I am completing the 2020-21 FAFSA for my oldest daughter. She has a 529 held under a court ordered conservatorship, as do my other two younger children (age 14 and 16). FAFSA states that 529 money for all dependent children in a family are reported under parent assets. However the conservatorship legally protects and requires that money be used solely for that particular child’s use (to even get the money released, a court order has to be issued).
So my question is: Do I report all three 529’s on the FAFSA as a parent asset or just my older daughter’s 529? My accountant and financial advisor say to just report my older daughter’s 529. Thanks for the feedback!
Report only your older daughter’s 529, as a parent asset, on her FAFSA. 529 accounts for other dependent children are only reported on a sibling’s FAFSA as a parent asset if the accounts are owned by a custodial parent, because the account owning parent would have the option to change the beneficiary of the other 529 accounts to any person, including the child for whom the FAFSA is being completed. In the situation you describe, the funds in the 529 accounts can only be used for one specific person.
Thanks Belknap! The account is owned by me (the parent) but I am also the conservator and can’t do anything without the judge’s approval (he was very specific about that) and I definitely cannot move money between the accounts as each account is legally protected for that child’s use alone. I am relieved to hear your answer.
Given the situation as described by you, I find it unlikely that you are the legal owner of the 529 accounts. Acting as a conservator of a 529 account (or any account) and being the legal owner of the funds in an account are two different things. A conservator acts as a fiduciary under legal guidelines to protect the interests of another person. Typically, the legal owner of a 529 account has the right to change the account beneficiary as allowed under the 529 statute and IRS regulations. Where did the money that funded the 529 accounts come from?
I guess I see what you mean by not being the “legal owner”. I am the conservator and remaining parent. The money came from their father’s life insurance when he passed away (we were divorced at the time). I file inventories of the children’s money each year with the court. The only way to release funds is through a judge’s order. Monies can definitely not be transferred between the children.
I’m sorry about the loss of your childrens’ dad. It sounds like he left them the gift of an education which is a nice gift.
Thanks thumper. Yes, while the kids have had a hard time, they are very lucky their father did that.
I am wondering if my daughter’s college (whatever one that turns out to be) will question a big increase in parent assets on the ISIR when my son files his FAFSA in 2021 (and then his 529 will be included)? Do I just provide the court conservator documents to the college if this happens?
Each student files their own FAFSA. The FAFSA belongs to the student, not a parent. When it comes time for your son to file his FAFSA, the money in his 529 account will be reported as a parent asset on his FAFSA; those funds will never be reported on his sister’s FAFSA, and the money in his sister’s 529 account will never be reported on his FAFSA.
Hmm. That’s not what I understood. I thought just one parent FAFSA was completed with all parent data (in this case with both children’s 529’s). Are you saying I could/should complete two different parent FAFSAs?
There is no “parent FAFSA.” There is a FAFSA for each student every year the student is an eligible undergraduate or graduate student. The 529 account that each of your kids have is an asset legally belonging to each child. As you know, the 529 accounts at issue here are not available for use by a child other than the designated owner/beneficiary. Student-owned 529 accounts are only reported as a parent asset on FAFSA because of the way the FAFSA rules are written. This was presumably done so that the use of student-owned 529 accounts would not be discouraged (student owned assets are normally assessed at a less favorable rate than parent owned assets when calculating need-based aid). A 529 account owned by child A is reported on child A’s FAFSA as a parent asset, but it is not reported on child B’s FAFSA as a parent asset, and vice versa.
Thanks Belknap. Your expert advise is greatly appreciated!
When a student fills out the FAFSA, there is a question at the end that asks “Does your parent have another student completing a FAFSA?” If you check ‘yes’ the parent’s information will be transferred to that second (or third) FAFSA.
In your case, I’d check no and re-enter the information on the second child’s FAFSA. I’m not sure if the asset information is transferred but I think it is and you don’t want the 529 asset info from Student A to transfer to Student B.
Thanks for that tip. That’s the part I was not aware of.
Double check with an excellent accountant, preferably one with a CPA designation and Masters in Tax. Since you are not able to control it based on your wishes, it may be counted differently ( in your favor as in not one of your assets). It really depends on the law in your state and other factors. If there is significant assets there, it could make a large difference in merit/FA for your children.
The 529 accounts at issue here are not assets legally owned by a parent; that’s already been established. They are assets belonging individually to each child, and the FAFSA rules are that 529 accounts owned by a student are reported, on the owning student’s FAFSA only, as a parent asset (which is better than being reported as a student-owned asset). State law has nothing to do with how 529 accounts are reported on FAFSA.
good luck
I’d definitely check it with real experts not folks on this board. Good luck.
Belknap’s advice does actually align with advice from my financial advisor and accountant.