529 Plans and Medicaid #Medicaid

            Maria asked me to handle the Medicaid application that needed to be filed on behalf of her father, George.  We went over the assets he has left to spend down.  That’s when Maria told me that George had set up 529 plans for his granddaughters.  “Do we have to spend the money in these accounts on Dad’s care before qualifying for Medicaid”, she asked.

            529 plans are college savings plans named after the section of the federal law that established them.  These plans allow a parent, grandparent – or really anyone – to transfer money into an investment account which is established for the benefit of a child, to be used for that child’s college expenses.

            There are gift and estate tax advantages to these plans.  I may make contributions of up to $14,000 per person per year to a 529 plan.  The gift and tax laws will even allow me to accelerate my contributions so that I can contribute as much as $70,000 in one year for each beneficiary.  This contribution will then be considered as having been made over a 5 year period so that no gift tax will be triggered.

            The advantage is that these contributions and the growth of the account are removed from my estate for estate tax purposes.  But, as I have stated so many times to clients and prospects, don’t confuse the gift and estate tax laws with the Medicaid rules.  The outcomes can be very different.   529 plans are another example of that.

            So, is a 529 plan a countable asset subject to Medicaid’s spend down rules?  As with most things Medicaid related the answer is a bit complicated, but I’ll share my answer with you next week.