Senior Voice -

I’m keeping a list of the most frustrating myths I run into. First on the list, without a doubt, is the belief that a will avoids probate (it doesn’t).

A close second is the myth that a Miller Trust helps you to get qualified for Medicaid if you have too many assets to qualify. That, too, is completely wrong.

People find the concept of a Miller Trust confusing because every other kind of trust you will ever run into involves holding assets. You set up the trust, you put the assets into the trust, and the rules of the trust let you accomplish something you want to do, like avoiding probate or lowering taxes. But a Miller Trust doesn’t hold any assets. It funnels income instead.

To understand why this is necessary, we have to start with the Medicaid program itself. Medicaid originated as a kind of medical welfare program, intended to pay for medical needs (including nursing home care) for people who could not afford to pay for it themselves. At first it only paid for people in a skilled nursing facility, but not for other kinds of long-term care such as assisted living. Later it became clear that some people were being pushed into a nursing home prematurely, even though they really only needed to be in assisted living, because it was the only way to get the care paid for. So now Medicaid in most states will pay for not only assisted living, but even part-time in-home care.

But either way, Medicaid had very strict rules to qualify. After all, this was supposed to be a welfare program, right? So people who have income or assets that could be used to pay for this shouldn’t get Medicaid.

Did you notice the key words in that last paragraph? “Income or assets.” Hold that thought.

The asset part of this is pretty easy. Generally speaking, you can have a car (if it is used primarily to transport you), a house (provided you are still able to live there), and $2,000 in other assets. If you are over that amount, Medicaid would like you to “spend down” your assets by paying for your own care until you get under that amount. There are a lot of complicated details — for instance your spouse can hold quite a lot of assets, and there are transfer strategies people use to get qualified earlier while still passing some of their assets along to the next generation. But aside from that, if you have assets, you can pay for your own care. Easy enough.

But it’s not so simple when it comes to income. People who have too many assets can spend the overage until they are under that level. Can people who have too much income to qualify spend the extra amount of income paying for their own care, and still qualify? For a long time, the answer was no.

By the late 1980s, this was becoming a major problem for a lot of people. They were not rich, but they were over the fairly strict income levels for Medicaid. On the other hand, they did not have anywhere near enough money to pay for their own cost of care because the cost of nursing homes, assisted living homes, and in fact all of the other kinds of medical care, had been increasing dramatically. For some reason this was referred to as the “Utah gap”, although I’m not sure why Utah got saddled with the name because it was a problem in a lot of states.

In 1990 some creative lawyers in Colorado came up with a possible solution. They set up irrevocable trusts, and funneled their clients’ incomes into the trust. The terms of the trust were that all of the income would be paid into the trust, and the trust would pay out the amount which Medicaid allowed, to the beneficiary. The rest of it would be used to pay for that person’s medical or long-term care needs.

The Colorado Medicaid agency rejected this, saying that they were still over income. They appealed, and in 1990 a judge decided that these sorts of trusts met the legal standards to qualify those people for Medicaid, on the basis of income. The case was called Miller vs. Ibarra (Ms. Ibarra was a Colorado government official), and so people started calling it a Miller Trust after the court case.

So when someone says that they need a Miller Trust because they have too many assets for Medicaid, they’ve been misinformed. A Miller Trust can help if they have too much income, but if they have too many assets, they have to do something else.

Ironically, Miller was not the name of any of the critical parties to the case. There were four different disabled plaintiffs. One of them had a guardian, a relative named Miller, whose name ended up being attached to Medicaid planning forever. Forever? Well, maybe that is exaggerating a bit, but I note that somewhat later, the federal government changed the Medicaid rules so that such trusts don’t depend on the decision in Miller vs. Ibarra anymore, they are based on a federal statute. But every elder law attorney, every Medicaid planner, even every state Medicaid employee, still refers to them as “Miller Trusts”.

I guess that’s easier to say than “42 US Code 1396p(d)(4)(B) Trusts”.

Kenneth Kirk is an Anchorage estate planning lawyer. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account. Regardless of whether that professional is named Miller.