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

CAN A TRUSTEE PURCHASE OR PAY FOR COLLECTIBLES, HOBBY ITEMS, OR PET-CARE EXPENSES FROM A FIRST PARTY [(d)(4)(A)] TRUST?

I occasionally receive inquiries from parents serving as Trustee, as well as from professional (corporate) Trustees, about the legitimacy of expending trust funds for various items that one might consider mere “toys.”

The Social Security rules (“POMS”) [also followed by the Oklahoma Department of Human Services (OKDHS)], require that all funds held in a First Party Trust [a (d)(4)(A) trust] must be used “solely for the benefit of” the disabled beneficiary.  This “sole benefit rule” continues to be a source of confusion and a trip-wire for the unaware.  There are a few specific examples in the POMS addressing such things as hobby expenses, pet acquisition costs, or expenditures for collectibles [e.g., baseball cards, doll collections, etc.]  Clearly, such things (including pets) may have a significant benefit to the disabled person in providing hours of companionship (e.g., pet animal), or entertainment (doll collection).  One would be hard-pressed to say such things are “medically necessary,” but that is not required in the POMS as to permitted expenditures.  If a flat-screen television (an item of entertainment) can be purchased for the beneficiary then why not other “items of entertainment,” e.g., doll collections, baseball cards, latch-hook rugs (my son’s preference), puzzles, crafts, pet expenses, etc.?

Actually, the POMS do provide some guidance as to what types of items are considered “household goods” or “personal property.”  Although the list of permitted and exempted items (exempt from being considered as part of the $2,000 limit on resources) is not spelled out in great detail, we are given the following definition and examples:

SI 01130.430 (“Household Goods, Personal Effects, and Other Personal Property”)

C.  Definition of Household goods and personal effects

1.  Household goods

Household goods are items of personal property, found in or near the home, the householder uses on a regular basis.  The householder needs household goods for maintenance, use, and occupancy of the premises as a home.

a.         Examples of household goods

• Furniture;
• Appliances;
• Electronic equipment, for instance computers and televisions;
• Carpets;
• Cooking and eating utensils; and
• Dishes.

b.         Items held because of their value or as an investment

Items that an individual acquires or holds because of their value or investment are not household goods, even if they otherwise meet the definition of household goods in SI 01130.430C.1.

2.  Personal Effects

Personal effects are items of personal property ordinarily worn or carried by the individual, or items that have an intimate relation to the individual.

a.  Examples of personal effects

Personal effects may consist of the following:

• Personal jewelry, including wedding and engagement rings;
• Personal care items and clothing;
• Pets, such as a cat, dog, hamster, horse, monkey, or snake;
• Educational or recreational items, such as books, musical instruments, or hobby materials; or
• Items of cultural or religious significance to an individual, such as ceremonial attire.

b.  Items required because of an individual’s physical or mental impairment

Items required because of an individual’s physical or mental impairment, such as prosthetic devices or wheelchairs, are also personal effects.

c.  Items held because of their value or investment

Items that an individual acquires or holds because of their value, or as an investment, are not personal effects; even if they otherwise meet the definition of personal effects in SI 01130.430C.2.

Section D of the referenced POMS, however, makes clear that not all items of personal property will be treated as exempt:

1.  Other personal property may be a countable resource

Property that an individual acquires or holds because of its value or as an investment:  is a countable resource and is not considered a household good or personal effect for the purposes of this exclusion.

 Examples of other personal property that would not be exempt are given in paragraph 2, of Section D:

• Gems;
• Jewelry that one does not wear or does not hold family significance;
• Animals for investment purposes, such as a horse or dog for breeding, for resale, or investment; and
• Collectibles.

Purchasing items by the Trustee of a “First Party Trust” may cause an “excess resource” problem if the purchased personal property would be classified as collectibles; for example, or items purchased for their value (jewelry), even if such items are purchased from the disabled persons own funds (e.g., funds from Social Security benefits or accumulated wages) to avoid a problem with expending funds from the First Party Trust.  Doing so may still result in the acquired items not being treated as exempt and, therefore, their value being a part of the resource cap of $2,000.00.

CONCLUSION:  The POMS authorize the acquisition of "pets" and "hobby materials." It would seem permissible, therefore, for a Trustee to expend trust funds (within some degree of reasonableness) to acquire or maintain these types of personal property.  Items viewed as "investments" or "collectibles" will likely create problems for the beneficiary, however.  Purchasing or receiving as gifts of non-excluded household goods or "other personal property" may result in a problems of excess resources, thus hindering continued receipt of SSI and/or Medicaid.

Purchasing of “other personal property” by the Trustee, and holding title in the Trust for the benefit of the disabled person may be permitted by state trust law, but a loss in value may expose the Trustee to a claim of breach of fiduciary duty to either the beneficiary or to the remainder persons (possibly including the state Medicaid agency).

Thus, avoiding the purchase by the Trustee or purchase from the disabled person’s own personal funds, of “other personal property” (items/non-exempt resources) should generally be avoided.

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

CAN A SPECIAL NEEDS TRUST OWN A HOUSE FOR THE BENEFIT OF A DISABLED PERSON RECEIVING SSI AND/OR MEDICAID?

Sometimes a disabled adult (or guardian of a disabled adult) who has received a personal injury settlement (or large inheritance) which was placed into a special needs trust (SNT) containing a Medicaid payback provision, will inquire about the trustee purchasing a home for the disabled person. This post will address an issue of the trustee purchasing a home for a disabled adult person for his/her own use/benefit.

The Social Security POMS provide considerable guidance regarding home ownership by a trust for a disabled person. Section SI 01120.200 F.1., provides:

If the trustee of a trust which is not a resource for SSI purposes purchases and holds title to a house as a home for the beneficiary, the house would not be a resource to the beneficiary. It would also not be a resource if the beneficiary moved from the house. The trust holds legal title to the house, therefore, the eligible individual would be considered to be living in his/her own home based on having an “equitable ownership under a trust.”

Thus, the mere ownership of a home by the trust is not problematic to the disabled beneficiary. However, as recited below, the POMS provide that payment by the trust of mortgage payments, and other household expenses will be deemed to be income to the disabled person, thus impacting (reducing, most likely) such person’s SSI check each month:

(section F. 3. b) If the trust, which is not a resource, purchases the home with a mortgage and the individual lives in the home in the month of purchase, the home would be ISM [In-kind Support and Maintenance--a form of income] in the month of purchase. Each of the subsequent monthly mortgage payments would result in the receipt of income in the form of ISM to the beneficiary living in the house, each payment [i.e., of the monthly mortgage note] valued at no more than the PMV [presumed maximum value] (see SI 01120.200 E.1.b).

In addition, the POMS provide that certain household expenses paid for by the trustee can be deemed to be income to the disabled individual:

(section F. 3. c): “If the trust pays for other shelter or household operating expenses, these payments would be income in the form of ISM in the month the individual has use of the item. …If the trust pays for improvements or renovations to the home, e.g., renovations to the bathroom to make it handicapped accessible or installation of a wheelchair ramp or assistance devices, etc., the individual does not receive income. Disbursements from the trust for improvements increase the value of the resource and, unlike household operating expenses, do not provide ISM.”

Thus, an outright purchase without an ongoing mortgage is one way to reduce the “income” problem to the beneficiary. However, payment by the trust of normal household operating expenses (e.g., utilities, ad valorem taxes, water/sewer, garbage removal, etc) will be deemed to constitute additional “income” to the disabled beneficiary, which may affect either or both such person’s receipt of SSI and/or Medicaid benefits.


Curtis J. Shacklett
Barber & Bartz
525 S. Main Street, Suite 800
Tulsa, Oklahoma 74103-4511
Telephone: (918) 599-7755
Facsimile: (918) 599-7756
E-mail: cshacklett@barberbartz.com