529 and 530 exemptions
Posted: Fri Dec 16, 2011 9:45 am
charsetndows-1252
Thanks for getting back to me with your thoughts, analysis (and ramblings).
This is planning. It looks like grandpa (donor) ought to set up his own separate 529 for grandkid (bennie), before dad (Debtor) files Chapter 7.
The existing 529 (Dad is fiduciary) was funded by contributions that are either excluded or not fraudulent transfers per your analyses.
Otherwise, there may be risk of the worst case scenario where grandpa funds the existing 529, and dad's trustee and creditors benefit, not the prospective college student/barista....
Jason
Jason Wallach
jwallach@gladstonemichel.com
On Dec 15, 2011, at 4:42 PM, Patrick T. Green wrote:
>
> I now mostly agree with Mark Jesse. 541 (b)(5) & (b)(6) are typical of the bad drafting of BAPCPA. I think they can be read in tandem with 548 only because they dont otherwise make any sense. The most reasonable way to read them (which may just be another way to say what Mark is saying) is that they limit 548 in its application to 529 plans and Educ IRAs. Thus only the dollar amounts listed are to be considered fraudulent transfers.
>
>
>
> The issue then becomes who is the debtor? I have usually run into debtors who have set up 529s for their children. As such, (b)(5) & (b)(6) apply to their contributions. Sometimes, a grandparent will put money into the accounts set up by the parents for the grandchildren. What is clear to me now is that (b)(5) & (b)(6) apply to the donor.
>
>
>
> But this leaves another issue. Under the IRC, the money transferred to a 529 plan (and I presume for a 530 IRA, but I have not read that section of the IRC) is a completed gift for tax purposes, but presumably it also a completed gift for other purposes, such as BK. So it belongs to the bennie, but may be taken back from the bennie by a trustee in BK if donated by a debtor in BK. Because is it a completed gift, I presume that it would be property of the BK estate if the bennie filed. (But because the bennie did not set it up, it would not be unlikely that a bennie may not know of the plan or honestly not think of it when doing their BK paperwork. E.g., 21 year old bennie cant figure out what to do with his life, drifts along without going to school, but runs up cc debt and gets car repossessed because Starbucks doesnt pay that well. In the meanwhile for tax reasons and because of their hope that sonny will someday go to school, mom and pop are pouring money into the 529 account.) But what happens if donors file BK, then bennie files BK. Can trustee in first BK claw it back from second BK estate or is it there for the benefit of the creditors in the second BK? Enquiring minds want to know!
>
>
>
> But enough of my ramblings. Jason, in your facts, is the debtor the bennie under the account or the account holder? In other words, did the debtor set up 529 for his kid and then grandpa contributed, or did debtor>
>
>
> Pat
>
>
>
> Patrick T. Green
>
> Attorney at Law
>
> 1010 E. Union St. Suite 206
>
> Pasadena, CA 91106
>
> Tel: 626-449-8433
>
> Fax: 626-449-0565
>
> Email: pat@fitzgreenlaw.com
>
>
>
>
>
>
>
Mark T. Jessee
> Sent: Thursday, December 15, 2011 12:51 PM
> To: cdcbaa@yahoogroups.com
> Subject: Re: [cdcbaa] 529 and 530 exemptions
>
>
>
> 529 and 530 accounts belong to the beneficiary, not the contributor. Monies withdrawn, not used for statutorily defined allowed education expenses are taxable to the beneficiary. Someone, be it a parent or grandparent is the fiduciary on the account managing it for the beneficiary. I think Section 541 of the banrkuptcy code should be read in tandem with Section 548 and it is aimed at limiting the debtor from transferring money to these accounts prepetition. The bankruptcy code can claw back assets tranferred away by a debtor, but it cannot sieze assets from a child or grandchild of the debtor that never belonged to the debtor in the first place. If grandpa funded all the money into the 529 or 530 account during the last two years and grandpa is the custodian of the account for the benefit of grandchild, how could father's bankruptcy estate have any interest in the 529 or 530 account? If mom and dad contributed to their child's 529/530 plan and grandpa, who never contributed anything to the account files a Chapter 7, how could the 529/530 plan possibly be an asset of grandpa's bankruptcy estate? >
>
>
>
> Mark T. Jessee
> Law Offices of Mark T. Jessee
> "A Debt Relief Agency"
> 50 W. Hillcrest Drive, Suite 200
> Thousand Oaks, CA 91360
> (805) 497-5868 (805) 497-5864 (Facsimile)
>
>
>
> On Thu, 15 Dec 2011 11:47:23 -0800, Jason Wallach wrote:
>
>
>
> So, Mark, you are saying that the grandparents' contribution within one year is property of the estate?
>
> (then have to consider if the grandparent can set up a separate 529 or education IRA, with a non-debtor trustee).
>
>
>
> Jason Wallach
>
> jwallach@gladstonemichel.com
>
>
>
>
>
>
>
> On Dec 15, 2011, at 11:43 AM, Mark J. Markus wrote:
>
>
>
>
>
>
> To my understanding, these accounts are set up with the debtor parents as trustees for the children as beneficiaries. Thus, it doesn't matter who contributed the money to the account; it's whether the money IN the account is property of the estate, and it is property of the estate unless contributed more than 2 years prepetition, or less than $5,850 within one year prepetition, etc.
>
>
> *************************
> Mark J. Markus
> Law Office of Mark J. Markus
> 11684 Ventura Blvd. PMB #403
> Studio City, CA 91604-2652
> (818)509-1173 (818)509-1460 (fax)
> web: http://www.bklaw.com/
> This Firm is a Qualified Federal Debt Relief Agency (see what this means at http://bklaw.com/bankruptcy-blog/2008/0 ... efinition/)
> ________________________________________________
> NOTICE: This Electronic Message contains information from the law office of Mark J. Markus that may be privileged. The information is intended for the use of the addressee only. If you are not the addressee, note that any disclosure, copy, distribution or use of the contents of this message is prohibited.
> IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.
>
>
> On 12/15/2011 11:20 AM, Jason Wallach wrote:
>
> Both 11 USC 541(b)(5) and (6) respectively relating to
> Education IRA's and 529 plans, have the same language, excluding certain "funds"
> but without distinguishing the source.
> Contributions within one year of the filing don't seem to be excluded, or funds
> over $5850 in the second year before filing either.
>
> If Debtor's father contributes to Debtor's son's 529 within the year before
> filing, is there anyone who thinks that is subject to bankruptcy Estate
> administration? It is "funds"....
>
> Jason
>
> CONFIDENTIAL COMMUNICATION
> ATTORNEY-CLIENT PRIVILEGE
>
>
>
>
>
>
>
charsetndows-1252
Thanks for getting back to me with your thoughts, analysis (and ramblings).This is planning. It looks like grandpa (donor) ought to set up his own separate 529 for grandkid (bennie), before dad (Debtor) files Chapter 7.The existing 529 (Dad is fiduciary) was funded by contributions that are either excluded or not fraudulent transfers per your analyses.Otherwise, there may be risk of the worst case scenario where grandpa funds the existing 529, and dad's trustee and creditors benefit, not the prospective college student/barista....Jason
Jason Wallach
The post was migrated from Yahoo.