C Income Only Trusts

 

 

 

Revised 04/26/2022

 

Policy

An Income-Only Trust (IOT) can allow a customer to qualify for ALTCS when income eligibility is determined using the 300% Federal Benefit Rate (FBR) Gross Income Test. This includes when the customer only qualifies for acute care services due to a transfer penalty period or the customer’s living arrangements. See MA521B for detailed policy on the income test used based on living arrangements.

NOTE      An IOT cannot help a customer qualify for ALTCS when the Net Income Test is used or to qualify for any other AHCCCS program.

This kind of trust is sometimes known as a stream-of-income, income-cap, or Miller trust.

In addition to the conditions listed in MA803A, this type of trust has the following conditions:

Condition

Description

Trustor

The trust must be created by the:

·        Customer;

·        Customer’s parent, if the customer is a minor child;

·        Customer’s spouse; or

·        Legal representative, including a court or administrative body with legal authority to act on behalf of the customer or spouse.

Trust corpus

The trust can only be funded with the customer’s income. Resources cannot be added to or used to fund the trust. When  resources are added to an IOT, the trust loses its special treatment until the resources are removed. Thus, a trust which allows the trustee to accept additions without clearly stating that those additions can only include the customer’s income does not comply with this requirement.

The IOT account must be set up with all or a part of the customer’s current monthly income and have a $0 balance at the time it is set up.

Income assigned to an IOT

An IOT should only be created when counted income is more than 300% of the FBR.  Income that is not counted should not be assigned to or deposited into the trust. However, if it is deposited into the trust, it is subject to the same requirements as any other income deposited into the trust.

NOTE      See MA902I for policy on income transferred to an IOT.

Assignment of gross income to the IOT

The full amount of any source of income must be assigned to and deposited into the trust account.

The trust document or Schedule A must list the customer’s gross income from the assigned source. The trust document or Schedule A may state “gross” income is assigned from the source instead of listing the actual gross payment amount.

Ending tax withholding

Since tax payments are not an allowed trust disbursement until there is an actual tax liability, taxes may not be deducted from income assigned to the trust. The customer must ask the income source to stop tax withholding.

Ending other income deductions

Since union dues, life insurance premiums, or insurance premiums to cover other people are not allowed trust disbursements, these expenses may not be deducted from income assigned to the trust. The customer must ask the income source to stop deductions for these items.

Income may not be higher than the Private Pay Rate (PPR)

For an IOT to qualify for special treatment, the customer’s counted income not assigned to the trust plus the income assigned to the trust must be equal to or less than the private pay rate for the geographic area in which the customer lives (see MA905.6). 

NOTE      Interest and dividends earned by the trust and added to the principal are not counted.

Undue hardship for income higher than the PPR

When the trust meets all other conditions except the customer’s total counted income is higher than the PPR, an exception may be made on a case-by-case basis when the customer claims that the private pay rate is not enough to meet his or her needs.

 

Definitions

Term

Definition

Trust corpus

The income and resources that fund the trust. The resources or income in the trust corpus may be available to the customer but are no longer owned by the customer.

The trust corpus may also be called the trust principal. 

 

Proof

The trust document itself is used for proof of who created the trust and that the full amount of the gross income is assigned to the IOT.

In addition to the proof listed in MA803A, other proof needed for an IOT includes:

·         A copy of the request to stop deductions for withholding taxes, life insurance premiums, and union dues from the income going into the trust, if applicable;

·         The account statements from the date the trust account was opened to show that the account was funded with all or part of the customer’s current monthly income and previously had a zero balance;

·         For financial accounts containing trust assets, all account statements from the date the trust account was opened through the current month; and

·         Proof of total countable income.

 

Legal Authority

Program

Legal Authorities

ALTCS

42 USC § 1396p(d)

ARS 36-2934.01

AAC R9-28-407.E

AAC R9-28-408.F