KRS 164A.350: Ownership of contributions and interest -- Cancellation of participation

agreement -- Transfer of ownership rights -- Penalty on earnings refunded due

to cancellation or nondistribution -- Exemption from creditor's execution.

For all purposes of Kentucky law, the following shall be applicable:

(1) The trust shall exercise ownership of all contributions made under any participation

agreement and all interest derived from the investment of the contributions made by

the participant up to the date of utilization for payment of educational costs for the

beneficiary. All contributions made under any participant agreement and interest

derived from the investment of the contributions made by the participant shall be

deemed to be held in trust for the benefit of the beneficiary;

(2) Any participant may cancel a participation agreement at any time, and terminate the

trust's ownership rights thereby created in whole or in part, by delivering an

instrument in writing signed and delivered to the program admin istrator or his

designee. In the event the participation agreement is terminated in part, the trust

shall retain ownership of all contributions made under the participation agreement

not previously expended for the qualified educational expenses of the ben eficiary

and not returned to the participant. The participant shall retain a reversionary right

to receive upon termination the actual market value of the participant's account at

the time of the cancellation, including interest, except that the participan t may be

required to pay a penalty upon the interest that has been credited to the participant's

account in accordance with subsection (6) of this section;

(3) The educational institution shall obtain ownership of the distributions made from

the participan t's account for the qualified educational expenses paid to the

institution at the time each payment is made to the institution;

(4) Any amounts received by the trust pursuant to the Kentucky Educational Savings

Plan Trust which are not listed in this section shall be owned by the trust;

(5) A participant may transfer the participant's rights to another eligible participant,

including, but not limited to, a gift of the participant's rights to a minor beneficiary

pursuant to KRS Chapter 385, except that, notw ithstanding KRS 385.202(1), the

transfer shall be effected and the property distributed in accordance with

administrative regulations promulgated by the board or the terms of the

participation agreement;

(6) Notwithstanding any other law to the contrary, i f any earnings on contributions are

refunded due to cancellation of the participation agreement by the participant or

nondistribution of the funds for payment of the beneficiary's qualified educational

expenses, the board may charge a penalty to the partic ipant against the earnings on

contributions. No penalty shall be charged when a refund is made due to:

(a) The death, permanent disability, or mental incapacity of the beneficiary; or

(b) The beneficiary's receipt of a scholarship, an educational assistanc e allowance

under Chapters 30, 31, 32, 34, or 35 of Title 38, United States Code, or a

payment exempt from income taxation by any law of the United States, other

than a gift, bequest, devise, or inheritance within the meaning of Section

102(a) of the Inter nal Revenue Code, 26 U.S.C. sec. 102(a), for educational

expenses, or attributable to attendance at an institution of higher education, to

the extent that the amount refunded does not exceed the amount of the

scholarship, allowance, or payment; and

(7) Notwithstanding any other provision of law to the contrary, contributions and

earnings on contributions held by the trust shall be exempt from levy of execution,

attachment, garnishment, distress for rent, or fee bill by a creditor of the participant

or the b eneficiary. No interest of the participant or beneficiary in the trust shall be

pledged or otherwise encumbered as security for a debt.