THE PROBLEM: When a grandparent contributes to a 529 plan for a grandchild's education, the grandparent - not the grandchild - is the legal owner of the account. If the grandparent applies for Medicaid, are the 529 funds counted as assets? Also, are such contributions construed as gifts or transfers during the five-year "look-back" period?

THE RULES: Certain transfers or gifts of assets made during Medicaid's 60-month look-back period do count in calculating the period of ineligibility before you can start collecting benefits. Since 529 plans may permit the owner to take the money back - rather than use it for educational benefits - they are typically counted as an asset in the Medicaid calculation. As of September 29, 2007, Arkansas is the only state that exempts 529 plans from its Medicaid eligibility formula.
The strategy: Ownership of the educational plan is key, so it's best to keep your name off the 529 account if you think you may need to apply for Medicaid in the future. If funds in the 529 plan are inaccessible to you, that will help you qualify for Medicaid if you need it eventually.

HOW IT WORKS: Consider making contributions to a 529 account owned by your children for the benefit of your grandchildren. Or establish the 529 account as a "custodial" plan that transfers direct ownership to the beneficiary at age 18 or 21. You could also install an appropriately drafted trust as the owner of the 529 account. If you've already established 529 accounts for your grandchildren in your own name, consider transferring account ownership to your grandchildren now. This won't change the 60-month look-back from the date of the ownership change, but you can get the clock ticking.

THE RESULTS: Remember that making yourself eligible for public assistance programs like Medicaid may not have to be your goal. Talk to a financial planner or attorney and look at all your options, including long-term care insurance, instead of just worrying about reducing your assets.