Miller trusts can address state income limits for Medicaid qualification

A Miller trust is a legal arrangement that can help people qualify for Medicaid long-term care benefits when their monthly income exceeds their state's eligibility limit but is insufficient to cover their care costs. The trust operates under strict guidelines and must be irrevocable, meaning once established, its terms cannot be changed. The irrevocable nature provides assurance to state Medicaid agencies that the arrangement isn't being used to skirt eligibility requirements but rather to create a legitimate pathway to necessary health care coverage.

A Miller trust works by receiving a person's excess monthly income above their state's Medicaid eligibility limit and directing those funds toward care expenses while maintaining their Medicaid qualification and eligibility. The funds flowing through the trust are used according to specific guidelines. The mechanics of a Miller trust are straightforward in principle but require careful attention to detail in execution. Here is how a Miller trust is established and put into effect:

• Trust creation. An irrevocable trust is established, typically with the help of an elder law attorney who specializes in Medicaid planning.
• Income diversion. The Medicaid applicant's excess income is deposited into the trust account.
• Fund management. A designated trustee manages the trust funds according to specific guidelines.
• Expense payment. The trustee uses the funds to pay for approved expenses, including the applicant's care costs.
• Medicaid reimbursement. Upon the beneficiary's death, any remaining funds in the trust are used to reimburse Medicaid for benefits provided.

The trust document must be carefully drafted to include several essential elements. It must explicitly state its irrevocable nature and name the state Medicaid agency as the primary beneficiary after the grantor's death. The trust can only accept income – not assets or resources – and must be established and managed by either the individual, their guardian or a legal representative.

A separate bank account must be established specifically for the trust, and arrangements must be made to ensure that qualifying income is deposited directly into this account. This often requires coordinating with various income sources, such as Social Security, pension administrators and other payment sources to redirect deposits appropriately.

The primary candidates are elderly or disabled individuals who require long-term care services but find themselves in the problematic position of having too much monthly income to qualify for Medicaid, yet not enough to pay for their care privately. This situation often affects retirees who receive pension payments and Social Security benefits that push them over their state's income limits.

These trusts are especially crucial in "income cap" states where Medicaid eligibility is strictly limited based on monthly income. Without the option of a Miller trust, many individuals in these states would face an impossible situation: having too much income to qualify for Medicaid but far too little to afford the high costs of long-term care services. In Wisconsin, for example, an individual’s monthly income was capped at about $1,200 in 2024.

The types of income that can be directed into a Miller trust are specific and limited. Qualifying income sources typically include Social Security benefits, pension payments, employment income, veterans benefits, retirement account distributions and annuity payments. However, it's crucial to understand that Miller trusts cannot accept certain types of financial inflows, such as asset transfers, investment income, real estate income, inheritance proceeds or lump-sum payments.

Proper management of trust funds requires strict adherence to distribution guidelines. The first priority is typically a personal needs allowance – a small monthly amount allowed for the beneficiary's personal expenses. If the beneficiary has a spouse living in the community, an allowance for that spouse's living expenses may also be permitted. The trust can then pay for health insurance premiums, including Medicare and supplemental insurance, and certain medical expenses not covered by Medicaid.

Miller trusts were allowed in 25 states as of late 2024, according to the American Council on Aging. Those states are Alabama, Alaska, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho, Indiana, Iowa, Kentucky, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas and Wyoming.

State regulations vary widely and significantly impact how Miller trusts must be structured and administered. Each state that allows Miller trusts has specific requirements regarding income caps, trust language, distribution rules and administrative procedures. Some states require particular forms or documentation and have unique restrictions on how trust funds can be used.

These state-specific variations make it essential to work with legal professionals familiar with local Medicaid regulations. What works in one state may not be acceptable in another, and understanding these nuances is crucial for maintaining Medicaid eligibility.

Miller trusts often play a crucial role in crisis planning scenarios, where individuals need to qualify for Medicaid quickly due to immediate long-term care needs. In crisis scenarios, Miller trusts offer a relatively quick method to address income eligibility issues. The trust can be established within weeks, allowing individuals to qualify for Medicaid benefits despite having income above the eligibility threshold. In last-minute situations, the ability to establish a Miller trust quickly can mean the difference between accessing necessary care and facing significant financial hardship.

However, this rapid implementation often comes with significant drawbacks. Crisis planning leaves little time for thorough evaluation of alternatives, limited opportunity to maximize asset protection strategies and increased stress on both the individual and their family during an already challenging time. Preplanning, by contrast, allows for a more comprehensive and strategic approach to Medicaid eligibility.

Despite their usefulness, Miller trusts come with several potential pitfalls that must be carefully considered. Administrative errors are among the most common problems, including failure to deposit all required income into the trust, improper disbursement of funds, inadequate record-keeping and missed monthly deadlines.

Structural problems can also arise from invalid trust language, improper beneficiary designations, incorrect trustee appointments or non-compliance with state-specific requirements. These issues can compromise the trust's effectiveness and potentially jeopardize Medicaid eligibility.

Upon the death of the Medicaid recipient, any funds remaining in the trust must be used to reimburse the state Medicaid agency for benefits provided before they can be inherited by beneficiaries. Only after the state has been fully reimbursed can any remaining funds be distributed to other beneficiaries according to the trust’s terms.

This estate recovery provision makes it essential to consider Miller trusts as part of a broader long-term care and estate planning strategy. While these trusts effectively address income eligibility issues, they should be coordinated with other planning tools to achieve comprehensive protection of assets and income.

Miller trusts serve as a vital financial planning tool for individuals seeking Medicaid eligibility when their income exceeds state limits but falls short of covering long-term care costs. While these trusts can be valuable in crisis planning scenarios, they are most effective when implemented as part of a comprehensive advance planning strategy. Success with Miller trusts requires careful attention to state-specific requirements, proper trust establishment and diligent ongoing administration.