             United States Bankruptcy Appellate Panel
                           FOR THE EIGHTH CIRCUIT

                                _________________

                                    06-6060MN
                                _________________


In re: LANCE V. ADDISON,                *
                                        *
       Debtor                           *
                                        *
LANCE V. ADDISON,                       *
                                        * Appeal from the United States
       Debtor - Appellant               * Bankruptcy Court for the
                                        * District of Minnesota
              v.                        *
                                        *
RANDALL L. SEAVER,                      *
                                        *
       Trustee- Appellee                *
                              _____________________

                            Submitted: February 15, 2007
                               Filed: March 30, 2007
                             ______________________

SCHERMER, FEDERMAN and VENTERS, Bankruptcy Judges

FEDERMAN, Bankruptcy Judge

                                  INTRODUCTION

      This appeal deals with a common circumstance: shortly prior to filing his
bankruptcy petition, the Debtor took steps to maximize the amount of his exempt
property, the result of which was that less property was available to creditors in his
bankruptcy case. Specifically, the Debtor established tuition savings plan accounts for
the benefit of his minor children, paid down the mortgage on his exempt home, and
purchased Roth IRAs for himself and his non-debtor spouse. The bankruptcy court1
held that the tuition savings plans are assets of his estate, and that they could not be
claimed as exempt at the time the case was filed. In addition, applying both Minnesota
law and the Bankruptcy Code, as amended in 2005, the bankruptcy court found that the
Debtor increased his homestead equity and bought the IRAs with the intent to hinder,
delay, or defraud one or more of his creditors. Therefore, the court denied his claim
to an exemption in the amounts involved in those transfers. We affirm.

                            FACTUAL BACKGROUND

       The Debtor owned a partial interest in a cable company known as Great Lakes
Cable. The business was performing poorly and was unable to pay its debts, which the
Debtor had personally guaranteed. In early 2005, JP Morgan Chase began to pursue
the Debtor to recover on a $1.3 million personal guarantee. In about June 2005, the
Debtor first sought advice from bankruptcy counsel in an effort to protect himself from
JP Morgan’s attempts to enforce the guarantee. On about July 21, 2005, the Debtor
used $4,000 of nonexempt funds to establish a Roth IRA for himself. About the same
time, he used another $4,000 of nonexempt funds to establish a Roth IRA for his wife.
The funds came from an account he had at Piper Jaffray which contained $45,476.71
in nonexempt funds prior to these actions.

       On October 14, 2005, the Debtor instructed his wife to use $11,500 in
nonexempt funds to pay down a note secured by a mortgage on their primary residence.
$9,000 of the payment came from the same Piper Jaffray account discussed above, and
$2,500 came from an account at U.S. Bank. These payments were voluntary, and went
to principal reduction, increasing the equity in the house.


       1
         Honorable Robert J. Kressel, United States Bankruptcy Judge for the
District of Minnesota.
                                           2
     That same day, the Debtor filed his Chapter 7 bankruptcy petition. He chose the
Minnesota exemptions and claimed his IRA and the equity in the house as exempt.

      In addition, in 2004, the Debtor had established two § 529 tuition savings
accounts2 for his children. The value of these accounts varies with the markets, but
was approximately $22,000 on the date of filing. The Debtor listed these accounts on
Schedule B, but said they were not property of the estate. He also listed them on
Schedule C, apparently in an attempt to claim them as exempt in the event the court
determined them to be property of the estate.

       The Trustee objected to the homestead and IRA exemptions, and asserted that
the § 529 accounts were property of the estate and not subject to any exemptions. The
bankruptcy court found in favor of the Trustee on all three issues. This appeal
followed.

                                    DISCUSSION

Standard of Review

       The BAP reviews findings of fact for clear error, and legal conclusions de novo.3
The question of whether a § 529 tuition account is property of a debtor’s bankruptcy
estate is subject to de novo review.4 With regard to the homestead and IRA issues, on
the other hand, “[t]he question of whether an individual acted with intent to defraud in


       2
       These accounts are tuition savings plans established by Minn. Stat. §
136G.01 et seq., pursuant to 26 U.S.C. § 529.
       3
        First Nat’l Bank of Olathe v. Pontow (In re Pontow), 111 F.3d 604, 609
(8th Cir. 1997); Sholdan v. Dietz (In re Sholdan), 108 F.3d 886, 888 (8th Cir.
1997); Fed. R. Bankr. P. 8013.
       4
           See In re Nelson, 322 F.3d 541, 544 (8th Cir. 2003).
                                           3
converting non-exempt property into exempt property is a question of fact, on which
the bankruptcy court’s finding will not be reversed unless clearly erroneous.”5 A
finding is clearly erroneous when the reviewing court is “left with the definite and firm
conviction that a mistake has been committed.”6

Applicable Bankruptcy Law

      The timing of the Debtor’s bankruptcy filing is unfortunate for him. The
Bankruptcy Code was amended on April 20, 2005, by the Bankruptcy Abuse and
Consumer Protection Act of 2005 (BAPCPA).7 Most of the BAPCPA amendments,
including § 541(b)(6), which would have removed at least part of the Debtor’s § 529
accounts from property of his bankruptcy estate, became effective on October 17,
2005. Since the Debtor filed this case on October 14, 2005, however, he cannot take
advantage of that amendment. On the other hand, BAPCPA’s new limitations on
homestead exemptions, in §§ 522(o), (p), and (q), became applicable immediately upon




       5
         In re Sholdan, 217 F.3d 1006, 1010 (8th Cir. 2000) (citing Hanson v. First
Nat’l Bank, 848 F.2d 866, 868 (8th Cir. 1988)). At oral argument, the Debtor
asserted that exemption issues are always subject to de novo review, regardless of
whether intent to defraud is at issue, citing Christians v. Dulas, 95 F.3d 703 (8th
Cir. 1996). The Debtor’s reliance on that case for that proposition is misplaced.
Dulas involved the legal question of whether a particular annuity received in a
prepetition settlement of a personal injury claim was exempt under Minnesota law
as a personal injury right of action. It did not involve any question regarding
intent. As the Eighth Circuit expressly said in Sholdan, where intent to defraud is
at issue, as it is here, review is for clear error.
       6
       Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d
518 (1985).
       7
           Pub. L. 109-8, 119 Stat. 23 (2005).
                                           4
enactment, April 20, 2005.8 Therefore, his claim to a homestead exemption is subject
to those limitations.

The § 529 Tuition Accounts

        In May 2004, the Debtor set up two § 529 education accounts for the benefit of
his children. He listed the accounts on his schedule B, but added the notation “Debtor
believes [this] property is not Section 541 property - owned by children.” He also
listed them on his Schedule C, apparently in an attempt to protect his right to claim an
exemption in the accounts in the event they were determined to be property of the
estate.

        Minnesota law provides no exemption for these accounts. Therefore, the only
way the Debtor can shield these accounts from the Trustee and his unsecured creditors
is if he can demonstrate that they are not property of his bankruptcy estate in the first
place.

       As stated above, for cases filed on or after October 17, 2005, § 541(b)(6) of the
Bankruptcy Code expressly removes, with certain limitations, § 529 education
accounts from property of the estate.9 Since this case was filed on October 14, 2005,
however, we are left to consider § 541(a)(1), which provides that “[e]xcept as provided
in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor
in property as of the commencement of the case” are included in property of the estate.




       8
           Id.; see also In re Kaplan 331 B.R. 483, 485 (Bankr. S.D. Fla. 2005).
       9
        Under § 541(b)(6), funds contributed to a § 529 account not later than 365
days before the filing of the petition are excluded from property of the estate. For
funds placed in such accounts between 365 and 720 days prepetition, the exclusion
from the estate is limited to $5,000 per beneficiary.
                                             5
The bankruptcy court held that the Debtor is the owner of the § 529 plans, making
them assets of his bankruptcy estate.

        The Debtor points to 26 U.S.C. § 529(c), regarding tax treatment of designated
beneficiaries and contributors of tuition savings accounts, which provides that “[a]ny
contribution to a qualified tuition program on behalf of any designated beneficiary . .
. shall be treated as a completed gift to such beneficiary which is not a future interest
in property.” The Debtor argues that, under this provision, money placed into a tuition
savings account is property of the beneficiary, not of the donor.

       But § 529 merely gives favorable tax treatment to such accounts; it does not
determine who is the owner of the account for any other purpose. In reality, the
purported “gift” to the beneficiary is revocable. As the Debtor concedes, § 529 funds
can be re-vested in the settlor of the account, albeit with a tax penalty, similar to a §
401K retirement plan.10 In addition, the settlor retains control over the account and
may even change the designated beneficiary of the account without a penalty. Hence,
for all purposes other than tax treatment, the creation of a § 529 account is not a
completed transfer to the beneficiary, and the settlor remains the owner of the funds.
This conclusion is consistent with the fact that the account statements for the Debtor’s




       10
         In Rousey v. Jacoway, 544 U.S. 320, 125 S.Ct. 1561, 161 L.Ed.2d 563
(2005), the United States Supreme Court held that a debtor’s right to receive
payment under an IRA is exempt under § 522(d)(10)(E), even though the debtor
had the power to withdraw the funds prior to age 59 ½ by paying a ten percent tax
penalty. Similarly, re-vesting a § 529 account in the settlor comes with a ten
percent tax penalty. While not cited by either party, we note that Rousey is
inapplicable here. The issue there was whether the IRAs were exempt, not whether
the debtors owned them or whether they were property of the estate.
                                           6
§ 529 accounts expressly identify the Debtor as the owner of the account, “for the
benefit of” the named child.11

       The Debtor also points to § 136G.09 Subd. 12 of the Minnesota Statutes,12 but,
again, that reliance is misplaced. Although that statute provides that funds held in §
529 accounts are “held in trust” “for the exclusive benefit of account owners and
beneficiaries,” it has nothing to do with determining who is the owner of the funds in
the account. Rather, all that statute says is that the investment company (or whatever
entity has the account) holds the funds in trust for the benefit of the owner and
beneficiary.




       11
            Specifically, the Account Statements identify the accounts as:

                VCSP/COLLEGEAMERICA
                LANCE ADDISON OWNER
                FBO [CHILD’S NAME].
       12
            That section provides:

       Special account to hold plan assets in trust. All assets of the plan,
       including contributions to accounts and matching grant accounts and
       earnings, are held in trust for the exclusive benefit of account owners
       and beneficiaries. Assets must be held in a separate account in the
       state treasury to be known as the Minnesota college savings plan
       account or in accounts with the third-party provider selected pursuant
       to section 136G.05, subdivision 8. Plan assets are not subject to
       claims by creditors of the state, are not part of the general fund, and
       are not subject to appropriation by the state. Payments from the
       Minnesota college savings plan account shall be made under sections
       136G.01 to 136G.13.

Minn. Stat. § 136G.09 Subd. 12.
                                            7
       Simply put, since pre-BAPCPA law is applicable, we find no basis to conclude
that the § 529 accounts are not property of the Debtor’s estate. If they had previously
been excluded, there would be no reason for Congress to have amended the Code to
exclude them. And, the language of § 541(b)(6)’s exclusion bolsters this conclusion;
under that provision, only funds placed into a § 529 account more than 365 days before
filing are excluded, and, if the money was deposited between 365 and 720 days
prepetition, the exclusion is limited to $5,000. It follows, then, that even under the new
law, money deposited less than a year prepetition, and funds in excess of $5,000
deposited between 365 and 720 days prepetition, are property of the estate.

       In sum, since the pre-BAPCPA Bankruptcy Code did not specifically exclude
qualified tuition programs from property of the estate, such accounts are estate property
in cases filed before October 17, 2005.13 Consequently, the bankruptcy court did not
err in finding that the Debtor’s § 529 accounts are property of his bankruptcy estate.
And, since the Minnesota statutes do not provide for an exemption in such accounts,
the Debtor could not claim an exemption in them.

The Homestead Exemption

      Minnesota permits a debtor to claim an exemption in a house owned and
occupied as a dwelling place, together with the land upon which it is situated, not to




       13
         Accord In re Quackenbush, 339 B.R. 845, 848 (Bankr. S.D. N.Y. 2006)
(“[I]t does not appear that the Bankruptcy Code, as it existed prior to October 17,
2005[,] provided any rationale for excluding such qualified tuition programs from
property of the estate.”); In re Sanchez, 2006 WL 395225 at *1 n.1 (Bankr. D.
Mass. Feb. 14, 2006) (“There is no basis for determining that funds deposited into
a Section 529 Plan are excluded from property of the estate prior to the recent
amendments to the Bankruptcy Code.”).
                                            8
exceed $200,000.14 The Debtor initially claimed a homestead exemption of $150,000.
He later amended his schedules to claim $91,250 exempt, saying half of the $182,500
equity belonged to his non-filing spouse.

     As part of the BAPCPA amendments, Congress added § 522(o) to the
Bankruptcy Code, which provides:

      (o) For purposes of subsection (b)(3)(A), and notwithstanding subsection
      (a), the value of an interest in –

               (1) real or personal property that the debtor or a dependent of the
               debtor uses as a residence;
               (2) a cooperative that owns property that the debtor or a dependent
               of the debtor uses as a residence;
               (3) a burial plot of the debtor or a dependent of the debtor; or
               (4) real or personal property that the debtor or a dependent of the
               debtor claims as a homestead;

      shall be reduced to the extent that such value is attributable to any portion
      of any property that the debtor disposed of in the 10-year period ending
      on the date of the filing of the petition with the intent to hinder, delay, or
      defraud a creditor and that the debtor could not exempt, or that portion
      that the debtor could not exempt, under subsection (b), if on such date the
      debtor had held the property so disposed of.15

      A brief review of applicable law prior to enactment of 522(o) is necessary to an
understanding of the effect of this provision. In Norwest Bank Nebraska, N.A. v.
Tveten,16 a debtor had converted approximately $700,000 in nonexempt assets into


       14
        Minn. Stat. §§ 510.01 and 510.02 (2002); In re Maronde, 332 B.R. 593,
599 (Bankr. D. Minn. 2005).
       15
            11 U.S.C. § 522(o).
       16
            848 F.2d 871 (8th Cir. 1988).
                                            9
exempt property immediately prior to filing his bankruptcy petition. The court found
such conversion to have been made at a time when the debtor was aware of a judgment
and several pending lawsuits against him, his rapidly deteriorating business
investments, and his exposure to extensive liability well beyond his ability to pay.17
Creditors filed an adversary proceeding against him under § 727(a)(2), which denies
a discharge if, within one year prior to the filing of the petition, the debtor transferred
property “with intent to hinder, delay, or defraud a creditor.”18

       The Eighth Circuit found in favor of the creditors, stating that “the standard
applied consistently by the courts [as to whether a discharge should be granted or
denied] is the same as that used to determine whether an exemption is permissible, i.e.
absent extrinsic evidence of fraud, mere conversion of non-exempt property to exempt
property is not fraudulent as to creditors even if the motivation behind the conversion
is to place those assets beyond the reach of creditors.”19 “[T]he issue . . . revolves
around whether there was extrinsic evidence to demonstrate that [the debtor]
transferred his property on the eve of bankruptcy with intent to defraud his creditors.”20



       In other words, the mere fact that a debtor takes advantage of the exemption laws
available, to protect him against the possibility that he might at some point in the future
incur debts or be subject to liability beyond his ability to pay, is not in and of itself an
intent to hinder, delay, or defraud. However, if the debtor converts nonexempt
property to exempt property for the specific purpose of preventing one or more
existing creditors, or a bankruptcy trustee, from taking such property, then his


       17
            Id. at 873.
       18
            11 U.S.C. § 727(a)(2).
       19
            Id. at 874.
       20
            Id.
                                            10
discharge should be denied. The dissent in Tveten argued, as had the debtor in that
case and the Debtor here, that debtors who simply act to move property into an exempt
form should not be found to have acted with the intent to hinder, delay, or defraud,
regardless of their motivation in doing so.21 The majority of the Tveten Court,
however, did not agree.

      In In re Johnson,22 the Eighth Circuit elaborated on Tveten and another decision,
Hanson,23 saying that conduct sufficient to defeat a discharge under § 727(a)(2)
requires indicia of fraud beyond the mere use of the exemptions.24 Such “extrinsic
evidence can be composed of: further conduct intentionally designed to materially
mislead or deceive creditors about the debtor’s position; conveyances for less than fair
value; or, the continued retention, benefit or use of property allegedly conveyed
together with evidence that the conveyance was for inadequate consideration.”25
Emphasizing the importance of the homestead exemption in particular, the Court in
Johnson held that the debtor’s prepetition payment of debts secured by his home,
thereby increasing his exempt homestead equity, did not, in and of itself, establish
fraud. For all practical purposes, the Johnson panel appeared to have adopted the
Tveten dissent’s view, at least as to the use of homestead exemptions.

       In In re Sholdan26 the Eighth Circuit applied the same analysis to affirm the
denial of an exemption to a debtor who had purchased a homestead with the proceeds


       21
            Id. at 877-79.
       22
            880 F.2d 78 (8th Cir. 1989).
       23
            Hanson v. First Nat’l Bank, 848 F.2d 866 (8th Cir. 1988).
       24
            Johnson, 880 F.2d at 82.
       25
            Id.
       26
            Sholdan v. Dietz (In re Sholdan), 217 F.3d 1006 (8th Cir. 2000).
                                           11
of property which would not have been exempt from the claims of creditors. The
objection was based on Minnesota’s version of the Uniform Fraudulent Transfer Act,
which denies a homestead exemption to a debtor who converts property to the
homestead “with actual intent to hinder, delay, or defraud” creditors,27 language similar
to that used in § 727(a)(2) and, now, § 522(o). In so holding, the Eighth Circuit held
that, in determining fraudulent intent, it is appropriate for a trial court to consider the
“badges of fraud” traditionally used in determining whether a transfer of property by
a debtor was made with fraudulent intent. Here, the Eighth Circuit indicated again that
the conversion of non-exempt assets to exempt assets can be fraudulent if it is done in
an attempt to keep assets out of the hands of particular creditors.


       In adding § 522(o) to the Code, Congress used the same phrase “hinder, delay,
or defraud,” as it had previously used in § 727(a)(2) and elsewhere in the Bankruptcy
Code,28 so it is “logical to assume that Congress intended . . . cases construing the
fraudulent conveyance and discharge provisions also would apply to add body to the
bare words of [§ 522(o)].”29 For that reason, cases interpreting § 522(o) have relied on
applicable law interpreting these other provisions in determining whether debtors acted
with the intent to hinder, delay, or defraud creditors.30


       We acknowledge that the Eighth Circuit’s decision in Johnson could be
interpreted to mean that, at least with a homestead exemption, the conversion of non-
exempt assets to exempt homestead equity is permissible, almost regardless of the


       27
            Id. at 1008.
       28
            See, e.g., 11 U.S.C. § 548(a)(1).
       29
            In re Maronde, 332 B.R. at 599.
       30
        In re Agnew, 355 B.R. 276, 284 (Bankr. D. Kan. 2006); In re Lacounte,
342 B.R. 809, 814 (Bankr. D. Mont. 2005); In re Maronde, 332 B.R. at 599.
                                            12
circumstances, which is the position taken by the Debtor here. However, the Eighth
Circuit’s subsequent decision in Sholdan makes clear that the badges of fraud are
applicable in the context of homestead exemption planning. Moreover, to the extent
that the Debtor is correct that homestead exemption planning was permissible in the
Eighth Circuit, regardless of the circumstances, the enactment of § 522(o) preempted
that approach. Although there is little or no legislative history on § 522(o), that section
was enacted along with §§ 522(p) and (q) as part of a scheme clearly intended to curb
perceived abuses in homestead exemption planning.


       In any event, as stated above, the Eighth Circuit held in Sholdan that, in
determining intent to hinder, delay, or defraud, a court may appropriately rely on the
badges of fraud for determining intent, since such badges represent “nothing more than
a list of circumstantial factors that a court may use to infer fraudulent intent.”31
However, as the Court noted in Sholdan, “a court is not limited to only those factors
or ‘badges’ enumerated, but is free to consider any other factors bearing upon the issue
of fraudulent intent.”32 Indeed, the language of the statute itself requires the court to
consider other factors, since it restricts the exemption if the debtor hinders or delays
– as well as defrauds – his creditors.


       Here, the bankruptcy court found that the steps the Debtor took to convert
nonexempt assets to exempt assets were taken with the intent to hinder, delay, and
defraud his creditors. The following facts and findings of the bankruptcy court, among
others, support that conclusion: (1) the Debtor’s business was troubled at the time of
the conversion; (2) the Debtor himself was insolvent; (3) J.P. Morgan had filed suit
against the Debtor on his $1.3 million personal guaranty; (4) the assets converted
represented a significant amount of the Debtor’s non-exempt cash when the payment


       31
            Sholdan, 217 F.3d at 1009.
       32
            Id.
                                            13
was made; (5) the payment on the residential mortgage was made the very same day
the Debtor filed his bankruptcy petition; (6) the payment on the residential mortgage
was used to reduce the principal balance, not to protect the home from foreclosure by
making payments then due; (7) the bankruptcy case was filed to discharge debts which
were in existence at the time the Debtor acted to reduce his nonexempt property; (8)
the Debtor bought the IRAs only a few months prior to filing bankruptcy, and had
never in past years bought IRAs for either himself or his spouse, even though he had
been advised to do so and had had the funds available had he wished to do so; and (9)
the bankruptcy court found the Debtor’s explanation as to his motivation for paying
down the mortgage and buying the IRAs was not credible.


       These findings are not clearly erroneous. The bankruptcy court had ample
evidence before it from which to conclude that the Debtor had the intent to hinder,
delay or defraud his creditors when he converted his nonexempt assets to exempt
assets. Hence, the denial under § 522(o) of the Debtor’s exemption in the homestead
equity resulting from the payment was not clearly erroneous.


The IRA
       Minnesota law denies an exemption to a debtor who makes such a transfer “with
actual intent to hinder, delay, or defraud any creditor of the debtor.”33 The statute also
includes a list of badges of fraud similar to those used in bankruptcy cases.34 The
bankruptcy court essentially found the same with the IRAs as it did for the homestead
exemption - that the Debtor put the money into the IRAs with the intent to hinder,
delay and defraud creditors - for the same reasons stated as to the homestead. Once
again, the bankruptcy court did not find credible the Debtor’s testimony that he had
purchased the IRAs as retirement planning devices, particularly given his age of 37

       33
            Minn. Stat. Ann. § 513.44(a)(1); In re Sholdan, 217 F.3d at 1008.
       34
            Minn. Stat. Ann. § 513.44(b); In re Sholdan, 217 F.3d at 1008.
                                           14
years, and the fact that he had not done such retirement planning in the past. Again,
these findings are not clearly erroneous.


                                    CONCLUSION
       For the reasons stated above, the bankruptcy court did not err in finding that the
funds that the Debtor deposited in the § 529 tuition savings accounts for his children
are property of his bankruptcy estate and are not subject to any applicable exemption.
Further, the bankruptcy court’s findings that the Debtor converted non-exempt assets
into an exempt homestead and IRA with the intent to hinder, delay, or defraud his
creditors was not clearly erroneous. Therefore, the bankruptcy court did not err in
denying the Debtor’s claimed exemptions in them under § 522(o) and Minnesota law.
The bankruptcy court’s Order is AFFIRMED.


                             ______________________




                                           15
