College Planning Q&A: 529 Assets and Medicaid

Every month, college-savings expert Susan Bart answers advisors' questions on 529 plans and other education-planning matters.

The purpose of this column is to provide general educational information for investment professionals. For obvious reasons, Susan cannot give advice regarding specific clients or actual matters. Thus, only hypothetical questions, seeking general information, can be answered. Questions that involve real people or real matters will not be answered.

E-mail your questions to advisorquest@morningstar.com.

**Be sure to check out Susan's book, "Education Planning and Gifts to Minors 2004 Edition." Click here for more information.

Q. Are 529 accounts controlled by a person considered available to cover long-term-care expenses under Medicaid rules?

Susan: Each state administers Medicaid with its own rules, so the answer to your question may vary from state to state. To qualify for Medicaid, the applicant must meet certain qualifications. Generally, the applicant must be over 65, blind, disabled, or the parent of a minor child and must meet the financial need tests. When a person applies for Medicaid, the state values the applicant's "resources" to determine if he or she is less than the state's threshold amount, which may be as low as $2,000 or $3,000. Certain assets, such as a homestead or a car, are considered exempt. The federal regulations define "resources" as "cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for support or maintenance."  20 Code of Federal Regulations § 416.120, § 416.1201.

The federal regulations further explain:

(1) If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource.  If a property right cannot be liquidated, the property will not be considered a resource of the individual (or spouse).
20 CFR § 416.1201(a)(1).