Several year ago, we hosted a popular guest post from an elder law attorney about Income Cap Trusts. Since that was back in 2009, we thought it might be time to revisit the subject and see what changes may have happened in the last 8 years. We spoke with two elder law attorneys in Portland, OR to bring you up to date. The information in this article is specific to Oregon, other income limits may apply in your state.
What Is an Income Cap Trust?
An Income Cap Trust (ICT) is a legal document, traditionally created by an elder law attorney, specifically for someone applying for Medicaid long-term care benefits. Once set up, all the income for the applicant is channeled into this trust, which is administered by a trustee. That trustee (a family member, friend, or some other qualified person) will see to it that all the senior’s long-term care expenses, and any other expenses for which the senior is responsible, are paid each month. Once these expenses have been seen to, then the remainder of the senior’s income goes to the care setting and, if there is a gap between the senior’s remaining amount and the monthly nursing home bill, Medicaid will cover that amount.
According to various authorities, while the concept is fairly simple, the creation of an Income Cap Trust can be complex and time-consuming. Unless the applicant’s financial situation is very simple, the person filling out the application form will need highly developed organizational skills and a good deal of time, not to mention knowledge of all possible deductions. Often, by the point it is clear the applicant will need long-term care, time has become an issue; yet another reason to reduce stress for all involved and seek professional help, whether from an eldercare lawyer or someone else who understands the process.
Do I Need an Income Cap Trust?
The answer to that depends on your answer to this: How much is my (that is, the applicant’s) monthly income? As of 2017, the maximum a Medicaid candidate for long-term nursing home care can bring in each month is $2,205. To be clear, only the applicant’s income is looked at; the income of his or her spouse has no impact here, regardless of how much that person earns or otherwise receives per month.
Before lamenting that your income is too high, certain deductions are allowed which could make all the difference. Among those possible deductions:
- A $60 a month personal-needs allowance that will be made accessible to you, as a Medicaid recipient living in a nursing home or Intermediate Care Facility.
- An allowance for your spouse if he or she does not bring in sufficient funds to live on. (In Medicaid parlance, this person is termed the “community spouse,” meaning the legal spouse of the Medicaid recipient, and one who does not also live in a long term care setting.)
- A deduction may be allowed for a dependent child living at home.
- A set amount ($50, in Oregon) for “administration fees,” which the trustee is to apply to the maintenance that of the trust, including bank fees, check-related charges, postage, mileage, etc. Any money left in this account after all bills have been paid can be kept by the trustee.
- Medical expenses, not covered by insurance, that accrued during the three months before the applicant was accepted into the Medicaid program.
- Insurance premiums – for the Medicaid recipient as well as that person’s spouse — can also be deducted.
- The cost of a pre-paid burial plan. (Note: There is a ceiling amount.)
- Medical expenses not covered by Medicaid, but approved by the Medicaid caseworker assigned to your case.
- There may be other deductions available to you; here’s where that elder law attorney or other expert may prove most valuable.
I still don’t qualify! Now what?
If none of these deductions apply, or they do but are insufficient to lower the amount of income to the accepted level then — no matter what state you live in — that may not be a problem. In those 26 states that do not require an ICT, the Medicaid applicant in this situation would be termed “medically needy” and be allowed into the program with the understanding that they would “spend down” (that is, pay out of pocket) for their care until their remaining funds fall to, or below, that maximum ($2,205), at which point Medicaid would assume the responsibility of paying the balance due for nursing home expenses.
But even in the other 24 states, where the Income Cap is upheld, there is a Medicaid-recognized way around this dilemma. In Oregon, for instance, an applicant sets up their ICT, and the amount of income that exceeds the maximum amount will be held in this trust and administered, for the applicant, by an authorized person such as a spouse (also known as the “community spouse”), the applicant's child if of sufficient age, a family friend or a lawyer. This person will be responsible for seeing to it that the schedule determining how funds are to be spent is followed.
Medicaid’s Attempt to Simplify the ICT Process
Some three years ago, Medicaid allowed at least some of the 24 states that currently require an ICT to issue their own ICT forms, presumably in the hopes of making the process more economical for the applicant. (Note that some states use the term Qualified Income Trust or QIT.)
Convenient as this option could have been, turns out it doesn’t work for every applicant. According to Geoff Bernhardt, a long-time eldercare lawyer, “In my experience, the state forms are adequate, so long as the Medicaid caseworker has time to assist the applicant in the process. Establishing a trust is unfamiliar ground for most people and they will need help from someone familiar with the process, either an eldercare lawyer or a Medicaid caseworker.” He further pointed out that, if the applicant still has sufficient assets and, therefore, must “spend down,” a knowledgeable lawyer would be invaluable in setting up the trust. Mr. Bernhardt added that there may be other deductions possible of which the caseworker, no matter how experienced, may be unaware. Further, he advises that hiring a lawyer could be worth it if only to be certain that the State isn’t imposing rules or regulations that may not be in the applicant’s best interests.
Meredith Williamson, also an experienced eldercare lawyer, adds that the practice of caseworkers handing out ICT (or QIT) forms is already becoming a thing of the past. “I have seen an increase in the number of people who have been denied based on income,“ Mrs. Williamson stated, reflecting Mr. Bernhardt’s observation that caseworkers may not always grasp what is a suitable deduction. “If you can involve an elder law attorney from the beginning, you can avoid having a denial and a possible delay in benefits based only on income.” Mrs. Williamson also provided a list of three key factors, the presence of any of which should steer the applicant to seek legal advice. They are:
- In the case of married spouses, and/or an applicant with a dependent or disabled child,
- if your income or assets are too high, or
- if you have made gifts in the last five years that may otherwise disqualify you.
Ms. Williamson raised the point that the formula for calculating income varies from state to state. Using Oregon as an example, Mrs. Williamson told this writer that this state “follows the name on the check rule- which means, if the check from any source is written to you, it is considered your income. Income may be from social security, retirement accounts, pensions, dividends, promissory notes, etc.”
The bottom line, says Mrs. Williamson, is that “It is better to speak with an elder law attorney early in the process as that will avoid overspending or making decisions that may ultimately harm your chances of obtaining Medicaid.” Considering the monthly cost of prolonged nursing home care, the cost of obtaining legal advice and legal/moral support throughout the demanding application process is money well spent, and may well serve to appreciably shorten the process overall.