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Would 529 college savings plan from texas protect out of…

would 529 college savings plan...
would 529 college savings plan from texas protect out of state owners/beneficiaries/donors from judgments outside of texas. Need link to confirm answer.
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12/2/2017
bkb1956
bkb1956, Paralegal
Category: Bankruptcy Law
Satisfied Customers: 5,996
Experience: 30+ years of paralegal experience, specifically in residential real estate and corporate matters
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Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

Texas is probably the best state to live in as far as protecting your assets from creditors.

529 college savings plans CANNOT be seized by creditors.

https://www.dallasnews.com/business/money/2012/08/17/texas-law-puts-protective-umbrella-over-debtors

"A person’s right to the assets held in, or to receive payments or benefits from, any fund or plan established under Subchapters F and G of Chapter 54 of the Texas Education Code, or any qualified tuition program of any state that meets the requirements of Section 529 of the Internal Revenue Code of 1986, as amended, are protected from creditors under Texas Property Code §42.0022."

http://www.btjlaw.com/index.php/articles/an-overview-of-asset-protection-in-texas

Please let me know if I can assist you further.

My goal is to provide you with excellent service. Please take a moment to rate my answer with a 5-star rating to let me know that I have achieved my goal.

Thank you and best regards,

Barb

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Customer reply replied 5 months ago
at least according to http://www.savingforcollege.com/top-tip/editorial.php?editorial_id=59 the issue of people depositing to 529 from out of state has not been settled at the time the article was published - -can you point to any new development that addresses this? Also would federal law trump the state law regarding that the funds deposited to 529 2 year before BK filings are not exempt?

The link you sent is from 2005, and the links I provided are current.

I will opt out and refer this to a bankruptcy lawyer. Your question came through in the Finance/Tax category.

Please do not respond since that will delay the process.

Thank you.

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Law Educator, Esq.
Category: Bankruptcy Law
Satisfied Customers: 124,296
Experience: Attorney At Law handling education matters.
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Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.

It all depends on the state as to whether or not your 529 is exempt from creditors. In California for example, Section 529 Plans are not exempt assets under California Code of Civil Procedure sections 680.010 through 724.260. See: O'Brien v. AMBS Diagnostics https://www.courtlistener.com/opinion/3196832/obrien-v-ambs-diagnostics/

So it would depend on the state that issues the judgment and if they get a judgment in that particular state that finds the plan not exempt, then they could enforce that judgment in Texas even though 529 plans are protected in Texas based on the full faith and credit clause forcing the Texas courts to honor foreign court judgments.

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Customer reply replied 5 months ago
can you provide a single court case where a judgement from another state was honored in a state which expressly states that 529 is excluded from judgments etc in that state (as I mentioned earlier at least in one link from 2005 it stated that the law on this subject is not settled yet). Also would federal BK law trump the state law for 529?

Thank you or your reply.

It depends on the case. If you are in a creditor case, not a BK case, the BK law protecting the 529 plan does not offer protection.

For example, Florida Statute 222.22(1) exempts from attachment, levy, garnishment or legal process moneys paid into or out of, … and the income of any validly existing tuition program under Section 529 of the Internal Revenue Code “including, but not limited to,” the Florida Prepaid College Trust Fund.

So it is on a state by state basis. Texas also has codes protecting the plan, not one code, but TWO codes.See TEX.PROP.CODE §42.0022(providing creditor protection); TEX.EDU.CODE §54.632 (relating to refunds under 529 plans).

So there are now two state codes that prevent seizure, one court case from CA allowing garnishment.

Please do not forget to leave positive feedback by clicking on the 5 stars at the top of your page, as the experts are not employees of the site and get no credit for spending time with customers unless they leave positive feedback. Thank you.

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Customer reply replied 5 months ago
I am still not clear - but I give my five start rating anyway - since I do not think anyone has answer as there is a raging debate on this
https://www.bogleheads.org/forum/viewtopic.php?t=18170but please let me know if the federal law trumps any state law on 529 plan rgarding BK and judgment?

Thank you for your reply, but you never left any 5 star rating despite what you stated.

Well, YES IT DOES on judgments and I provided you not one, but TWO DIFFERENT state laws telling you that it does. I do not know what was so unclear about the two state laws, they were right to the point and clearly written.

For a bankruptcy, that is DIFFERENT FROM A CREDITOR JUDGMENT. In a Bankruptcy, the 529 plan may or may not be protected, it depends on when the money was put into the account and who the beneficiary is. The money in the 529 Plan is protected if it was deposited more than a year before the filing and it is limited to $5000 of funds protected between 1 and 2 years from the date of the bankruptcy, while any funds deposited more than 2 years from the bankruptcy have unlimited protection.

See Also:
http://www.bankruptcylawnetwork.com/section-529-plans-in-bankruptcy/

and

http://www.consumerhelpcentral.com/529-plan-bankruptcy-protection/

So it is clear. For garnishment of judgments, the 529 plans are protected DEPENDING ON THE STATE LAW and for bankruptcy, they have limited protection under the Bankruptcy Law.

Please do not forget to leave positive feedback by clicking on the 5 stars at the top of your page, as the experts are not employees of the site and get no credit for spending time with customers unless they leave positive feedback. Thank you.

Law Educator, Esq.
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