I am sure that my children's great-grandparents did not envision the scenario that is now unfolding when they did an incredible mitzvah for their great-grandchildren by making front loaded annual exclusion gifts of $55,000.00 to each great-grandchild more than 10 years ago.
Fast forward. They die believing that they have given a wonderful gift, the gift of education, to their great-grandchildren via 529 accounts that will hopefully increase in value to cover all 4 years of each great-grandchild's college education, maybe more. Great-grandfather was the original contributor account owner who named great-grandmother as the successor account owner. Before they both passed they named their happily married grandson the successor account owner and grandson named his wife, me, the following successor account owner.
Fast forward. Happily lasted 20 years. Grandson Account Owner and I have been in a 4 year extremely contentious divorce. I recognized our three 529 accounts as potential marital assets very early on as they have amassed to the hundreds or thousands of dollars and our oldest child who is an incredible stellar student has her eye on the ivy level schools.
Grandson Account Owner doesn't put the 529 assets down on his Financial Affidavit. I do. Knowing this could be an issue, I immediately engaged my attorney to try and freeze these assets to preserve them for our intended children. My efforts have been lengthy and unfortunately to no avail. Unless he agreed via an agreed order to preserve the assets, no one had legal standing to prevent him from doing what he ultimately did, deplete the assets, leaving only a de minimis amount. I have consulted with attorneys and tried to posture for some kind of tortious interference with a gift/inheritance type allegation but haven't gotten very far. No one has an answer for me other than that I should try and resolve it through the family court system in my divorce.
My husband's team has been trying to keep the assets out of the marital estate. I have 3 more trial days to go and currently have the forensic accounting expert on the stand. He is asserting that the 529 assets are assets of the children yet has also finally admitted that his client has liquidated the accounts as he was entitled. I am hoping the judge will ultimately rule that my husband has to repatriate the money in some way but I'm also hoping she does the right thing on other issues as well. I spoke to the IRS DC re: drafter's intent and whether there existed any rulings that speak to the issue of a successor account owner's withdrawal. More specifically, I asked whether there is any kind of implied fiduciary relationship between the Account Owner and the Beneficiary? the specificities of the completed gift notion? and whether the successor AO who did not contribute the initial funds, would pay taxes on the entire amount (not just savings)? After counsel looked into these answers and got back to me a couple of days later, he said they will take these issues into consideration when dealing with potential anti-abuse issues in the future but that section 529 was a low item on the hierarchy of issues the IRS is currently facing. Oh, and there is no implied fiduciary relationship created by section 529 of the code. I am not done my quest for justice on behalf of my children. Will wait and see how the judge handles this issue in my divorce first.