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529 Plans and Medicaid (Part 2) #Medicaid

            Last week I was telling you about the problem 529 plans pose for Medicaid.  Maria called me to handle her dad, George’s Medicaid application.  George had set up 529 plans for Maria’s daughters.  Are those accounts countable assets subject to Medicaid’s spend down rules?

            Last week I explained that the contributions and growth in these accounts are considered removed from George’s estate.  That does not, however, answer the question for Medicaid.  We have to look a bit deeper.  While the value of a 529 plan is removed from the contributor’s estate for estate and gift tax purposes, the owner and custodian of the account still has the ability to revoke it and pull the assets back and therein lies the problem for Medicaid.

            If George is the owner and custodian then he has not made a transfer of assets out of his name for Medicaid purposes.  The money in those 529 plans is countable and must be spent down.  That means the money must be spent for George’s needs and not his granddaughters’ education.

            On the other hand, if George set up the accounts but named someone else – Maria for example – as the owner and custodian then he has no control over the accounts. Maria may be able to revoke them but George cannot.  In that case, for Medicaid purposes, he made a transfer for less than fair value.  So is he then “out of woods”?   Possibly but we need to know more.

            The next question is when did George make the contributions to the accounts?  If any were made in the last 5 years, they would be subject to Medicaid’s 5 year look back and would result in a Medicaid penalty.

            In each individual case we need to examine how the 529 plan works and who the account owner and custodian is.  As with any Medicaid questions there isn’t a “one size fits all” answer.