Alaska Legal Services Corporation

Law Offices Of

ALASKA LEGAL SERVICES CORPORATION

1016 West Sixth Avenue, Suite 200

Anchorage, AK 99501

Phone: (907)272-9431

WHAT IS A

“MILLER TRUST?”

MILLER TRUSTS

A Miller Trust (or irrevocable income trust) allows people who are over-income for Medicaid to become income-eligible by limiting their access to their own income by placing it in the hands of another party (the “trustee). The name “Miller Trust” comes from the case Miller v. Ibarra, which recognized the legal effect of this type of trust. Congress has since passed legislation that requires certain states to give effect to these trusts, as long as the trusts conform to particular rules.

Miller trusts are one of three types of trusts which federal law requires Alaska and certain other states to recognize as vehicles for achieving Medicaid eligibility. (The other two are both asset trusts, as distinguished from income trusts, and are sometimes referred to as “disability” trusts and “pooled” trusts.) None of these trusts are intended to be probate-avoidance mechanisms, or tax-minimization tools, or estate planning vehicles. In fact, one requirement of all three types of trust is that the trust has to specify that the state receives whatever remains in the trust upon the death of the beneficiary, up to the limit of the amount the state has expended under its Medicaid program for the beneficiary’s medical care.

The Medicaid program is a joint federal/state program providing medical assistance to the disabled and elderly under strict financial criteria. The financial criteria include income and resource limits, depending on the particular type of assistance needed and the applicant's family situation. One of the most important benefits for seniors is that Medicaid covers long-term nursing home care and prescription drugs, two areas in which Medicare coverage is much more limited or non-existent.

The federal regulations give some leeway to the states to decide how to administer certain aspects of the Medicaid program. One of these areas is the level of income permitted in order to qualify for Medicaid. Most states have a "medically needy" standard, in which the state simply receives the individual's income and pays for their care costs. Other states have an "income cap" rule, setting a limit on the amount of income a person can have in order to qualify.

THE ALASKA MODEL

Alaska is an "income-cap" state.[1] The capped amount results in disqualification of many individuals due to excess income, even though they still do not have enough income or resources available to cover their medical needs. A Miller Trust, or irrevocable income trust, is a mechanism that allows people who do not qualify for Medicaid coverage, based solely on their income, to qualify by assigning their income to a trust. This trust does not shield the beneficiary's funds from state access, rather it serves as a pass-through accounting mechanism.

The accounting is fairly simple, differing according to the need level of the beneficiary. There are three models: nursing home; Choice Waiver[2]; and "walking-around."[3]

Under the nursing home model, the beneficiary's income is put in the trust, allowable expenses -- such as insurance co-pays, limited income to the spouse not in a nursing home, and a $200 personal expense allowance among other enumerated expenses -- are paid, and the remaining income is flushed out to the nursing home. Under the Choice Waiver model, the beneficiary's income goes into the trust, a personal needs allowance is given to the beneficiary for living expenses (currently $1,656), and the excess goes to pay “cost of care” and medical expenses. Under the "walking-around" model, all of the beneficiary's income goes into the trust, and they are paid a monthly needs allowance that equals the income cap for Medicaid eligibility (currently $1,362 plus $20).

WHO SHOULD MAKE A MILLER TRUST

A Miller Trust is only helpful for people who would otherwise qualify for Medicaid but for their income. To give you an idea of what that means, we have summarized the three-part initial screening analysis.

Miller Trust Screening:

Physical Criteria

1. Does the person fit into a Medicaid category?

Elderly(65+)

Disabled (under Social Security criteria)

Minor child (<21)

Caretaker for minor child

2.Does the person meet level-of-care needs for the particular type of Medicaid coverage sought?

Resource Criteria

1.Is person resource eligible? (varies with category, coverage, marital status; exempt resources; ceiling or non-exempt resources)

2.Has person transferred assets in recent past? (relevant look-back period depending on category)

Income Criteria

1.Is person over the income limit for the category?

2.Will Medicaid pay the particular bill worrying the person? (generally only medical bills)

3.Are person's medical bills high enough to warrant the trust?

4.Can client meet non-medical expenses and survive on what trust rules allow them to get out?

DEVELOPING ISSUES

These trusts are a vital mechanism for medically needy persons whose income puts them slightly over the income for Medicaid. We have assisted dozens of individuals in establishing their Trusts, and for the most part, the mechanism is running very smoothly. However, one difficulty we have observed is that trustee fees are not among the items for which the Trust may pay. For needy elderly or disabled Alaskans with no friends or family to serve as trustees, this can create an extreme hardship. Recommendations have been made 1) to amend the regulations to allow for payment of administration costs out of the trust income, or establishing an independent funding source to pay a fixed fee for Trust administration; 2) to develop standardized Miller Trust forms; and 3) to establish specific guidelines and oversight mechanisms for Trust administration when a beneficiary chooses a professional administrator.

CONCLUSION

We hope this provides a useful summary of the Miller Trust. The most important thing to keep in mind about these trusts is that people are truly impoverished when they decide to use this mechanism. Their medical needs will be covered under Medicaid, but they will permanently lose all of their disposable income so long as they are on Medicaid.[4] For those who are not institutionalized, living expenses are sometimes impossible to meet on the extremely limited income allotted to them. It is a big step, and should not be entered into lightly.

[1] The 2016 income cap for an individual receiving regular Medicaid is $1362 per month. For nursing home and Choice Waiver applicants, the income cap is $2,199.

[2] Choice Waiver refers to Alaska's Medicaid "home and community based waiver" program, which, in a nutshell, permits Medicaid eligible persons requiring nursing home level of care to remain at home and to avoid institutionalization until such time as their care needs become acute.

[3] "Walking-around" refers to those people who do not require the nursing home level of care, rather they are "walking-around." For instance, people in this category might have cancer and require ongoing chemotherapy treatments and medication.

[4] The beneficiary does retain the right to re-divert the income stream back out of the trust at any point, so that if Medicaid is no longer required the beneficiary can stop using the trust.