1. What is the key element to the court in protecting Bronk’s investments in the college plans?

2. Why does the trustee lose the argument on Internal Revene Code qualification for the annuity?

Leonard Bronk, a retiree living in Stevens Point, Wisconsin, incurred significant debts providing for his wife’s medical care before her death in 2007, and he himself suffered a stroke in early 2009. With his medical debts mounting— they exceeded $345,000 by the time he filed for bankruptcy— Bronk sought the advice of an attorney about prebankruptcy exemption planning. His assets included his home, which he owned free and clear, and a certificate of deposit in the amount of $42,000. On the advice of counsel, Bronk sought to protect these nonexempt assets by converting them to exempt assets.

In May 2009, a few months before filing his Chapter 7 petition, Bronk borrowed $95,000 from Citizens Bank and mortgaged his previously unencumbered home. He used these funds to establish five college savings accounts for the benefit of his grandchildren under section 529 of the Internal Revenue Code.

Account owners control the funds in these accounts (known as “Edvest” accounts) and may designate and change account beneficiaries. Beneficiaries do not control account assets.

In addition to creating the college savings accounts using the equity in his home, Bronk converted the $42,000 certificate of deposit into an annuity with CM Life Insurance Company. The annuity contract was issued on May 4, 2009, and does not begin making payments until January 3, 2035, but it also includes a death benefit. On August 5, 2009, Bronk filed for bankruptcy under Chapter 7. The trustee objected to the college-fund and annuity transactions, arguing that Bronk had transferred his property with the intent to hinder, delay, or defraud his creditors and thus should be denied a discharge. The judge accepted Bronk’s argument about the annuity, holding that it was fully exempt as a retirement benefit as were the Edvest accounts.

Both sides appealed to the district court. The district judge agreed that Bronk was entitled to a discharge because the trustee had not proven that the asset transfers were made with intent to hinder, delay, or defraud creditors. Second, the district judge agreed with the bankruptcy judge’s interpretation and upheld the decision to deny the claimed exemption for Bronk’s Edvest accounts (which was reversed on remand). Finally, the judge narrowed the bankruptcy court’s interpretation of “retirement benefit” and remanded the case for additional fact-finding on whether the annuity qualified under the statute.

Bronk appealed, challenging the disallowance of the exemption for his college savings accounts. The trustee filed a cross-appeal challenging the court’s ruling on the annuity.

JUDICIAL OPINION

SYKES, Circuit Judge … Wisconsin’s exemption statute allows debtors to exempt “[a]n interest in a college savings account under s. 16.641” from execution by creditors. § 815.18(3)(p). The term “interest” is not specifically defined in the statute or by regulation, but an “interest” is generally defined as “[a] legal share in something; all or part of a legal or equitable claim to or a right in property.” Bronk clearly has a legal interest in each of the Edvest college savings accounts. He owned the accounts and could at any ……………….