Imagine this scenario for a moment…Grandma has been admitted to a nursing home where she will likely stay for the remainder of her life. You’ve heard what “they” say about the cost of long-term care in the Nursing Home. Your immediate thought: “Grandma has no money…. How are we going to pay for this?”
In talking with the Business Office or Social Worker at the facility, you learn that Medicaid can pay a significant portion of Grandma’s nursing home bill as long as she doesn’t have “too many” assets. You think to yourself, “No problem, Grandma only has $1,500 in the bank, she will have no problem getting Medicaid.”
You immediately apply by submitting an application on her behalf. After a week or so, you get a notice from the State of Florida, Department of Children and Families telling you Grandma’s income is too high to qualify. You’re not sure what to do, so you do nothing. After a few more weeks you get another notice informing you Grandma’s application for Medicaid has been denied. The reason, “The applicant’s income too high for the program you are seeking.” Huh? What does that mean?
The State of Florida is what we refer to as an “Income Cap” state. This means that the state has an income limit for people seeking Medicaid. Florida’s Medicaid rules are very inflexible. An individual whose income exceeds the maximum allowable amount per month (even if only by one dollar) is not eligible for Medicaid.
But its not all bad news…the state does recognize that there are many people like Grandma who may have very few assets but high income. For these people (and Grandma), Federal Law authorizes the use of a Qualified Income Trust (QIT) to deal with the excess income to make Grandma eligible for Medicaid. A Qualified Income Trust? What is that? How does it work?
A QIT is a special type of Trust that must be prepared by an attorney. It deals only with the applicant’s income and must be set up and “funded” before Medicaid approval. Any income deposited into the QIT is excluded from the Medicaid eligibility determination. The QIT is like any other trust in that it is made up of three parts, Grantor, Trustee, Beneficiary. So how then does it work?
The way it works is … Grandma or her legal representative will execute the Trust document. Grandma would be the Grantor and sole life-beneficiary of the Trust. Grandma’s representative [often a trusted loved one] will serve as the Trustee of the QIT. The named Trustee will then take the fully executed QIT document to a bank to open a checking account, which must be titled in the name of the QIT. Bank representatives will need to see and copy the document as well as the Trustee’s photo ID.
We’ve got the QIT open at the bank, now what? Going forward, Grandma will continue to receive her monthly income as normal. Grandma’s Trustee will pay/deposit into the Trust from Grandma’s primary checking account the amount of her income that is over the limit or all of her income if she wishes. Now that funds are in the QIT, the Trustee is limited as to how he/she can use the funds.
The trustee can only make permissible payments on Grandma’s behalf. Some of the payments that can be made from the QIT include Grandma’s monthly patient responsibility to the nursing home, Grandma’s monthly personal needs allowance, Grandma’s monthly supplemental insurance premium and, if applicable, a community spouse allowance. The income deposited into the QIT is excluded from the eligibility determination; however, it is not excluded from the patient responsibility calculation.
“Grandma has a revocable living trust, we can just use that, right?” Unfortunately, the answer to this question is “No.” A QIT is a very specific type of irrevocable trust. As mentioned, the rule is very strict on the use of a QIT. The funds deposited or held in a QIT can only be used for certain permissible expenses.
There is no other way to “fix” the high-income problem. The use of a QIT is very complicated and requires careful attention to detail. The key thing to remember is that Medicaid will allow Grandma to have income over the limit so long as she has a QIT, her income is paid into it and then paid/disbursed from the QIT according to Medicaid’s rules.
Are you looking for help with a QIT? Allow our Elder Law Specialists to guide you in this somewhat complicated area.
By Jonathan Kinsella