Back to School: Medicaid & 529 Plans

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Most people assume that they will not ever need skilled nursing care, but statistics show that that is not the case.  Medicare may be available to pay for a limited period of care under limited circumstances, but if an individual does not have long-term care insurance, care in a skilled nursing facility care can cost more than $12,000 per month in New Jersey. That is an awful lot of money to pay out-of-pocket, so more often than not, the client or his or her responsible caregiver turn to the Managed Long Term Services and Supports (MLTSS) Medicaid program as a source of funding, combined with the elderly resident’s income, for long-term care. 

MLTSS Medicaid is a joint federal/state means-tested welfare program. In New Jersey, for single individuals, the countable asset limit is $2,000. Countable assets are available resources, i.e., resources that are available to pay for your car.  In other words, if you have an asset that can be liquidated within 30 days, you can’t simply chose to do nothing to take the cash out of the assets and simply go on Medicaid, expecting Medicaid to pay for your care.  In New Jersey, this general rule applies to an individual’s (or a spouse’s) accessible retirement accounts as well as any educational savings accounts, including IRC 529 accounts, that can be converted to cash within a relatively short period of time. 

It can be a shock to family members to learn that the funds on deposit in a IRC 529 educational savings plan account may have to be returned to the contributor and spend down for the contributor’s long-term care or may be subject to a Medicaid penalty period, which is a period of time during which payment for long –term care is unavailable due to assets given away for less than fair market value during the Medicaid five year lookback period.  A seasoned elder lawyer can provide solutions. Depending on the circumstances, this might include purchasing a Medicaid friendly annuity to offset any Medicaid penalty period from the transfer of assets into a 529 plan or planning years in advance with an educational trust.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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