"Stuart A. Bronstein" <spamt...[at]lexregia.com> wrote:
- quote -

Good point; I think I am sold. (Everything I have seen says what you
wrote above about the reversion. Though it seems unlikely that
anything would be left after paying the residual, so to speak,
Medicaid bill.)

[snip; no dispute about your opinion being informed or any of the
rest]

- quote -

I agree. Plus I do see that Form 1041's tax rates for trusts really
are steep, even if we are only talking in the neighborhood of a few
thousand dollars to $20k of net income each year. Thus if a QIT is a
grantor trust, then I think the feds will tend to get less tax dollars
than if it is a non-grantor trust. Also, the trust retains more for
eventual turnover to the state Medicaid program (after the grantor
dies).

I think I would like to see what the NATP says today on the subject,
since in that 1998 MTM thread there is that mentionof the NATP saying
different. Otherwise I think your arguments hold water and so a QIT is
a grantor trust. The OP's Father-in-Law's obligation is to complete a
1041 but not an accompanying Schedule K-1, then show all the income to
the trust on the MFJ 1040 as if there were no trust, then take
deductions under medical expenses on Form 1040, Schedule A for nursing
home costs. All of which could stand double-checking with a bona fide
authority AFAIC until the tax becomes a part of routine eldercare
parlance. (Or maybe it is just obvious to most people with a glancing
acquaintance with trusts that the QIT is a grantor trust?)

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honda.lioness[at]gmail.com wrote:
- quote -

I haven't read the legislation. But according to one fact sheet, the
trust must "Require that the State will receive all funds remaining in
the trust at the time of your death (up to the amount of Medicaid
benefits paid on your behalf)."

If the remaining funds can be paid back to the estate, that is a
"reversion" which the code defines as one type of trust defined as a
grantor trust. In addition the entire fund is for the benefit of the
trustor, paying his care and then the balance going back to his estate.

Normally when you create a trust and you have a personal interest in
it, it is a grantor trust.

- quote -

The law is not absolutely crystal clear. But I have what I consider a
very informed opinion on the matter, as you have noticed.

- quote -

I agree, that could be a bit of a problem. But this is a trust for
people who have too much to qualify for Medicaid, so perhaps it would
be thought that they had enough to pay the tax on income earned by the
trust.

Stu

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"Stuart A. Bronstein" <spamt...[at]lexregia.com> wrote:
Re Qualified Income Trusts (formerly known as Miller Trusts):
- quote -

I hear you. The ambiguity to me is that every cent of the contents of
a Qualified Income Trust (or QIT, the modern term for Miller trust) is
designated by law to go to the state. So the grantor or the trustee
has no discretion, from what I can tell. On the third hand, maybe
that's wording and definition leger-de-main on the part of an amateur
(me).

The law surely must say something conclusive on this. I am not 100%
sure which type of trust it is and do not want to post mis-
information. Not that you are, and hopefully the OP finds something
dispositive on this.

I saw one nasty Florida dotcom web site (trying to sell legal
assistance) stating that Medicaid often audits QITs every 3-6 months.
Mess up the QIT documents, and a person must pay the full nursing home
costs--and back costs--until the QIT is corrected, the site says.

- quote -

I agree it is entirely for the benefit of the grantor, and it is
certainly not a gift; rather it is payment for services.

- quote -

One thing that bothers me: Treating the QIT as a grantor trust means
that the tax bill is paid by the grantor (or for MFJ, jointly by
husband and wife). But from where does the grantor get this money? I
guess some resource other than the trust. This is a little ironic and
kind of argues for the QIT being a non-grantor trust, so the taxes may
be paid from the trust.

ISTM the maximum monthly amount accumulating in any Miller trust is
going to be roughly the difference between the local average of the
monthly cost of a nursing home and the Medicaid monthly income
qualifying limit. So I think we are talking about a QIT Trust having a
maximum net income each month on the order of $1k-$2k. So figure at
most around $24k net income to the QIT. From this taxes are easily
paid.

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honda.lioness[at]gmail.com wrote:

- quote -

If it can be used for the grantor's benefit and use is not under
someone else's complete discretion, it's for his benefit, and as a
result should be considered a grantor trust. It's not a gift to
another person.

I suppose if you argue that it's not a grantor trust, the trust itself
would pay its own income taxes. But bracket creep for trusts is pretty
steep, so, as you say, there might not be much of a savings either way.

Stu

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Whether a Miller trust is a grantor trust or a non-grantor trust and
some of the form 1041 implications were discussed once before here in
1998:
http://groups.google.com/group/misc....613fc1e7d02566

One authority is cited (the National Association of Tax Professionals)
as saying Miller trusts are non-grantor trusts. The grounds seem to be
that all the income goes to someone other than the grantor (namely,
Medicaid/the nursing home). However, what the states of Kentucky and
Tennessee say today conflicts with this. I can see both sides.

Maybe most importantly, I would expect the difference in federal taxes
to be small-to-none regardless of which way is used in this case.
Hence the IRS's feathers could not get too ruffled, either money-wise
or audit-wise. I do not know if doing the taxes one way reduces the
chances of an audit in general.

Aside: Congress codified, and so legally sanctioned, Miller trusts in
1993 as a way to help a certain category of folks seen to be trapped
by Medicaid law then. Namely, those folks who had too much monthly
income to qualify for nursing home Medicaid then but not enough
monthly income to pay the typical cost of a nursing home each month.
(Assets are a different matter.) Miller Trusts are no scam or exercise
in loopholes but instead a device Congress has approved to help the
elderly on the verge of poverty.

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On Mar 16, 2:07 pm, "Stuart A. Bronstein" <spamt...[at]lexregia.comwrote:
- quote -

I read these earlier. Unfortunately I could not make out much from
them.

- quote -

The reason I am not sure is because the Miller trust disallows use of
any income over the stipulated Medicaid amount. The excess of the
grantor's income that otherwise would go to her/him must stay in the
trust until the beneficiary dies. Upon death, and under federal
Medicaid law, whatever is in the trust goes to the state, up to the
medical expenses that have been incurred.

- quote -

I see two states (Kentucky and Tennessee, using the term "QIT" or
"Qualified Income Trust," one of a few synonmous terms for "Miller
Trust") that say at a few web sites that in their states, these trusts
are grantor trusts. But there seems to be little on this for other
states.

- quote -

Well the above helps. From my reading, all Miller trusts are
irrevocable. Otherwise I cannot tell whether the status (grantor or
non-grantor) of these trusts is up to each state.

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honda.lioness[at]gmail.com wrote:

- quote -

Grantor trusts are defined under §§671-679 of the Internal Revenue
Code. I'm not familiar with Miller trusts. But it appears that they
are set up with the intent that money in the trust will be used for the
benefit of the grantor who set up the trust in the first place.

If that's accurate, then under §673, that appears to me that would
necessarily be a grantor trust.

- quote -

Generally a trust will say whether it is revocable or irrevocable, but
not whether or not they are grantor trusts. Revocable trusts are
always grantor trusts. Irrevocable trusts may or may not be depending
on their terms.

Stu

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Reading pages 11 and 15 of the 2008 instructions for Form 1041 and
other sources, it is not clear to me whether a Miller trust is always
a "grantor trust." If it is a grantor trust, then the trust is not
treated separately for income tax purposes. Instead the trust income
and expenses are reported on the individual's return, or in this case
the MFJ form 1040. It seems an F1041 is still required, but not a
Schedule K-1. See specifics in the 1041 instructions.

Sometimes the trust documents explicitly state whether it is a grantor
trust; they are worth reviewing.

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PCBeach <p...[at]net-waves.com> wrote:
- quote -

To elaborate for the archives: I believe your wife has what is called,
under federal law, a "Miller Trust" (a.k.a. "Qualified Income Trust")
for those individuals who have a monthly income exceeding Medicaid
eligibility but insufficient to pay the cost of a nursing home, where
"cost" is computed by using a nursing home average. The individual's
monthly income in excess of the Medicaid eligibility accumulates in
the Miller Trust until the individual dies. Then the Miller Trust's
contents goes to the state up to the amount the state Medicaid program
spent on the individual less what was already paid.

I am encountering some of these issues for a relative who went on
nursing home Medicaid this past year. I am a layperson otherwise.

- quote -

in this case). The trust has income and it has distributions which
must meet federal and state requirements. Federal tax form 1041 needs
to be completed for the trust. See the instructions for F1041 at
http://www.irs.gov/instructions/i1041/ . I think for purposes of
F1041, this trust is technically termed a "complex trust." The
distributions made to your wife are deducted from the trust's income
using F1041 Schedule B, line 18. I expect the tax on the trust will be
tiny or zero.

As part of the annual tax procedures for the trust, its trustee (or
appointed tax fiduciary) must prepare and issue a Schedule K-1 to its
beneficiary(ies). The Schedule K-1 is supposed to break down the
distribution to the beneficiary by income type, so the income may be
appropriately allocated on the beneficiary's Form 1040. Hence my
understanding is your father-in-law will duly report his wife's income
from the trust on F1040. Then on Schedule A, he may deduct all nursing
home expenses related to medical care. To be clear, this may include
lodging and meals, everything, as long as the main reason for being at
the nursing home is to get medical care. In short the entire $1900/
month x the number of months etc. should be reflected on Schedule A
under medical expenses. See http://www.irs.gov/pub/irs-pdf/p554.pdf
("Tax Guide for Seniors").

There are some spousal issues here that I will hope were already
considered when this Miller trust was set up. Review this short
article to see that your father-in-law is getting that share of his
wife's income to which he is entitled while she has a Miller trust, or
whether he should consult a local expert on same:
http://www.premack.com/columns/Classic/1999-03-05.htm .

Assisted living costs will tend to be deductible also on Schedule A
under medical expenses. Here is an introduction: http://www.seniorlivingresidences.com/tax/.
See IRS Pub. 502 for details: http://www.irs.gov/pub/irs-pdf/p502.pdf

Your questions are important. We are an aging population with, lately,
particularly depleted resources yet rising medical costs. So the
burden on Medicaid and the demand to understand how to deal with tax
situations such as this are also on the rise. If you learn more, I
would be interested in reading it.

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Note: numbers are approximate off the top of my head...

My mother in-law was accepted by Florida medicaid in October. She is
currently in a nursing home. Her income of $2100 goes into a trust
fund since she makes more than the $1900 allowed by Florida Medicaid.
All but $35 of this monthly amount is paid from the trust fund to the
nursing home. Does my father in-law still claim her income on their
taxes?

For most of last year she was in assisted living. Can he claim any of
these costs as a deduction?

Thanks in advance.

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