How Does a Qualifying Income Trust Work?

A qualified income trust is an irrevocable trust. Once your father sets it up, it can't be changed or revoked, and someone else has to serve as trustee and manage the assets. Any monthly income above his state's cutoff level for Medicaid nursing home help goes into the trust. As that money is now out of your father's control, it no longer counts toward the state income limit. That allows the state to qualify him for Medicaid when he moves into a home.

Your mom can set up a Miller trust, or have her spouse do it for her. If you have power of attorney for your mother, you can do it on her behalf. Draw up the declaration of trust according to your state's trust laws and assign the trust a bank account of its own. Your mother can either have all her income sent to the trust account or just enough to bring her under the Medicaid limit. As of 2012, she can take $35 each month from the account for her personal use.

If your father has a "community spouse" -- a wife still living outside the nursing home -- the trustee in charge of his Miller trust can use some of the account to help support the spouse. Everything else in the account goes to help pay nursing home costs and reduce the amount Medicaid spends on your parent. When your father dies and the trust dissolves, anything remaining in the account goes to reimburse Medicaid.

Miller trusts are designed to solve a specific problem; they're not for estate planning. Don't set one up for your parent unless it's necessary. If it is needed, research your state's Medicaid law before establishing a trust. California, for example, doesn't impose an income limit on qualifying for Medicaid, but Medi-Cal takes almost all your parent's income. The exempt income includes the $35 set aside for personal spending, money to support the community spouse or a dependent child and money to pay for any medical expenses Medi-Cal doesn't cover.