if their incomes were less than their monthly cost of medical care in the nursing home (hence, “medically needy”). The new income cap for Medicaid is $1,809/month beginning January 1, 2006. That means that all new Medicaid applicants with income above that amount will be ineligible unless they put their income into a qualified income trust (sometimes called a “Miller trust”). These trusts are actually a form of special needs trust, which are described in 42 U.S.C. §1394p(d)(4)(B). Under federal law, transfer of income to the QIT makes that income be treated as non-countable against the income cap limit in the month the income is received and transferred to the QIT. The trusts are relatively simple to prepare but they require the attorney to have a working understanding of how they work so the attorney can explain them to the client.
Tennessee Department of Human Services (DHS) personnel have told me and other attorneys that the current nursing home residents who are already Medicaid recipients are “grandfathered” in under the old rules: they will not have to qualify under the income cap guidelines when their cases come up for annual review. We had all feared a torrent of cases from the large number of Medicaid recipients already in the nursing homes, so that has been good news, even though DHS apparently hasn’t issued a formal bulletin with notice of the policy.
DHS has issued guidelines and even a basic trust form to follow, though I was recently told by one DHS worker that they were being cautioned not to accept a simple re-typing of their sample trust, so you’ll need to be sure to properly “flesh out” the one you use so that it has the provisions that should be put into a basic SNT. The sample form is about 3-4 pages long, and it is definitely bare bones construction. The trust I use is only about 6-7 pages. (Tennessee Bar Association Elder Law Section members may download the DHS bulletins from the Section web page on the TBA website.)
The trust must be signed by the trustee and the grantor or his agent. If the applicant doesn’t have the mental capacity to act as grantor of the trust, someone holding a power of attorney will be needed to sign as grantor. If there is no power of attorney, you will need to petition for appointment of a conservator and request the court grant the conservator authority to sign the trust for the grantor. Obviously, this is much more time-consuming than simply preparing and explaining to the client how the trust works, and unfortunately the applicant and the client often have little money to pay for this work.
The basic QIT format gives alternative methods for operating it: the grantor (more typically a family member who is his agent) transfers either (a) all the monthly income received by the grantor into the trust each month when received, or (b) enough of the income so that the amount of income received but left outside the trust is no more than the monthly income cap amount ($1,809.00 in 2006). DHS workers have told me that they prefer, for simplicity reasons, that the grantor put all his monthly income into the trust rather than just the amount that is over the monthly cap. It makes the math much simpler for the trustee.
Here’s how the trust should work for a typical nursing home patient, assuming all income is put into it each month:
- Assuming the patient/grantor is unmarried and his $2,400 monthly income has been deposited into his bank account but he has not paid the nursing home for that month, the grantor transfers $2,400 from the non-trust bank account into the QIT bank account in the first month he is otherwise eligible for Medicaid. That makes his bank account go from $3,400 down to $1,000, and so he remains asset-eligible.
- DHS will set the “patient liability” for his nursing home based upon the actual income of the patient, and will send a letter of confirmation that the trustee uses to authorize payment of the nursing home and other payments from the trust.
- The trustee then writes three checks as authorized by DHS: (1) a $40 check for the patient’s personal needs allowance, (2) a $140 check paying for the grantor’s Medicare supplement policy, and (3) a $2,200 check to the nursing home for his patient liability. (Currently DHS allows $20/month to stay in the account to cover bank charges, but they may modify that in the future, since the accounts rarely have high monthly costs.)
- If the grantor is married, the DHS letter should tell how much the trustee can pay to the spouse from the trust.
- The trustee is not permitted to write any checks from the trust that are not specifically authorized by the trust instrument and DHS instructions.
- The trustee will have to file an annual accounting to DHS, but there is no word yet on the required format for the accounting. The trustee should keep all bank statements, checks and invoices.
I have met with the two Shelby County Probate judges about the conservatorship problem for incapacitated applicants without powers of attorney and little money to pay for legal services. While they are sympathetic, our judges are afraid to routinely simplify the conservatorship process by waiving appointment of a guardian ad litem, bond and accountings. They have been willing to work with us on a case by case basis to waive some requirements, however. One concern the judges have is the potential for abuse of the conservator who will be transferring substantial income each month into the trust and then paying it out from the trust. To protect the disabled person’s assets, they are inclined to require we establish a conservatorship of the estate (rather than just of the person with specific authorization to sign the trust and act as trustee), appoint a guardian ad litem, and set a minimal bond.
Hopefully this simplified explanation will clarify some issues for elder law attorneys who wish to prepare qualified income trusts for clients. If there is enough interest, the Section may consider posting a pro-forma trust on the TBA website for reference.
[First published in the March, 2006 Tennessee Bar Association’s Elder Law Letter (.pdf)]
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