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An Income Cap Trust is a technique that is used to make a person “income” eligible for Medicaid by assigning that person’s income to the Trust. The Income Cap Trust does not require any advance planning, it is not a long range planning tool, and is typically used in a crisis situation when the person applying for Medicaid requires care.

Who can create an Income Cap Trust?

If the person applying for Medicaid benefits is too ill or disabled to sign a trust, his or her agent under a Durable Power of Attorney can create the trust. If the person is too disabled to understand that he or she is creating a trust, and has not appointed an agent to act as power of attorney, it

How do I establish the Income Cap Trust Account?
Once the trust is established, the next step is to create a bank account in the name of the trust. Only the income of the person receiving Medicaid (known as the trust “Beneficiary”) can be placed in the account. It may not contain any other resources.

How are the funds in the Income Cap Trust spent?
Complex federal and state rules govern how the income in the trust is to be spent. In Oregon, during the life of the Beneficiary, the income in the trust is used each month to pay the following expenses, in the following order of priority:

A. Personal Needs Allowance/ Maintenance Standard: A fixed amount to the Beneficiary for the Beneficiary’s personal needs plus, for people receiving in-home care or assisted living or foster home care, an amount for room and board, which may be payable to the care facility.

B. Administrative Costs: $50 per month to cover the administrative costs associated with the maintenance of the trust. These costs may include any bank service charges,
trustee fees, preparation of yearly tax returns, copy charges, postage, or tax preparer fees, and any income tax attributable to income placed into or generated by the trust.

C. Spouse and Family: A monthly support allowance for the spouse and family.

D. Health Insurance: The health insurance premium for the beneficiary and the beneficiary’s spouse.

E. Other Reserves: Other incurred medical care costs that are not reimbursed by a third party.

F. Patient Liability: Any remaining funds are paid to the facility. This is the amount of Beneficiary’s income to be paid toward his or her care.

When the beneficiary dies, any remaining funds in the Trust must be paid to the State.

What is the cost to create an Income Cap Trust?
Like most things, the amount of time and effort involved in setting up the Income Cap Trust will effect the cost. The cost can vary, especially if court time is involved to establish the trust or to have a conservator appointed. Also adding to the cost is the time the attorney spends drafting the trust and creating a distribution schedule that complies with the above mandatory distribution standards. Establishing an Income Cap Trust is not an inexpensive proposition. However, using a “cost versus benefit analysis,” even though the process involves an up-front cost, making the person eligible for benefits will repay the costs of establishing the trust in a very short period of time.
Where can I get more information or help with an Income Cap Trust?
An Elder Law Attorney or an attorney experienced in Medicaid can answer any questions you have and determine if this type of a trust is an option for you