Custodial Accounts for Minors Should Be Exempt from Medicaid

According to the New Jersey Medicaid regulations, an individual is not allowed to own more than $2,000.00 of resources.  A resource includes any bank accounts, checking accounts or other investments that are in the control and accessible to that person.  This includes accounts that are payable on death to other individuals, as well as joint accounts.

Many parents open custodial accounts for their children while they are minors.  Typically a custodial account will have the father’s or mother’s name on the account and will refer to the son or daughter as the beneficiary.  Although the parent has full access, authority and control over the money, it should not be considered a countable resource for purposes of determining Medicaid eligibility for the parent.  The reason it should not be considered an asset is because the transfer of funds in the account is “irrevocable”.

According to the New Jersey Uniform Transfers to Minors Act, a gift provided by the parent to a minor child in the form of a custodial account is considered to be an irrevocable gift.  The applicable New Jersey statute provides that the assets that are transferred or deposited into the account are “indefeasibly vested in the minor”.  According to New Jersey law, the custodian of the account shall manage and invest the assets.  Another statute requires that the custodian use special care and observe the “prudent person” standard of care in taking care of the assets for the minor child.  There are other statutory provisions that require the custodian to keep record of all transactions with respect to the assets and to make sure that the assets are protected for the minor child.

Since the funds and assets transferred into a custodial account is an irrevocable transfer, the parent is not permitted to take the money back.  Once the funds are transferred into the custodial account then that is an irrevocable transfer and the money is not allowed to be returned to the parent.  This is why the funds transferred into the custodial account should not be considered an available resource for the parent when a Medicaid application is filed.