Many people we meet with have heard of an Income Only Trust (“IOT”)(aka Miller Trust), but few people understand it.
What is it?
As the title indicates, it is a trust funded with income only, not savings. At least in Arizona, it is NOT your normal estate planning trust where you would expect to deposit your wealth and leave a legacy to your loved ones. It is intended to help those ALTCS applicants who receive too much income to qualify, but not enough to pay privately for their long term care (with a maximum of the average private pay rate of nursing care in the county in which the applicant resides).
ALTCS will not count the income deposited in the IOT, which is spent on medical expenses, against income eligibility. The intent of the IOT is to reduce the countable income enough to meet the ALTCS income eligibility criteria. In short, the IOT is required for those whose income is too high to qualify for ALTCS.
How does it work?
The IOT account is a conduit of income: The ALTCS recipients deposit their income into the IOT account, then the trustees make distributions or pay expenses out of the IOT in accordance with a monthly budget (Anticipated Disbursements). Ideally, the IOT account ends up with a zero balance by the end of each month.
What is the catch?
Why does ALTCS allow this IOT to enable applicants to become income eligible?
- First, it is federal law, pursuant to 42 U.S.C. 1396p(d)(4)(B).
- Second, on the death of the ALTCS recipient, the State of Arizona is the beneficiary of any income that has accumulated in the IOT account.
- Third, ALTCS limits how the funds can be spent.
NOTE: ALTCS has complicated rules for establishment and administration of IOTs that may disqualify the ALTCS applicant if not followed precisely—it is not as simple as just signing a document. We strongly recommend you work with an experienced attorney.
