After retirement, many adults enroll in Medicare or Medicaid for their health insurance and/or long-term care needs. While both programs provide health insurance to elder adults, Medicaid is only available to people with very low incomes. Each year millions of elder adults rely on Medicaid to cover the cost of their long-term care. Miller trusts are an estate planning tool, which may help some individuals qualify for Medicaid coverage even if their income is above the Medicaid income level.
Medicare v. Medicaid
A brief overview of Medicare and Medicaid is helpful to understand the benefits of a Miller trust. Both programs are federally funded and provide health insurance to older adults. Medicare provides coverage to adults 65 and older, or adults under 65 who suffer from a disability, no matter the individual’s income. Those covered under Medicare pay part of their health care costs through deductibles and small monthly premiums.
Medicaid is a government assistance program that helps pay for a low-income individual’s healthcare costs, including long-term care, no matter their age. Individuals on Medicaid pay less for their healthcare needs than those on Medicare, and often do not have monthly premiums, though a small co-payment is sometimes required. The program is jointly funded by the states and federal government but is administered by the states, according to federal requirements. Therefore, whether an individual qualifies for Medicaid coverage depends on the state in which they live. For a state by state guide on each state’s Medicaid eligibility requirements, click here.
The Medicaid program has several parts, which cover different aspects of an elder’s life including healthcare coverage, long-term nursing home care, long-term in-home personal care, and assisted living facilities.
What is a Miller Trust?
As discussed above, to qualify for Medicaid coverage the Medicaid applicant’s monthly income must be under their state’s income eligibility level. As a point of reference, the 2020 federal income limit for eligible applicants is $2,349 per month. Many states allow individuals who are above the income level to “spend down” their income on their care until they reach the Medicaid income level (these are also known as “medically needy” states). However, individuals who do not live in “spend down” states, who have low incomes that still exceed their state’s income level face a dilemma. For example, if Mary’s income is $2,500 per month, her income is too high to qualify for Medicaid, but it is almost certainly too low for her to afford a nursing home or other long-term care facility.
Enter the Miller trust. States that are not “spend down” states are generally known as “income cap” states. Medicaid applicants with excess income can only qualify for Medicaid if they place their excess income into a Miller trust (also called a Qualified Income Trust). As of March 2020, the income cap states are: Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Nevada, New Mexico, New Jersey, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, and Wyoming.
These states allow an individual whose monthly income exceeds the income limit, to place their excess income into a Miller trust and, therefore, qualify for Medicaid coverage. The income placed into the trust can only be used to pay the Medicaid recipient a monthly personal needs allowance (which varies by state) but may also be used to pay their spouse a minimum monthly maintenance needs allowance. Any leftover trust funds are used to pay the Medicaid recipient’s cost of care. Further, any funds remaining in the trust upon the Medicaid recipient’s death may be recovered by Medicaid to cover the cost of care.
Creating a Miller Trust
Like all trusts, a Miller trust includes three categories of people, institutions, or entities that are involved in its creation, management, and distribution:
- Grantor: the person who creates the trust and transfers his or her assets into the trust.
- Trustee: the person or institution who manages the trust assets and property.
- Beneficiary: the individual or entity who receives the “benefit” of the trust.
In a Miller trust, the grantor, the Medicaid applicant or his or her guardian or power of attorney, creates the trust and names the state in which the grantor will be receiving Medicaid assistance as the beneficiary. The grantor must also name a trustee to manage the trust. Importantly, the grantor cannot serve as the trustee (unlike in other types of trusts). However, a relative, such as an adult child or a spouse, can be named as trustee. A Miller trust is irrevocable, meaning once the trust is created it cannot be altered or canceled.
In addition to creating the trust, the grantor must also open a bank account for the trust. Each month, the Medicaid recipient’s excess income is deposited into the bank account. Depending on the state in which the individual receives Medicaid, he or she may be required to deposit all of their income into the bank account, while other states permit only portions of a person’s total income. However, every state requires the deposit of the entire payment from a single source. For example, if Mary receives a social security check, she cannot deposit only half of the check into the bank account; she must deposit the entire check. Further, assets and income that do not count towards Medicaid eligibility should not be placed into the bank account. This includes the Medicaid applicant’s spouse’s income, discussed below.
An Important Note About Income
Many Medicaid applicants are married when they apply for assistance. Importantly, only the Medicaid applicant’s income is counted in determining his or her eligibility. Therefore, a non-applicant spouse’s income has no bearing on the applicant’s eligibility. Even if the non-applicant spouse continues working, he or she will not be forced to contribute to the cost of caring for his or her spouse in a long-term care facility if the spouse is covered by Medicaid.
A Practical Example
The rules and regulations concerning Medicaid are complicated. The following example may help you understand the concepts explained above. Mary and Joe are a married couple who are both over the age of 65 and living in Texas. Joe still works, and his monthly income is $3,500 per month. Mary has dementia, and Joe has made the difficult decision to place her in a nursing home as he is no longer able to care for her by himself. After researching nursing homes in the area, Joe has determined that it will cost him at least $6,000 per month for Mary’s nursing home care.
Unfortunately, Joe cannot afford to move Mary to a nursing home and financially care for himself as well. As a result, Joe has researched whether Mary is eligible for Medicaid assistance. Each month Mary receives the following: $1,500 in social security and $1,000 in distributions from her 401k. Therefore, Mary’s total monthly income is $2,500. In 2020, Texas’ monthly income level for Medicaid eligibility is $2,349. Unfortunately, Mary’s total monthly income barely exceeds the limit for Medicaid eligibility, but it is certainly not enough to cover her cost of care in a nursing home.
Luckily, Joe’s research also revealed that he could establish, on behalf of Mary, as her power of attorney, a Miller trust, to receive Mary’s excess income, which would make her eligible for Medicaid. As long as at least $151 of Mary’s monthly income, the amount her income exceeds Texas’ Medicaid eligibility limit, is deposited into her Miller trust, Mary remains eligible for Medicaid assistance. Further, because Joe’s income is not included in Mary’s income for Medicaid eligibility purposes, Joe is able to retain his entire monthly income to support himself.
Consulting a Qualified Attorney
The rules concerning Medicaid are very complicated and vary state to state. If you or a loved one are considering applying for Medicaid and/or creating a Miller trust to help with your Medicaid eligibility, it is crucial you or your loved one consult an estate planning attorney. These matters are very complex and may have negative long-term consequences if set up improperly.
- Medicaid, Medicaid.gov, https://www.medicaid.gov/medicaid/index.html
- Differences Between Medicare and Medicaid, Medicare Interactive, https://www.medicareinteractive.org/get-answers/medicare-basics/medicare-coverage-overview/differences-between-medicare-and-medicaid#:~:text=Medicare%20is%20a%20federal%20program,have%20a%20very%20low%20income.&text=They%20will%20work%20together%20to,coverage%20and%20lower%20your%20costs.
- What is the Difference Between Medicare and Medicaid?, U.S. Department of Health and Human Services, https://www.hhs.gov/answers/medicare-and-medicaid/what-is-the-difference-between-medicare-medicaid/index.html
- A Beginner’s Guide to Medicaid, Caring, https://www.caring.com/caregivers/medicaid/
- What is the Medicaid Income Gap?, Elder Law Answers, https://www.elderlawanswers.com/what-is-the-medicaid-income-cap-14944
- How to Set Up a Miller Trust for Medicaid Eligibility, Aging Care, https://www.agingcare.com/articles/how-to-use-a-miller-trust-for-medicaid-eligibility-207367.htm
- What is a Miller Trust?, Elder Law Answers, https://www.elderlawanswers.com/what-is-a-miller-trust-14945
- How Qualified Income Trusts (Miller Trusts) Help Medicaid Applicants Become Eligible for Long-Term Care, American Council on Aging, https://www.medicaidplanningassistance.org/miller-trusts/#:~:text=In%20order%20to%20establish%20a,guardian%20or%20power%20of%20attorney.
- How Does Medicaid Treat Income?, Elder Law Answers, https://www.elderlawanswers.com/how-does-medicaid-treat-income-12017