Is a 529 College Savings Plan a

Gift to a Child or Marital Property?

Yesterday, the NC Court of Appeals addressed this question in Berens v. Berens. This was a case of first impression, meaning our courts have not yet made any decision on this subject. The Court defines 529 plan as “investment programs permit parents to set aside money for their children’s college expenses under tax-favorable conditions.” In the Berens case, the parents funded several 529 plans for their children while they were married and before they separated.

The First Trial: Marital Property

The lower court said the funds in the plans were marital property, and then awarded them to Mom as marital assets. She disagreed with that, and appealed the case, arguing that the money invested in the plans were gifts to each child, not marital property. And therefore, the court had no jurisdiction over the plans because they were not marital property. The Court of Appeals disagreed with her.

The Appeal: Marital Property

In this particular case, the Court of Appeals said the funds were not gifts to the children because they were all in Mom’s name alone. Besides the intent to give the gift to someone, a gift is only a gift if it is actually given to someone. Here, Mom failed to give a gift because no child was a named owner. Had the plans been gifts, each child would’ve had “all right, title, and control over the property.” Just because a 529 plan gives an owner a special tax benefit doesn’t mean it changes ownership. Although each child was a beneficiary, the plans were still owned by Mom. Therefore, she had the ability to spend the funds in any way see saw fit.

Laws change. This article is current as of 2018.©