Income Trusts

Income Trusts and ALTCS Qualification

While income payable to the ALTCS beneficiary counts toward the maximum income allowed, any income that is made payable to an income trust is excluded from that income calculation.

Revised January 2019 | More about Long-Term Care Legal Services

In Arizona, there is a cap on the amount of income that a beneficiary can receive and still qualify for long-term care benefits through the Arizona Long Term Care System (ALTCS). The cap, which is 300% of the Federal Benefit Rate, is adjusted annually, and in 2019 it is $2,313. (See details regarding the eligibility guidelines on our ALTCS and Long-Term Planning page.)

The good news is that, in the vast majority of cases, whenever the aggregate income received by the ALTCS beneficiary exceeds that amount, eligibility can still be maintained by re-directing some or all of that income to an “income trust” (sometimes called an income-only trust, qualifying income trust, qualified income trust or Miller Trust, a name taken from a court case that gave rise to their use).

While income payable to the ALTCS beneficiary counts toward the maximum income allowed, any income that is made payable to an income trust is excluded from that income calculation. This can make an individual whose income exceeds the cap by, in effect, reducing the amount of income payable to that beneficiary.

The beneficiary has a choice of whether to redirect all or merely some of the income to the income trust, but all of the income from any one source must be redirected. For example, an individual with monthly Social Security income of $874 and a monthly pension of $1,500 (totaling $2,374) would be over the $2,313 income limit. By redirecting to an income trust the Social Security income or the monthly pension or both , the individual would be under the income cap. Redirecting income simply means having a source of income directly deposited into a checking account titled in the name of the trust.

All of the applicant’s income, including any income deposited into the trust account, is counted in determining the individual’s share of cost, which is the portion of medical expenses that remain the applicant’s responsibility.

In order to use an income only trust, specific rules must be followed. Here are some of those rules:

No other resources may be used to establish or augment this type of trust. If can be composed only of income to the individual, from any source.

The trust must be established by the ALTCS applicant, the applicant’s spouse or the applicant’s representative (including a guardian, the agent under a power of attorney, or a court).

Once the trust is established, the income and interest earned by the trust can accumulate and will not be counted as a resource.

The account must be opened with a $0 balance or have been established with all or a portion of the applicant’s current monthly income.

In determining income eligibility, income is excluded only when deposited into the trust account, either manually or by direct deposit, in the month in which the income was received. (Income that was received in a prior month is a resource in subsequent months and cannot be deposited into the trust.)

When an individual has spent part of the income for the month before establishing a trust account, the remainder of the income may be deposited into the account. However, only the amount of income actually deposited into the trust account can be excluded when determining financial eligibility.

The full amount of any source of income assigned must be deposited into the trust account.

Either the trust document or the Schedule A must list the applicant’s gross income from that source.

The only disbursements allowed from the trust are to the care facility for the recipient’s share of cost, and back to the recipient for his personal needs allowance (which in 2019 is $115.65). Disbursements are not allowable for payment of taxes (the applicant must terminate all tax withholdings and submit proof of that request along with the trust) or insurance (health or life) premiums from the income that goes into the trust.

There is a maximum amount that an applicant can earn even if he or she does use a Miller Trust to make some of it non-countable. The total amount of the individual’s countable non-trust income and the income assigned to the trust (excluding interest and dividends earned by the trust corpus and added to the principal) must not exceed the “private pay rate” that is set for the geographic area in which the applicant lives. As of October 1, 2018, that amount is $7,204.17 for Maricopa, Pima and Pinal counties, and $6,334.17 for all other counties in Arizona.

(As was mentioned above, more details about the eligibility guidelines are available on our ALTCS and Long-Term Planning page.)

Once the recipient has passed away, AHCCCS is allowed to receive the amounts remaining in the trust at that time, as reimbursement for the cost of services that have been provided.

As you can see, ALTCS eligibility is complicated, and advice from an attorney who frequently works in this area of the law is highly recommended. At Frazer Ryan, we work hard to say up to date on the law and on methods to ensure that all eligible individuals are properly prepared to qualify for ALTCS. We encourage you to give us a call to discuss your particular situation with us.

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