What Is a Miller Trust?
A Miller trust (or "qualified income trust") is a Medicaid planning tool that is available only in certain states--the so-called income-cap states. In these states, you can qualify for Medicaid only if your income falls below a threshold level; you are not allowed to spend-down excess income on medical care in order to qualify. The federal government (in 1993) recognized the hardship created in income-cap states when a person with few assets received monthly income just over the threshold. Thus, Miller trusts were approved in those states.
A Miller trust is a legally enforceable, irrevocable arrangement that allows the creator of the trust (the grantor) to transfer property to someone else (the trustee) who holds the property for you (the beneficiary). In reality, you would be both the grantor and the beneficiary of this type of trust.
A Miller trust is somewhat out of the ordinary in that all of your income from various sources (e.g., Social Security checks, pension checks, etc.) is assigned or paid into the trust. The trust then makes a distribution for your nursing home bill and Medicaid pays the remaining balance, if any. Therefore, you are able to shelter (in the trust) enough income to allow you to meet your state's income-cap cut-off.
How Can This Trust Help You Qualify for Medicaid?
Basically, the use of a Miller trust is appropriate for an individual in an income-cap state who needs nursing home care but has too much income to qualify for Medicaid and too little income (and assets) to afford nursing home care. To qualify for Medicaid, both your income and the value of your other assets must fall below certain limits (which vary from state to state).
In determining your eligibility for Medicaid, a state may count only the income and resources legally available to you. A Miller trust helps you qualify for Medicaid in that it is a federally approved trust that restricts your access to the trust monies. Because the income you assign to the trust and the accumulated interest thereupon are not considered to be available to you, there is no transfer of assets penalty or waiting period incurred.
What Requirements Must a Miller Trust Meet?
A Miller trust must provide the following:
- The trust must be irrevocable.
- The trust must be funded only with pension, Social Security, and other income (and accumulated interest in the trust). Assets may not be transferred into the trust.
- The named beneficiary of the trust must be the Medicaid applicant. While the nursing home is certainly happy to receive money, you are the one who derives the primary benefit, in that:
- the nursing home provides you with medical or custodial care;
- the trust pays your nursing home bills for you;
- you are able to qualify for Medicaid; and
- the trust pays other amounts to you as well, such as a monthly personal needs allowance.
- The trust must provide that all of the applicant's income be transferred to the trust initially. Thereafter, of course, the trust will pay out income in accordance with the trustee's directions.
- The terms of the trust must provide that at the death of the applicant, the state will receive all amounts remaining in the trust up to an amount equal to the total medical assistance paid on behalf of the individual.
- Although income might be paid initially to the individual, it can be transferred to the Miller trust as long as the transfer is made the same month as receipt of the income. Distributions from the Miller trust must be made no later than the last day of the month after the month of receipt of the income (e.g., money received in June must be paid out by July 31st).
- The Medicaid applicant is entitled to certain monies from the trust before the nursing home gets paid. In particular, you are entitled to the usual allowances from the trust income, such as a monthly personal needs allowance and a sum sufficient to provide the minimum monthly maintenance needs allowance to your spouse (if any).
Tip: Payments made from the Miller trust can be used for the personal needs allowance, medical premiums and expenses, income to the spouse, and income applied to nursing home expenses. When income placed in the trust exceeds the amount paid out of the trust for medical services or other allowable items or services which benefit the individual or the community spouse, the excess income is subject to penalties under the transfer of assets provisions.
When Can It Be Used?
You Want to Qualify For Medicaid, You Live In an Income-Cap State, and You Have Few or No Assets
Miller trusts are permissible only in income-cap states. In these states, federal regulations dictate that the amount of monthly income you can receive in order to qualify for Medicaid is limited to $2,313 in 2019. (States could set a threshold of less, but not more, than this figure.)
Provides A Way for Income-Cap State Residents to Qualify For Medicaid
The primary advantage of a Miller trust is that it creates a way for residents of income-cap states to qualify for Medicaid. If you live in an income-cap state with a Miller trust, you will be able to qualify for Medicaid even if your monthly income exceeds the applicable threshold (even by a dollar).
Trust Provisions Are Standardized and Approved By the Government
Because Medicaid regulations have been tightened in recent years and certain loopholes have disappeared, it is difficult for you to feel completely secure about your Medicaid planning tools. A Miller trust provides a substantial measure of security in that this form of trust has been specifically recognized and approved by the federal government (and some state governments). Specific trust provisions are outlined in the regulations; thus, you can be confident that your trust will be approved as long as you follow the rules.
Once you’re Approved for Medicaid, There Will Be No Transfer Penalty Period
The usual rule with respect to irrevocable trusts is that the look-back period for Medicaid is substantial, 60 months, and the value of assets transferred to the trust will determine how long you must wait before you can start to collect Medicaid benefits. During this penalty period, you would be obligated to pay for your own nursing home bills without the assistance of Medicaid. A properly drafted Miller trust, on the other hand, creates no transfer penalty period. You will be entitled to collect Medicaid benefits without delay, once you've gone through the normal application process.
Control Over Income Is Lost
A Miller trust must be irrevocable in order to be valid. This means that once you have established the trust and transferred all of your income to it, you have no further control over the money and will be powerless to change or terminate the trust.
Valid Only In Income-Cap States
While a Miller trust is certainly a useful device in income-cap states, it is utterly invalid in other states. As a Medicaid planning tool, therefore, its usefulness is severely restricted.
Assets Cannot Be Transferred Into the Trust
Only income (not hard assets) may be assigned to a Miller trust. Therefore, a Miller trust will not help you reduce your assets to qualify for Medicaid. It is designed as a tool for those people who have no assets (or very few) and income just over the cap.
State Is Reimbursed At Your Death
Most trusts allow you to avoid probate and transfer your trust assets to loved ones and other beneficiaries at the time of your death. A Miller trust, however, mandates that the state be reimbursed out of the trust funds for any Medicaid benefits paid to you during your lifetime. Because nursing home care is very expensive, reimbursement of Medicaid benefits can easily exhaust the savings you may have intended for your loved ones.
How to Do It
If you are interested in setting up a Miller trust, there are a number of steps you should follow:
Gather Your Information
- Prepare a list of your (and spouse's) income from all sources.
- Prepare a list of all your assets (and those of your spouse), indicating how title is held, the tax basis, and how much you paid for the asset.
- Prepare a list of all assets transferred within the last five years, whether by way of gift, trust, or otherwise. Indicate date of transfer, transferee, purpose of transfer, and consideration.
- Indicate whether your various resources are, for Medicaid purposes, exempt, not exempt, or inaccessible.
Consult a Medicaid Law Attorney
In recent years, the Medicaid laws have undergone a number of changes. Indeed, because certain planning vehicles have been eliminated and most rules tightened, it is reasonable to expect that further changes will occur in the years ahead. It is vital, therefore, to consult an attorney experienced with Medicaid planning. A Miller trust, moreover, must conform precisely to statutory requirements in order to be recognized by the government as a valid trust for Medicaid eligibility purposes. So, it is essential that an attorney well versed in Medicaid draft the instrument.
Because a Miller trust is a grantor trust, all income is taxable to the grantor (creator of the trust), even though the trustee gives some of that income to the nursing home. In general, trust income is considered distributed to the grantor, even if it's not paid directly to the grantor, if it's used to discharge his or her debts. With respect to a Miller trust, therefore, the trust's payment of part of the nursing home costs will trigger this tax rule. In general, a grantor will also be taxed if trust income is paid to any other person at the grantor's direction.
If you're the grantor of the trust, the full value of the trust property must be included in your estate for federal estate tax purposes, if federal estate taxes are imposed in the year in which you die.
With the creation of a Miller trust, you are making a gift of the remainder interest (what is left after your death). However, you may not have to pay federal gift tax because of the applicable exclusion amount, which effectively exempts a certain amount of transfers made during your life from gift taxation.
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