529 Plans are a tax advantage savings plan to pay for qualified higher education expenses. These plans are named after the Internal Revenue Code Section authorizing them and have grown in popularity in recent years. The basic plan involves contributions into an investment plan or prepaid tuition plan which can grow with the market and be used in the future to pay for qualified higher education costs without paying federal income tax on the gains within the plan when the funds are withdrawn properly.
These plans are a great way for parents and grandparents to invest funds on behalf of other family members to assist them in the future to pay for education expenses such as college tuition. One of the major attributes that makes these plans attractive to the parents and grandparents who typically create them is that the donor of the funds can retain control over the funds until such time as they are used to pay for educational expenses. This retention of control over the funds is advantageous but also has unintended consequences when involved in elder care planning.
As an example, consider a grandparent who establishes and contributes to a 529 Plan for the benefit of his grandchildren. Over several years, the grandparent may contribute monthly or annual lump sum amounts into the investment account, which then grows with market appreciation. However, an unforeseeable illness, such as a stroke or the progression of dementia could cause the grandparent to need expensive skilled nursing care. In Pennsylvania, nursing homes cost on average about $7,000/month. Since Medicare pays covers very little of these costs, the grandparent may be forced to apply for Medicaid benefits to pay for his or her nursing home care. Medicaid has very strict guidelines on financial eligibility. The state Medicaid agency reviews the assets owned by the grandparent when processing the Medicaid application. Since a 529 Plan is technically owned by the grandparent, he or she must dispose of this asset prior to obtaining Medicaid benefits to pay for the needed nursing home care.
In order to remove the funds from the 529 Plan to qualify for Medicaid, the grandparent could end up paying significant penalties and income tax since the funds would be withdrawn for use other than qualified higher educational expenses of the grandchildren. Obviously, this was not the intention when the grandparent established the 529 Plan.
This unfair result underscores the need for seniors who have not planned for their long term care expenses to examine their current situation to minimize exposure to long term care costs; not only for the preservation of a 529 Plan, but other investments and assets as well.
For a review of your situation, please complete and return our questionnaire and we will be happy to review your goals, identify potential problems and offer solutions.
 |
 |
