Since Medicaid eligibility is determined by need, having too much income may disqualify you from receiving benefits. Each state determines its own “maximum allowable income” threshold for Medicaid eligibility, and if your total income exceeds it, you could be denied Medicaid. This is often called the “too much income” problem.

However, many states allow you to qualify for Medicaid, even when your income is too high, by transferring some or all of your income to an “income trust,” which is then used to pay for qualifying medical care. Since income trusts are not counted as income in your Medicaid application, your income is effectively lowered to within the maximum allowable income threshold, and you will meet the Medicaid income requirement.

A Qualified Income Trust is an effective, legal way of meeting Medicaid income requirements by moving your income into a trust that pays for medical care.

A Qualified Income Trust is also referred to as a “Qualifying Income Trust,” an “Income Only Trust,” an “Income Cap Trust,” an “Income Assignment Trust,” or, quite often, a “Miller Trust.”

Note that when considering your Medicaid eligibility, your Medicaid caseworker will look at your total monthly income, which includes both “earned income” (wages) and “unearned income” (pensions, dividends, Social Security benefits, etc.).

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How does it work?

Let’s say you do not earn wages from a job but collect both Social Security and a pension from a former career. Combined, your monthly income tallies $2,500 before taxes. If your state’s maximum allowable income is $2,000 per month, then your “excess income” (the amount over the maximum allowable income) is $500, meaning you are $500 over the income limit. In theory, this would disqualify you from Medicaid.

But instead of simply cashing in your Social Security and pension checks each month, you open a Qualified Income Trust. The trust is designed to receive your income checks on an ongoing basis and uses that money to pay for your medical care (plus a monthly allowance). Under Medicaid rules, this kind of trust is not counted when considering your Medicaid income requirements, so you are now within the maximum allowable income limit. Assuming you otherwise qualify, you can begin receiving Medicaid. Note that you needn’t place all of your income into the trust – a Medicaid expert can help you determine the optimal amount.

In addition to paying you a monthly living allowance, the trust can be used to pay, for example, your share of nursing home costs, Medicare premiums, or medical costs not covered by Medicaid. The trust is revocable, so you can cancel it if, for example, your income goes down to within the allowable threshold and you no longer need the trust. In the unlikely event that any money remains in the trust when upon termination, the state will be a beneficiary of the remaining amount as reimbursement for Medicaid payments.

Who is it for?

In most states, a Qualifying Income Trust is unnecessary because most states allow excess income to be spent directly on medical care (this is called “spending down on care”). But several states explicitly prohibit this strategy by including “income cap” provisions in their Medicaid rules, which set a hard limit on allowable income. These “income cap” states deny Medicaid benefits to anyone whose total monthly income exceeds a defined amount.

A Qualified Income Trust can be an effective strategy for anyone with too much income to qualify for Medicaid, who resides in an “income cap” state, and who has ongoing medical expenses.

Currently, the states with income-cap provisions are Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho, Iowa, Kentucky, Louisiana, Mississippi, Nevada, New Mexico, New Jersey, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, and Wyoming.

How can I create a Qualified Income Trust?

If you have too much income to qualify for Medicaid, have ongoing medical expenses, and live in an “income cap” state, then you will likely benefit from a Qualified Income Trust. When creating the trust, professional advice from a Medicaid expert is essential, as it requires extensive knowledge of income trusts and your state’s Medicaid rules and income thresholds, the impact of marital status, and more.