Amendment to 529 Educational Accounts

Adam Keilen Estate Planning

As of January 2, 2013, Public Act 552 of 2012 was signed and amends the law regarding asset exemptions, as they relate to creditors. The Act protects 529 plans from creditors; an interest in an educational trust account is exempt under a court judgment. MCL § 600.6023(1)(l)(iii). Michigan amended the previous statute and now provides additional protection subject to certain restrictions; thus, trust funds, funds used to purchase tuition credits, or contributions to an account established pursuant to IRC 529, are not considered property of the estate and are thereby not recoverable by creditors. 11 USC 541(c)(2), MCL 600.6023(1), amended by 2012 PA 553.

529 plans are named after section 529 of the Internal Revenue Code 25 U.S.C. § 529. The plans provide state tax advantages and benefits to those who invest in their respective state. 529 plans may be either prepaid plans or savings plans. The law, as amended, states:

Sec. 6023. (1) The following property of a judgment debtor and the judgment debtor’s dependents is exempt from levy and sale under an execution:

  1. A trust, fund, or advance tuition payment contract established under the Michigan education trust act, 1986 PA 316, MCL 390.1421 to 390.1442.
  2. An account established under the Michigan education savings program act, 2000 PA 161, MCL 390.1471 to 390.1486.
  3. An account in a qualified tuition program or educational savings trust under section 529 or 530 of the internal revenue code of 1986, 26 USC 529 and 530.

Mich. Comp. Laws Ann. § 600.6023. Therefore, as of January 2, 2013, creditors are no longer able to seize these accounts.