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Medicaid Planning with Tuition Savings Programs Gets Easier

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In an apparent attempt to promote saving for higher education, a new rule (Section358.356) has been published in the Texas Administrative Code which now excludes tuition savings programs (such as a prepaid tuition program or higher education savings plan or a qualified tuition program that meets the requirements of Section 529 of the Internal Revenue Code) as a countable resource when applying for Medicaid benefits. Previously, Texas allowed contributions to Education Savings Accounts (ESAs) to be excluded (but not 529s and similar programs). ESAs differ from 529 plans in a few ways, but the most important difference is that once the person gives money to set up the ESA, the donor may not withdraw funds for personal use. So, although the new rule allows contributions to tuition savings programs including 529s, prepaid tuition programs, etc., it further indicates that if there is a withdrawal from the tuition savings program for any purpose other than paying for qualified educational expenses of the beneficiary or if the tuition savings program is cancelled, then the resource exclusion does not apply. There is similar treatment for those who establish a Uniform Transfers to Minors Act (UTMA) account. Transfers to such accounts are an exception to the transfer penalty rules (transfer within 5 years of a Medicaid application result in penalty creating Medicaid ineligibility unless it fits within an exception) – so it is neither counted as a transfer nor as a resource.

Since Medicaid is “means tested”, this will be a very useful planning option in situations where a Medicaid applicant (i.e., a person in a nursing home) has too much resources for Medicaid eligibility (the government helps pays for the cost of care if there is eligibility) as they can simply transfers funds to a 529 or similar plan or an UTMA account (provided the funds are to be used for higher education as mentioned above) to obtain eligibility quicker. The beneficiary of the 529, UTMA account, etc. must be established before the beneficiary 21st birthday and may be established by the parent, stepparent, spouse, grandparent, brother, sister, uncle or aunt, whether related by whole blood, half blood or adoption. This rule is unique to Texas (and so would not be applicable for those who apply for Medicaid in other sates).

For more information on Medicaid planning or to schedule a consultation call our office at (214) 720-0102

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