Are assets in your children's names like custodial accounts and 529 plans protected if you have to file bankruptcy?

Br />I don't know anything about 529 plans, and I can't cite any law or cases, but it has been my experience - in Southern Indiana at least - that trustees don't usually pursue joint accounts with balances in excess of the exemption limit IF the accounts were not funded by the debtor. In other words, if a debtor has a joint account with a child with a $5,000.00 balance, and Indiana only allows a debtor to have at most $100.00 in cash exemption, then if the debtor can show that the account was funded by the child's grandparent and that the debtor's name is on the account solely as a custian for the child, then the trustees usually do not pursue the funds. If however the debtor funded the account, trustees do normally pursue the funds.

If trustees didn't pursue the debtor-funded accounts, then any person who knows they're going to file bankruptcy and who has more cash than bankruptcy allows them to keep would simply open an account in their child's name and dump all of the cash into it. Another possibility: I haven't had this happen, so I don't know for sure and I am doubtful that it would work, but trustees may let you keep a debtor-funded joint account IF the account was funded long enough ago to convince the trustee that title to the funds did pass exclusively to the child and the debtor could not have done it in anticipation of bankruptcy because it was so long ago (more than a year ago at least). I don't know if this would work or not, but by analogy, debtors may put money into their own exemptable retirement plans and it's safe (in Indiana at least) as long as the retirement plans were funded more than 1 year before the bankruptcy filing (since this is the amount of time Indiana decided was long enough ago that the debtor didn't dump cash into the retirement fund in anticipation of bankruptcy).

My overall thoughts are that how each district handles this question probably varies widely from district to district, so it would be a good idea to consult an attorney in your area. Please note that nothing in this posting or in any other posting constitutes legal advice; this is simply my understanding of the facts, which I do not warrant, and I am not suggesting any course of action or inaction to any person.

I don't know anything about 529 plans, and I can't cite any law or cases, but it has been my experience - in Southern Indiana at least - that trustees don't usually pursue joint accounts with balances in excess of the exemption limit IF the accounts were not funded by the debtor. In other words, if a debtor has a joint account with a child with a $5,000.00 balance, and Indiana only allows a debtor to have at most $100.00 in cash exemption, then if the debtor can show that the account was funded by the child's grandparent and that the debtor's name is on the account solely as a custian for the child, then the trustees usually do not pursue the funds. If however the debtor funded the account, trustees do normally pursue the funds.

If trustees didn't pursue the debtor-funded accounts, then any person who knows they're going to file bankruptcy and who has more cash than bankruptcy allows them to keep would simply open an account in their child's name and dump all of the cash into it. Another possibility: I haven't had this happen, so I don't know for sure and I am doubtful that it would work, but trustees may let you keep a debtor-funded joint account IF the account was funded long enough ago to convince the trustee that title to the funds did pass exclusively to the child and the debtor could not have done it in anticipation of bankruptcy because it was so long ago (more than a year ago at least). I don't know if this would work or not, but by analogy, debtors may put money into their own exemptable retirement plans and it's safe (in Indiana at least) as long as the retirement plans were funded more than 1 year before the bankruptcy filing (since this is the amount of time Indiana decided was long enough ago that the debtor didn't dump cash into the retirement fund in anticipation of bankruptcy).

My overall thoughts are that how each district handles this question probably varies widely from district to district, so it would be a good idea to consult an attorney in your area. Please note that nothing in this posting or in any other posting constitutes legal advice; this is simply my understanding of the facts, which I do not warrant, and I am not suggesting any course of action or inaction to any person.

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