What is a Qualified Income Trust?

A qualified income trust (QIT) is an irrevocable trust designed to protect the assets of an individual who receives income from a personal injury settlement or judgment. By placing these assets in a QIT, the beneficiary can qualify for needs-based government benefits, such as Medicaid and Supplemental Security Income (SSI).

The QIT must meet specific requirements to qualify under the Internal Revenue Code Section 139A. The trust must be established by a court order or a settlement agreement, and the beneficiary must be disabled or blind. The assets in the trust must be used to supplement the beneficiary's income, and they cannot be used to purchase or maintain a life insurance policy.

Benefits of a Qualified Income Trust

There are several benefits to using a QIT, including:

Preservation of Assets: The assets in a QIT are protected from creditors and can be used to supplement the beneficiary's income.

Qualification for Benefits: The QIT allows the beneficiary to qualify for needs-based government benefits, such as Medicaid and SSI.

Tax Savings: The assets in a QIT are not subject to estate taxes, and the beneficiary may receive tax-free distributions from the trust.

Limitations of a Qualified Income Trust

There are also some limitations to using a QIT, including:

Irrevocable: A QIT is irrevocable, which means that the assets cannot be withdrawn once they have been placed in the trust.

Income Restrictions: The beneficiary's income must be below a certain level to qualify for a QIT.

Asset Restrictions: The assets in a QIT must be used to supplement the beneficiary's income, and they cannot be used to purchase or maintain a life insurance policy.

How to Establish a Qualified Income Trust

To establish a QIT, you will need to work with an attorney who is experienced in estate planning. The attorney will help you draft a trust document and file it with the court. The court will then review the trust document and issue an order approving the trust.

Step-by-Step Approach to Establishing a Qualified Income Trust

Consult with an Attorney: Find an attorney who is experienced in estate planning and QITs.

Draft a Trust Document: The attorney will help you draft a trust document that meets the requirements of the Internal Revenue Code Section 139A.

File the Trust Document with the Court: The trust document must be filed with the court and approved by a judge.

Transfer Assets to the Trust: Once the trust has been approved, you can transfer the assets you wish to protect to the trust.

Manage the Trust: The trustee of the trust will be responsible for managing the assets and distributing the income to the beneficiary.

Success Stories

Case Study #1:

A woman who was injured in a car accident received a $1 million settlement. She used the money to establish a QIT, which allowed her to qualify for Medicaid and SSI. The QIT provided her with the financial security she needed to live independently.

Case Study #2:

A man who was disabled in a workplace accident received a $500,000 settlement. He used the money to establish a QIT, which allowed him to qualify for Social Security Disability Insurance (SSDI). The QIT provided him with the additional income he needed to support his family.

Case Study #3:

A woman who was blind received a $250,000 inheritance. She used the money to establish a QIT, which allowed her to qualify for Medicaid. The QIT provided her with the financial assistance she needed to pay for her medical expenses.

Conclusion

A qualified income trust can be a valuable tool for individuals who receive income from a personal injury settlement or judgment. The trust can protect the assets from creditors, qualify the beneficiary for needs-based government benefits, and provide tax savings. If you are considering establishing a QIT, it is important to consult with an attorney who is experienced in estate planning.

Tables

Table 1: Benefits of a Qualified Income Trust

Benefit	Description
Preservation of Assets	The assets in a QIT are protected from creditors and can be used to supplement the beneficiary's income.
Qualification for Benefits	The QIT allows the beneficiary to qualify for needs-based government benefits, such as Medicaid and SSI.
Tax Savings	The assets in a QIT are not subject to estate taxes, and the beneficiary may receive tax-free distributions from the trust.

Table 2: Limitations of a Qualified Income Trust

Limitation	Description
Irrevocable	A QIT is irrevocable, which means that the assets cannot be withdrawn once they have been placed in the trust.
Income Restrictions	The beneficiary's income must be below a certain level to qualify for a QIT.
Asset Restrictions	The assets in a QIT must be used to supplement the beneficiary's income, and they cannot be used to purchase or maintain a life insurance policy.

What is a Qualified Income Trust?