Qualified income trusts are special-purpose trusts for Medicaid applicants who do not meet the income requirements for Medicaid due to excessive income, but do not have sufficient financial capability to manage long-term health care costs such as nursing home care, explains Nolo. These Medicaid applicants can put a portion or all of their incomes into income trusts to become eligible for Medicaid.
Any person who does not qualify for Medicaid due to income reasons can establish an income trust, states Nolo. The Medicaid applicant deposits part or all of his income into a checking account that bears the name of the trust. Because funds that belong to the income trust do not count toward the income cap for Medicaid, they allow a Medicaid applicant with excessive income to obtain Medicaid coverage for long-term health care expenses.
However, some states do not allow the use of income trusts, reports Nolo. To qualify for Medicaid in these states, applicants with excessive incomes must reduce their incomes by spending on medical costs.
An income trust only pays for a Medicaid applicant's allowable expenses such as Medicare premiums, the applicant's share of Medicaid costs, and health care costs that Medicare and Medicaid do not cover, according to Nolo. A Medicaid applicant with an income trust cannot use the trust for family members' health insurance premiums.