Qualified Income Trust Tennessee: How a QIT Works When Income Exceeds the TennCare Limit

Tennessee Doesn't Allow Adults to Spend Down Into Medicaid Eligibility

Most families assume that if a parent's income is slightly above the Medicaid limit, they can "spend down" the excess each month to qualify. In many states, that's true. Tennessee is not one of those states.

Tennessee is an income cap state, which means that if your parent's gross monthly income exceeds $2,982 (the 2026 limit — 300% of the SSI Federal Benefit Rate), they are categorically ineligible for TennCare CHOICES long-term care benefits. There is no spend-down path for adults. A parent with $3,100 in monthly Social Security and pension income is just as ineligible as someone earning $10,000.

The sole legal mechanism to resolve this is a Qualified Income Trust, commonly called a QIT or Miller Trust.

How a QIT Actually Works

A Qualified Income Trust is an irrevocable trust designed to redirect your parent's income so it doesn't count against the TennCare CHOICES income limit. The mechanics are straightforward but unforgiving — TennCare audits these trusts, and any deviation from the rules can void the trust and retroactively disqualify your parent from benefits.

The trust document. An adult child or other trusted person drafts an irrevocable trust agreement with these mandatory provisions:

• The trust must be irrevocable — your parent cannot amend or revoke it
• The trust must name the State of Tennessee as the remainder beneficiary, meaning the state receives whatever funds remain in the trust at your parent's death, up to the total amount of Medicaid assistance paid
• Only the applicant's own income (Social Security, pensions, retirement distributions) can be deposited — no third-party funds, savings, or marital assets

The trustee. Someone other than the applicant must serve as trustee — typically an adult child. The trustee is personally responsible for managing the trust account and disbursing funds correctly each month.

The bank account. The trustee opens a separate, non-interest-bearing checking account titled in the name of the trust. The account uses the applicant's Social Security Number as the tax identification number.

The Monthly Waterfall: Disbursing QIT Funds

Each month, the applicant's income — all of it — is deposited into the QIT bank account. The trustee then disburses those funds in a strict priority order mandated by TennCare. This is not flexible. The order cannot be rearranged, and paying the wrong expense first can void the trust:

1. Personal Needs Allowance: $70 per month for the nursing home resident (increased from $50 effective January 1, 2025, under Public Chapter 986)
2. Trust management expenses: Documented bank fees, up to $20 per month
3. Spousal Income Allowance: The calculated Monthly Maintenance Needs Allowance paid to the community spouse (up to $4,066.50 for the 2026-2027 period)
4. Health insurance premiums: Medicare Part B, supplemental insurance, or D-SNP premiums
5. Patient liability: The remaining balance goes directly to the nursing facility or managed care organization

The trustee cannot pay attorney fees, trustee fees, life insurance premiums, home maintenance costs, or pre-existing debts from the QIT account. Any unauthorized distribution voids the trust.

What You Need Before Setting Up a QIT

A Durable Financial Power of Attorney with "hot powers." If your parent has already lost capacity, someone needs legal authority to create the trust on their behalf. A standard POA may not be sufficient — Tennessee law requires explicit grant of authority to create trusts and manage assets for Medicaid planning purposes. The POA must include what practitioners call "hot powers" (referenced in T.C.A. § 34-6-108(c)): the authority to make gifts, establish irrevocable trusts, and modify beneficiary designations.

If no POA exists and the parent lacks capacity, the family must obtain a conservatorship before they can establish the QIT — adding months and thousands of dollars to the process.

Precise income figures. You need to know the exact monthly income from all sources: Social Security, pensions, retirement account distributions, VA benefits. The QIT must receive all income that pushes the total above $2,982. Under-depositing or skipping a month triggers a compliance issue.

A cooperating bank. Not all banks are familiar with QIT accounts. The trustee needs a bank that will open a non-interest-bearing checking account titled in the trust's name, ideally one with experience handling Medicaid-related trust accounts.

Common Mistakes That Void a QIT

Commingling funds. The QIT account must contain only the applicant's income. Depositing a child's contribution, a savings withdrawal, or any other third-party funds contaminates the trust and makes it invalid.

Earning interest. The account must be non-interest-bearing. Even a few cents of interest deposited by the bank can create a compliance issue. Verify the account type before the first deposit.

Missing a monthly disbursement. The waterfall must be completed every month. If funds accumulate in the account because the trustee missed a month or didn't disburse correctly, TennCare may treat the accumulated balance as a countable resource.

Failing to name Tennessee as remainder beneficiary. This is a drafting error that invalidates the trust from inception. The trust document must explicitly state that upon the applicant's death, the State of Tennessee receives all remaining funds up to the total Medicaid assistance paid.

The QIT Is a Tool, Not a Loophole

A Qualified Income Trust doesn't reduce your parent's income or hide assets. It's a narrow legal mechanism that Tennessee recognizes as the only alternative to the hard income cap for adults. The state gets repaid from the trust balance after the applicant's death. The QIT simply allows families whose parent earns slightly more than $2,982 per month to access the same long-term care benefits available to those who earn slightly less.

The Tennessee Power of Attorney & Guardianship Kit includes the QIT process alongside the POA execution steps, so families can set up both the legal authority documents and the financial trust structure in the right order.

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