Income trusts bridge the gap between earnings and Medicaid eligibility requirements.
Imagine reviewing your income statement for 2026 and discovering that, between your pension and Social Security, you'll bring in $3,200 a month.
It sounds like a decent amount until you realize that nursing home costs for your spouse will exceed $8,000 a month next year, and Medicaid can't help because your income is too high to qualify.
This scenario plays out for thousands of Iowa families every year. But what many people don't realize is that income trusts (Miller Trusts) offer a legal path to reduce countable income and qualify individuals for the Medicaid benefits they desperately need.
How Iowa Miller Trusts Create Medicaid Eligibility
Think of income trusts as special holding accounts for excess income - any amount over Medicaid's $2,900 monthly limit.
When you deposit money into this irrevocable trust, Iowa Medicaid no longer counts it as your income for eligibility purposes. It's still your money, which you can use for your care, but how you handle it makes all the difference in qualifying for benefits.
Iowa law specifically authorizes these medical assistance income trusts through Iowa Code Chapter 633C.
The math is simple: if you earn $3,200 monthly and deposit $300 into your income trust, your countable income drops to $2,900, making you eligible for Medicaid assistance.
Qualified Income Trust Rules
Qualified income trusts (QIT) must meet specific requirements under 42 USC 1396:
- Must be irrevocable.
- Must name the State of Iowa as the residual beneficiary.
- Must use any remaining funds after death to reimburse the state's healthcare cost contributions.
Social Security checks or pension payments get directly deposited into the trust account. From there, the trustee makes authorized distributions for allowable expenses, such as personal needs allowance or spousal living expenses.
The remaining funds help cover the recipient’s care costs, allowing people to get the care they need, spouses to maintain their standard of living, and the state to receive appropriate compensation for the services provided.
Qualifying income sources
Most regular income sources qualify for Miller Trust deposits
- Social Security benefits
- Veteran payments
- Disability payments
- Survivor benefits
- private pension funds
- 401(k) or IRA disbursements
- Annuity payments.
Basically, if it's regular monthly income that pushes you over the Medicaid income limit, it can likely go into your medical assistance income trust.
The key term here is "income" or trusts that lawyers professionally draft to manage your monthly cash flow, not your accumulated wealth.
Excluded income sources
Here's where people sometimes get confused. Miller Trusts only handle income, not assets.
So, your $10,000 savings account cannot fund the income trust. The same goes for any investments, property, or other assets you own. Iowa Medicaid has a separate $2,000 asset limit that you must meet through different planning strategies.
One-time payments also create common misunderstandings. You cannot deposit an inheritance, legal settlement, or tax refund into your Miller Trust. The same rule applies to gifts from family members or charitable assistance.
Only your own recurring income qualifies.
Setting Up An Iowa Income Trust
Step 1: Attorney Drafting with Iowa-Specific Language
Setting up an income trust requires the expertise of a Medicaid planning attorney who understands the specific requirements of Iowa estate law. Generic templates from the internet usually won't work because they often lack Iowa-specific language that the Department of Health and Human Services requires.
Step 2: Bank Account Establishment
Once your attorney drafts the trust document, you'll need to open a separate bank account. Trust funding can't come from a regular checking account. You must make all income deposits into a dedicated trust account. It's also important to keep this account completely separate from your personal funds. Mixing money is one of the fastest ways to disqualify yourself from benefits.
Step 3: Income Redirection Process
You or your trustee will need to contact Social Security, your pension administrator, or the entity that sends your monthly checks and set up direct deposit into the trust account. Timing matters here. You want these deposits redirected before you submit your Medicaid application. Documentation becomes your most valuable asset during this process. Medicaid caseworkers will want to see proof that you set up everything correctly.
Step 4: Medicaid Application Coordination
With your trust established and funded, you are now ready to complete the Medicaid application. Your caseworker will need a copy of the trust document, which they'll send to the Iowa Medicaid Trust Program (IMTP) for review. You can also submit documents through the IMTP portal if you prefer the online route. The approval timeline typically runs 30-45 days, though complex cases might take longer.
Trust Administration and Distributions
Once you establish the Miller Trust, distributions must follow a specific priority order.
Administrative expenses - you can pay your trustee up to $10 per month without a court order.
Personal needs allowance - $50 monthly for Iowa nursing home residents.
Spousal maintenance - a spouse might receive a monthly maintenance needs allowance, with the amount calculated based on their living expenses.
Medical expenses - these might include Medicare premiums or medical services not covered by Medicaid.
Here's what the distribution priority looks like:
- Administrative expenses (maximum $10/month)
- Personal needs allowance ($50/month)
- Spousal maintenance allowance (if applicable)
- Medical expenses reducing Medicaid obligations
- Remaining funds for care costs
Trustee record-keeping requirements
Trustees carry significant fiduciary responsibilities, compelling them to track every deposit and distribution and maintain monthly statements that show precisely where the money went.
Annual reports to the Medicaid Trust Program are also required, showing yearly totals for both deposits and expenses.
If the Medicaid recipient passes away, the trustee must report the death within 30 days and provide a final accounting of all medical assistance received.
Common Miller Trust Mistakes That Trigger Denial
The biggest drafting error people make occurs when they use generic trust language from online templates instead of wording specific to Iowa.
Documentation errors can completely invalidate Miller Trusts, leaving recipients ineligible for Medicaid when they need it most. For this reason, working with a Medicaid planning advocate familiar with Iowa requirements makes a big difference.
Funding mistakes
Partial deposits also create significant problems. If your Social Security check is $1,500 per month, you must deposit the entire amount into the trust. You can't deposit just $600 and keep the rest. Asset contamination presents another pitfall. Remember, only income is eligible for these trusts. Depositing $5,000 from your savings account will disqualify your trust.
Administrative failures
Even with proper setup, ongoing administration mistakes can jeopardize your benefits. Paying non-allowable expenses from the trust is at the top of the list.
- FOR EXAMPLE: Paying your grandson's college tuition or your property taxes can't come from trust funds, no matter how much you want to help.
Finally, remember Iowa's trust income cap of $10,653.75 monthly. If your income exceeds this amount, a Miller Trust won't help you qualify for Medicaid.
Professional Guidance Protects Your Medicaid Eligibility
Creating your own Miller Trust might seem like a way to save money, but it's a risky gamble with your healthcare coverage. Iowa Code Chapter 633C contains complex legal requirements that aren't obvious to non-attorneys.
The timing must also align perfectly with your Medicaid application. File too early or too late, and you'll have wasted your efforts.
Find qualified assistance
IowaMedicaidHelp specializes in guiding Iowa families through the income trust process, helping them bridge the gap between their income and Medicaid eligibility.
Contact a Medicaid planning specialist today and discover how an income trust can be your solution for 2026's income limit challenges.