Texas Miller Trusts: Table of Contents
In this article, we’ll explain a commonly used income-only trust called the Texas Qualified Income Trust (QIT), or Texas Miller Trust. In the article, we often use these terms interchangeably. While there is a lot of information here, we hope that helps explain the ins and outs of how a Texas Miller Trust works to aid people who are deemed as having “too much income” qualify for Medicaid assistance.
Defining a Texas Miller Trust
A Texas Miller Trust, legally called a Qualified Income Trust (QIT), is an irrevocable trust specifically tailored to divert an individual or married couple’s income into a trust for the purpose of legally excluding income for purposes of determining eligibility for Medicaid services such as nursing home care or Section 1915 home and community-based waiver services. In short, a Texas Miller Trust is specifically designed to help a person become income-eligible for Medicaid and other benefits.
In general, when someone wants Medicaid financial assistance for purposes such as paying for nursing home care, they must meet four specific qualifications:
- The person must have a medical need;
- The person must be in an Medicaid bed;
- The person’s countable resources, or assets, must be under $2,000.00 per month; and
- The person’s gross income cannot exceed $2,313.00 (current as of 2019) per month.
When drafted correctly, a Texas Qualified Income Trust allows an individual to legally divert income into a special trust bank account, which renders the individual eligible for Medicaid assistance. Additionally, a Texas Miller Trust can help an individual gain three (3) important benefits:
- A Medicaid applicant’s income will not longer exceed the limits set by the state of Texas;
- A Medicaid applicant needing medical care will meet the income guidelines set by state and federal law; and
- A Medicaid applicant will generally be eligible for maximum financial support from Medicaid.
A Texas Qualified Income Trust should not be confused with other types of common trusts, such as a living trust, irrevocable investment trust, special needs trust, or a Medicaid qualifying trust. A Texas Miller Trust (QIT) serves one purpose only – to create a legal means for a person with too much income but not enough funding to pay for needed care to qualify for Medicaid assistance. In 1993, Congress specifically addressed this issue by amending § 1917 of the Social Security Act (see 42 U.S.C. § 1396p(d)(4)(B)) to permit the use of a qualified income trust (QIT).
Texas Miller Trusts and Texas Medicaid Income Caps
In Texas, Medicaid place strict limits on the monthly income a person can receive to be eligible for Medicaid assistance. Income is defined by Medicaid as “employment wages, alimony payments, pension payments, Social Security Income, Social Security Disability Income, stock dividends, and IRA withdrawals.” If an individual’s income exceeds the Medicaid limit, that individual is deemed ineligible for Medicaid and can generally only qualify for Medicaid through the use of a Texas Qualified Income Trust (QIT). From the perspective of Medicaid, if a trust receives the income, the individual qualifying for Medicaid does not. Thus, this is the reasoning for how Texas Miller Trusts resolve the issue of excess income.
Texas is known as an “income cap” state. As of 2019, if an individual’s income exceeds $2,313.00 per month, a Texas Miller Trust would be needed to help that individual qualify for Medicaid benefits. If a married couple is both applying for Medicaid assistance, the income limit is $4,626.00 per month with a countable resource (“asset”) limit of $3,000.00 for 2019. It’s important to note that only income can be placed into a Texas Qualified Income Trust (QIT) bank account. Texas Miller Trust accounts are not drafted to protect an individual’s assets. If a person owns a home, a Texas Lady Bird Deed is generally a simple and effective way to transfer a person’s home to keep the home from being counted as a probate asset for purposes of the Medicaid Estate Recovery Program (MERP). See our Texas Ladybird Deed page for more information.
For instance, let’s use an example where your mother’s total monthly income is $2,500; derived from a $1,500.00 pension account and $1,000.00 from Social Security benefits. Based on the amount of income your mother receives, she would be ineligible for Medicaid assistance without a Texas Miller Trust.
Texas Miller Trusts and Trust Bank Accounts
By creating a Texas Miller Trust and opening a trust bank account, the Trustee of the Texas Qualified Income Trust (QIT) would be required by the State of Texas to have the check(s) that cause your mother’s income to exceed the monthly income cap to be deposited into the trust bank account each month. In the example we used above, either the $1,500.00 pension check or the $1,000.00 Social Security benefits check would need to be diverted into the Texas Miller Trust account. Until all income providers for an individual begin depositing funds directly into the Texas Miller Trust, the Trustee should write checks for the exact amount from the bank account receiving the into and deposit it into the Miller trust bank account.
In practice, bank accounts required to open a Texas Qualified Income Trust (Miller Trust) operate like a “representative account” for the payment of a disabled individual’s expenses. It is vitally important to note that a Miller Trust does not operate like a typical asset-based trust fund. Qualified Income Trusts operate as income-only trusts. Often, bankers get this aspect confused and sometimes set up a Miller Trust with the administrative requirements of an asset trust. Thus, it must be stressed to bankers that a Miller Trust is an income-only trust and that no assets will be held in that trust.
Sometimes, banks will require that you obtain a separate tax identification number from the Internal Revenue Service before opening a trust account. While this is common practice for an asset-based trust, there is no specific requirement for income-only trusts to have a separate tax identification number. For federal income tax purposes, a Miller Trust is considered a “grantor’s trust.” The best practice is for the bank to use the grantor’s Social Security number when creating the trust account. While it is fairly easy to get a separate tax identification number, and our office routinely assists in that process when needed, it can potentially risk unneeded delays when a trust account is created during the end of a month.
It’s fairly common in Texas for banks to give different interpretations and methods for setting up a Miller Trust. This can be a frustrating process, but the following are some guidelines that should inform bankers on the requirements needed for complying with state and federal law:
- The type of account should either be a checking account or money market account with check writing access;
- The Miller Trust bank account MUST be titled as a trust account — “THE JOHN DOE QUALIFIED INCOME TRUST,” where John Doe is the grantor of the trust (the “Grantor” is the person for whom the trust is established);
- Only the person named as Trustee is authorized to sign checks. Absolutely no other individual can write checks on the trust account, not even the Grantor;
- No debit cards, check cards, or credit cards should be attached to the trust account; and
- The Trustee should receive printed monthly statements from the bank. As the State of Texas may require an accounting of the Miller Trust, the Trustee should safeguard the monthly statements and keep an itemized accounting of how the money in the trust was spent on the patient’s behalf.
Furthermore, some banks will require that a financial power of attorney, such as a Statutory Durable Power of Attorney, be submitted before opening a Miller Trust bank account. If you run into this situation, you must present a financial power of attorney for the Medicaid applicant for the bank’s legal department to review and approve. If you do not have a financial power of attorney for the Medicaid applicant, you will either need to have one drafted or find a bank that will waive that requirement. However, if the Medicaid applicant lacks the competency required to execute a financial power of attorney, your sole recourse in the State of Texas is to seek a guardianship of the Medicaid applicant and petition the probate court to have a Miller Trust created for the Medicaid applicant.
It’s important to note that everyone’s financial picture is different and unique. For Medicaid applicants that have several streams of income, the manner in which income is deposited into the Miller Trust bank account becomes crucial. It’s important to note that incorrect funding of a Miller Trust could disqualify the trust, which would render the applicant eligible for Medicaid.
Miller Trust Funding Issues
One common mistake Trustees of Miller Trusts make is rounding off the amount of income deposited into the trust. Often, the Trustee will only put $500 of the $1,100 Social Security check the Medicaid applicant received into the Miller Trust bank account. State and federal law requires that all of the check go into the trust. Often, when the deposited amount differs from these requirements, the Texas Health and Human Services Commission (THHSC) caseworker will void the trust for attempting to protect the Medicaid applicant’s income.
Another common issue is Trustees attempting to put funds other than the Medicaid applicant’s income into the trust bank account. It is vitally important that Trustees understand that a Miller Trust is an “income-only trust.” Money deposited must solely derive from the Medicaid applicant’s income only. Depositing anything else into a Miller Trust jeopardizes the Medicaid applicant’s eligibility. Common mistakes include Trustees depositing annuity payments, income tax refunds, financial assistance from the Veteran’s Administration, and/or vocational rehabilitation funds.
Also, deposit timing is also crucially important for Trustees to be aware of. Simply failing to deposit a check on the last business day of a month could risk the Miller Trust being voided by a THHSC caseworker. Often, some pension benefits are received on the last day of the month, so it is imperative that Trustees be aware of when these checks are received and ensure that they are deposited into the Miller Trust during the same calendar month as the check was received.
Miller Trusts and the Medicaid Application Process
When a Miller Trust is submitted along with a Medicaid application, the THHSC caseworker is required to forward a copy of the Miller Trust to the regional THHSC attorney for review. The THHSC attorney will review the Miller Trust to determine if the following requirements are met:
- The Miller Trust must be irrevocable (cannot be changed at any time);
- The Miller Trust must contain a person’s income only. However, it is common for the THHSC to permit an individual to deposit a small, nominal amount, such as $20.00 to comply with banking requirements to open a trust bank account;
- The Miller Trust must receive any or all of a person’s income that would render that individual eligible for Medicaid;
- The Miller Trust must receive an individual’s source of income into the trust during the month it is received by the individual. (If a person’s Social Security check comes in the first week of March, it must be deposited into the Miller Trust by the last day of March);
- The Miller Trust does not have to initially receive the income that would render a person ineligible for Medicaid. For instance, if a Social Security check is deposited into a person’s general checking account, the funds (in its entirety) must then be transferred to the Miller Trust account;
- The Miller Trust has the following guidelines based on state and federal law for a Trustee to deduct money from a trust bank account:
- Disburse a monthly “Personal Needs Allowance” to the beneficiary if the person(s) are receiving Medicaid or Section 1915(c) assistance ($60 for an individual and $120 for a married couple in 2018);
- Disburse premiums for health insurance, including Medicare Part B, Medicare Part D (prescription drug benefits), Medicare supplements, and premiums for private health insurance.In general, when someone wants Medicaid financial assistance for purposes such as paying for nursing home care, they must meet four specific qualifications:
- Disburse a monthly minimum need allowance for a spouse residing at home to raise his/her available monthly income to the $3,160.50 Minimum Monthly Maintenance Needs Allowance (current as of January 2019); and
- Disburse the cost of medical assistance for the beneficiary from remaining funds.
Miller Trust and Nursing Home Expenses
The out-of-pocket expense for a beneficiary that must be paid to a nursing home is known as the “applied income amount,” or “co-pay” in the State of Texas. Let’s look at a couple examples for how the co-pay is calculated.
Example 1: Your mother is widowed, has a total income of $2,400 from a pension plan and Social Security benefits, and pays $240 per month for a Medicare Supplement. The nursing home co-pay calculation would be $2,400.00 minus the $60 Personal Needs Allowance minus the $240 Medicare Supplements, which results in a total $2,100 co-pay for the nursing home.
Example 2: Your mother is married and your father still lives at home. Your mother has a total individual income of $2,400.00 from a pension plan and Social Security benefits, and pays $240 per month for a Medicare Supplement. Your father has a total income of $1,600 from a pension plan and Social Security benefits. Their total family income is $4,000. Since your father’s income is less than the $3,160.50 Minimum Monthly Maintenance Needs Allowance, your mother (and the Trustee of the Miller Trust) is allowed to divert the difference of $1,560.50 to your father each month. Thus, the nursing home co-pay calculation would be $2,400.00 minus the $60 Personal Needs Allowance minus the $240 Medicare Supplements minus the $1,560.50 Minimum Monthly Maintenance Needs Allowance for your father, which results in a total $539.50 co-pay for the nursing home.
Miller Trust Creation Timing
Once family members and the Medicaid applicant realize that a Miller Trust is needed to help qualify for Medicaid assistance, the question of when to create the trust is often asked.
In Texas, Medicaid policies allow for the creation of a Miller Trust as late as the final day of a calendar month in which Medicaid eligibility is sought. For instance, if a Medicaid applicant needs assistance in March, they would have until March 31 to get the Miller Trust drafted, signed, and open the trust bank account. While this rule is helpful, the best course of action is to create and execute the trust, along with opening the bank account in the month before the Medicaid benefits are needed. So, if a Medicaid applicant needs assistance for April, it would be best to start the trust creation process in March.
Also, it is important that the Medicaid applicant have good financial records that indicate the precise day when each income check is received by their bank. As listed earlier, a Trustee who makes timing issues when depositing a Medicaid applicant’s income can potentially render a Miller Trust void.
Final Thoughts on a Miller Trust
To effectively qualify an individual who has income over the Texas income cap, a Miller Trust must be correctly drafted and set up in a precise manner. Many online will drafting and estate planning sites on the internet have forms that contain old, outdated, and often incorrect information on their Miller Trust documents, which would render a denial by the THHSC. Furthermore, most of the online will drafting and estate planning sites are sparse on information needed to correctly set up a trust bank account and how to make monthly deposits. This translates into lost benefits for a person who needs Medicaid assistance due to poorly drafted documents, inappropriate funding of the trust account, and poor timing of deposits. While the process seems simple, state and federal law have stringent requirements, especially regarding how the trust bank account is set up and the timing of deposits into the Miller Trust bank account.