Will my college savings be counted for Medicaid?

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Q. Will my college savings be counted as asset for Medicaid?
— Asking

A. It’s a great question, and the answer isn’t simple.

It depends on what type of account you have used to set aside the college money, how and when you funded the account and whether you still have access to the money.

A general rule of thumb is that if you can liquidate an account and retrieve the money that you deposited, Medicaid will expect you to do so to fund your own care for as long as possible, said Nancy Heslin Reading, an estate planning attorney with Reading Law Firm in Newton.

She said Medicaid will also always penalize gifts, and there’s a good chance the funds you added to these college accounts are gifts.

But there may be an exception.

“If the account was funded prior to the 60-month lookback period, the applicant cannot be penalized for making a gift,” she said

Now, here’s why the type of account is also important.

If the funds were invested in a 529 plan, the funds are not part of the donor’s taxable estate, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston. That means the assets are not includible, he said.

“However, if the funds are invested in an account `ITF’ – in trust for – the grandchild, then the funds are includible,” Karu said.

For calculation purposes, Medicaid looks at all assets in the name of the applicant, Karu said.

Karu said assets held in 529 plans, while the donor’s name may be shown as the participant, are deemed to be a gift when the assets are transferred and, therefore, are no longer the donor’s asset.

“To be overly cautious, we recommend that grandparents who set up 529 plans for their grandchildren change the participant to the grandchild’s parent or guardian,” he said. “By doing so, it disassociates the donor’s name with the account entirely.”

But what if the grandparent simply added a grandchild’s name on one of his savings accounts?

That would be includable, Karu said, even if it were done more than 60 months earlier because it would not be deemed to be a completed gift.

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