Assets in 529 College Tuition Plan are Not Considered Available Resources of the Over Age 18 Beneficiary

A recent question has arisen regarding whether or not assets held in a 529 College Savings Plan (“Qualified Tuition Program”) for the benefit of a beneficiary who is disabled over eighteen years of age will be treated as a “resource” by either or both SSI (Supplemental Security Income) or Medicaid.

Some parents establish a 529 Plan for a young child in anticipation of saving for the child’s future (and the presumed need for) post-high school education expenses at a college or university.  Years later, due to illness, injury, developmental delays, or disabilities, it may become apparent to the parent that the child would not likely be able to attend college or university but instead does then, or shortly will, need to apply for and receive public benefits like SSI and/or Medicaid.  Will those funds held in a 529 Plan contributed by the parents (or others) now hinder, or even prevent, the beneficiary from being able to obtain SSI and Medicaid, if the beneficiary would otherwise qualify for those benefits??

Social Security has issued a POM which addresses how College Savings Plans are to be treated by the SSA.  The POM is found at SI 01140.150, entitled “Qualified Tuition Programs” (QTPs).  Included in the provisions of this POM is the specific finding that, since the 529 is deemed to be “owned” by the person establishing the account, it is therefore not owned by the beneficiary and, therefore, should not be deemed a resource of the disabled beneficiary.  This is great news for the beneficiary.  In fact, the parent (who is normally the custodian of the account) can use the funds to benefit the beneficiary in certain circumstances for educational needs without having the transfer the assets into an ABLE Account (see blog post), or into another alternative, such as a Medicaid Payback Trust [e.g., (d)(4)(A) or (d)(4)(C)].

In addition, the 529 Plan does not require any “Medicaid payback” to the state Medicaid program since the assets held in the 529 Plan are not deemed to be owned by and are not, therefore, “resources” of the beneficiary.

The recently passed “Tax Cuts and Jobs Act” expanded the use of 529 Plans for expenditures for K-12 tuition, thus making the assets available for educational purposes of a younger disabled person who may not qualify for college or university.  After completion of whatever educational needs the beneficiary has, the new tax act does allow 529 Plans to be rolled over into an ABLE account.

Using the funds in the 529 Plan to benefit the disabled beneficiary, without damaging the beneficiary’s public benefits and without incurring a Medicaid “payback” at the death of the beneficiary, is a two-fold benefit, a real “win/win.”
 

Curtis J. Shacklett, Esq.

Barber & Bartz, P.C.

525 S. Main St., Ste. 800

Tulsa, OK 74103-4511

Telephone: (918) 599-7755

Facsimile: (918) 599-7756

Email: cshacklett@barberbartz.com

Website: www.barberbartz.com