Grandparent Contributions to a 529 College Savings Plan — Medicaid Risks — Part 1
September 10, 2013
This edition of the Koldin Report E-Newsletter reviews the Medicaid risks when a grandparent contributes to a grandchild’s 529 College Savings Plan.
Sometimes grandparents desire to contribute to a 529 College Savings Plan for their grandchildren. We are often asked whether these 529 plans are at risk of being taken by Medicaid if a grandparent needs to enter a nursing home.
The answer to this question depends on who is designated as the owner of the 529 account. If the grandparent owns the account, he/she has the right to revoke the account and take the money back. If the grandparent has the right to revoke the account, the Medicaid Agency will typically require the account to be revoked and spent towards the nursing home bill.
The way to protect the 529 account is to have the child’s parent be the owner of the account and then the grandparent can contribute to that account. Since the grandparent does not own the account, any transfer by the grandparent to the account is considered to be a completed gift. The grandparent has no right to revoke the gift and take the funds back. Therefore, the account would not have to be spent towards the nursing home bill and is protected for the grandchild’s education expenses.
Any transfer of assets by the grandparent, such as a gift, a transfer to an irrevocable trust, or a transfer to a 529 plan owned by someone else, is subject to the Medicaid 5 year lookback transfer penalty rules. If the grandparent filed a Medicaid application for Nursing Home care within 5 years from when the transfer was made, Medicaid could be denied and a transfer penalty period of ineligibility assessed.
At the Koldin Law Center, P.C. with offices in Syracuse , New York, we have over 40 years of experience helping individuals plan for immediate crisis and long term care. Our attorneys are available to discuss your estate planning options including making contributions to a 529 College Savings Plan.