Funding Your Qualified Income Trust

Funding and Administration of Your Irrevocable Qualified Income Trust (“Miller Trust”)

This following information discusses funding qualified income trusts, and the proper administration of a QIT, or Miller Trust. Important steps must be completed for the trust agreement to be effective.

Generally

funding qualified income trusts for Medicaid explained by Jacksonville elder law attorneyProperly funding qualified income trusts help fulfill the purpose of a qualified income trusts, which is to restrict countable income in order to satisfy the income requirements for Medicaid eligibility to pay for skilled care nursing home costs in the State of Florida. Income which exceeds the “income cap” ($2,250 for 2018) as established in the State of Florida (or any other state where the skilled care nursing home resident resides) will be considered an unavailable asset so that the skilled nursing home resident’s countable income as defined by the eligibility rules of the Florida Medicaid program will at all times be less than the applicable income cap. If any income accumulates in the trust, then at the Medicaid beneficiary’s death, it will be paid to the Florida Department of Children and Families as reimbursement to the Florida Medicaid Program for the benefits which were provided to the skilled nursing home resident for whom the qualified income trust was established.

The importance of properly funding qualified income trusts with the correct amount cannot be over emphasized. Recently (2013), the State of Florida Department of Children and Families denied Medicaid benefits to a skilled care nursing home resident solely because the QIT was underfunded by $12.49! The cost to the skilled nursing home resident’s family was in excess of $6,000 as a result of the simple error of under funding the qualified income trust by $12.49.

Federal Tax Identification Number

You do not need to obtain a tax identification number for the irrevocable qualified income trust. You should use the social security number of the person for whom the qualified income trust was established, because the qualified income trust is considered a “grantor trust” pursuant to Sections 671 through 679, of the Internal Revenue Code.

Opening a Checking Account

After the trust agreement has been properly signed, a checking account should be opened in the name of the trust. Only a handful of checks will be written on this account each month, so you should be sure to open the appropriate type of checking account. The designation which should be used is as follows:

“The [MEDICAID QIT RESIDENT NAME] QUALIFIED INCOME TRUST U/T/A dated the _____ day of ____________________, 2017, by [MEDICAID QIT SKILLED NURSING HOME RESIDENT], Grantor, and [TRUSTEE NAME], Trustee”

It is important to note that the exact wording listed above is not the only acceptable method for identifying and funding qualified income trusts. What matters is that the qualified income trust is adequately identified. Only the Trustee should be authorized to sign on this account, and it should not be a survivorship account or an account which is payable on death to one or more other persons

The qualified income trust bank account must contain only the skilled nursing home resident’s income. However, some banks require a small deposit (for example, $10 or $20) to open an account. A nominal amount of the skilled nursing home resident’s or another party’s funds may be used for purposes of opening the account for the qualified income trust without invalidating the qualified income trust or being counted as a gift to the skilled nursing home resident. After the account is established, only the skilled nursing home resident’s income should be deposited into the bank account for the qualified income trust.

Transferring Income Rights to the Trust

You should try to direct that all income (as listed on Schedule A of the trust agreement) be paid directly to the qualified income trust for proper funding qualified income trusts. If you are not able to do so with a particular source of income, then you can transfer (by writing a check or by online transfer) the income from another account in the skilled nursing home resident’s name to the qualified income trust account once it is received. You need to be sure that income is transferred to the qualified income trust bank account in the month in which it is received. With regard to Social Security, if you are not a representative payee for the skilled nursing home resident, then you should transfer the Social Security payments from the skilled nursing home resident’s account to the qualified income trust bank account as the payments are received. You should not transfer any other assets into the qualified income trust bank account.

Distributions From the Trust

The Trustee will need to make the following distributions from the qualified income trust bank account each month:

1. Personal Needs Allowance: Under current Medicaid law, the personal needs allowance is $105 per month. This amount should be distributed by the qualified income trust Trustee to skilled nursing home resident once each month.

2. Spousal Maintenance: If the skilled nursing home resident is married, his or her spouse is allowed a monthly maintenance needs allowance of up to $3,090.00 (a dollar amount which will change from year to year). A portion of the skilled nursing home resident’s income received by the qualified income trust can be paid to skilled nursing home resident’s spouse each month in order to reach this monthly cap. The Florida Department of Children and Families will provide the amount of the skilled nursing home resident’s income that can be transferred to the spouse each month.

3. Nursing Home Payment: The Trustee must pay the nursing home the required amount by the end of each month.

Once the nursing home is paid, there should not be any additional funds in the qualified income trust’s checking account. However, if funds do remain, they must be retained in the qualified income trust and be paid to the state of Florida upon the skilled nursing home resident’s death.

Record-Keeping and Reporting Duties

You should be sure to reconcile the qualified income trust’s checking account each month, and you should also save all canceled checks, deposit tickets, and bank statements. The Florida Department of Children and Families (DCAF) requires you to furnish quarterly reports of deposits made for funding qualified income trusts bank accounts for the previous three months. This reporting requirement exists so that you can confirm to DCAF the proper funding qualified income trusts has been completed and administered. DCAF also performs annual eligibility reviews which will require an accounting showing that the excess income received by Grantor was deposited to the qualified income trust bank account on a timely basis and that all distributions from the qualified income trust were used for authorized purposes. Given the foregoing, we recommend that you obtain the services of an accountant or other tax adviser to assist you with the monthly reconciliations of the qualified income trust bank accounts and other tax reporting and payment responsibilities associated with the qualified income trust to ensure the proper funding qualified income trusts has occurred.

Tax Returns

As a general rule, an irrevocable qualified income trust is required to file an IRS Form 1041 in years in which income exceeds $100. For this purpose, Grantor’s income is not counted, as Grantor’s income will continue to be reported on an IRS Form 1040. The qualified income trust will earn that much income only if the qualified income trust’s investments happen to earn that much interest and/or dividends, and that is very unlikely. In order to prevent the qualified income trust from earning interest income, you may want to open a non-interest bearing checking account for the qualified income trust rather than one which earns interest.

Termination of Trust

Upon the skilled nursing home resident’s death, the funds which remain in the qualified income trust must be used to reimburse Florida Department of Children and Families in an amount equal to the total Medicaid benefits paid on the skilled nursing home resident’s behalf. Although there is no clear procedure for reimbursing DCAF, it is advisable for you to call or write your currently assigned case worker for directions on where to send any remaining qualified income trust funds, if any. A procedure that has worked in the past is for the trustee to write a check which is payable to “Florida Medicaid” and then send it to: Estate Recovery Section, Florida Medicaid, P. O. Box 13825, Tallahassee, FL 32317-3825. With the check, be sure to include a letter stating the deceased skilled nursing home resident’s full name, Social Security number or Medicaid number. If any funds remain in the qualified income trust after the reimbursement check has been issued, the remaining funds will be distributed as provided in skilled nursing home resident’s Will, or if no specific reference is made in the Will directing where the remaining qualified income trust funds are to pass, then such funds must be distributed to skilled nursing home resident’s estate.

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