There is an obvious and clear upside related to an education savings account set up on behalf of a child or other loved one. The money grows over time and is slated to be ready and available at those important future moments when it is needed.
And, concomitantly, there is a lurking downside relevant to a so-called 529 College Savings Plan or other advanced-education funding device recognized by the federal government in some cases, namely this: The money saved might not be beyond the reach of judgment creditors.
How frightening is that to an individual or family that has diligently set aside funds for years?
A recent article notes that qualified college savings plans established in California are not immune from creditors’ demands.
That is, states the writer, such accounts “are available to one’s creditors, just like any other non exempt asset.”
Many people know that certain assets are beyond the reach of creditors in a Chapter 7 bankruptcy. California’s law on enforcing judgments does not similarly accord such protection to debtors, who must pull the bankruptcy trigger in fast and timely fashion to avoid having a creditor make a successful claim against an education account.
The above writer points out that other strategies might be pursued that provide more protection against claims levied against such accounts, including gifting and the setting up of an irrevocable trust.
Any individual or family having questions or concerns regarding a college savings plan and how to best protect it might reasonably want to communicate with an experienced estate planning attorney in a timely manner, well in advance of when college money might be needed.