Critter Corner: Does a 529 College Plan Count as Part of My Assets When Determining Medicaid Eligibility?


Dear Saki and Alley,

I would like to set up a 529 College Savings Account for my granddaughter, Emma. If I need long-term care in the future, will the plan be counted as part of my assets?

Thanks for your help!

Mona E. Savin

Dear Mona,

One major drawback to setting up a 529 plan in your name is that if you need nursing home care in the future, the 529 plan that you have set up for your grandchild could destroy your eligibility for Medicaid. Because you control the account and have the right to cancel the account and take the money out, the government considers your 529 plan a “countable asset.” That means you’ll be required to use that money to pay for your long-term care expenses before you qualify for Medicaid.

Since everyone might need to apply for Medicaid in the future, you should consider contributing to an account in someone else’s name as the custodian/contributor/account owner for your grandchild, such as Emma’s parent (your son or daughter). That way, the plan won’t be considered a countable asset for purposes of Medicaid for you, and will likely be used up by the time your son or daughter needs Medicaid.

However, even this strategy won’t get you off the hook entirely. When you apply for Medicaid, the state will review your finances during the previous 60 months. Any gifts made during this so-called “look-back” period, including contributions to a 529 savings plan, could hurt your eligibility for Medicaid benefits. This problem is exacerbated If you plan on making regular, ongoing contributions to a 529 savings plan for your grandchild, because each contribution you make would be new gift that would begin a new 60-month look-back period.

An effective way to prevent this from happening is by setting up an irrevocable trust, such as The Living Trust Plus™ and making the contributions to the 529 plan from the trust. The Living Trust Plus™ functions very similarly to a revocable living trust and maintains much of the flexibility of a revocable living trust, but protects your assets from the expenses and difficulties of probate PLUS the expenses of long-term care while you’re alive, PLUS lawsuits and a multitude of other financial risks during your lifetime. You would make a one-time gift to the trust, starting the 5-year lookback period, and you’re your future contributions from the trust to the 529 plan would not count as new gifts. Please note this is the “short version” – the actual mechanics are a bit more complicated.

The Living Trust Plus™ Asset Protection Trust protects your assets (including the money in the 529 plan) from lawsuits, auto accidents, creditor attacks, medical expenses, and — most importantly for the 99% of Americans who are not among the ultra-wealthy — from the catastrophic expenses often incurred in connection with nursing home care.

If you would like more information about the Living Trust Plus™, please contact us for an appointment, or click here to register for one of our upcoming Living Trust Plus™ informational seminars.


Saki and Alley


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