<p>In the past, several people have said that as long as it's legal to "game" the system, why not do it? </p>
<p>Here are some ways to game the system: buy a very expensive house and a very expensive car for cash (since a house and one car are generally not counted); move income into prior or later years than the "index" tax year for financial aid; keep assets in the parents' names (usually counted at 5%/year), not the kid's name (usually counted at 35%/year). </p>
<p>Are these methods ethical? Well, it depends on your perspective; I think they're unethical, and I'd have trouble sleeping well, but others have disagreed. They're certainly legal. </p>
<p>BTW, not reporting ALL assets--including a trust fund in a child's name--is considered fraud.</p>
<p>Ok, so I have to report the trust fund even though it's in the name of another relative who is deceased?</p>
<p>The account name is:
"Name of my deceased Relative" DCSD C/F
"Daughter's Name" UGMA/NJ</p>
<p>I didin't report it because there was no question on the aid form that asked for this, as far as I can recall. But, if it's supposed to be reported, I'll just send them the statement and they can figure out how to apply it, I guess. It's not in my name, nor in son's name. It's in my daughter's name...but she's only 6 so I don't see how this impacts my ability to pay for his education....unless they would otherwise give me a break for having to save for her. And, I still have to save for her because I don't know for sure that this fund will cover her when she's ready to go. I suppose I should know what the projection is for the cost of a 4 year degree in 2016...but it makes my eye twitch to think about that :)</p>
<p>Momsdream - when my son started college he had about $6000 in savings in his own name. My "savings" consisted of a bank account with $5000 in it. If the $6000 had been in my name - it would probably have not been considered at all in calculating EFC - but because the money was in his name, it added $2000 to the EFC. That money was basically the accumulation of various gifts my son had received over the years from relatives combined with his own earnings from employment. </p>
<p>So yes - the situation does cause a problem, ESPECIALLY for lower income families. It's not that the savings are so much, it's that a small amount of savings in the kid's name can really cut into the financial aid.</p>
<p>Momsdream - I don't think you have to report your daughter's trust fund on your son's financial aid app - unless there is a question on the form that specifically asks for assets of siblings. I think people here are talking about the situation of hiding or transferring assets in the name of the child going to college. In the scenario you describe, the sister's funds are untouchable -- it would be illegal for you to take them to pay for son's college expenses. So I don't think you need to disclose them.</p>
<p>Thanks Calmom. Phew - I too it personally when dmd77 said "BTW, not reporting ALL assets--including a trust fund in a child's name--is considered fraud."</p>
<p>I guess the lesson is not to save anything in the kids name. It's too bad that we have to think that way. But, behavior is driven in this case. The same amount of time, energy and thought goes into saving $2k in the child's name as it does in the parent's name. Why should the child lose their money faster? And, for education no less!
I'm glad I've never really had a lot of money to save in son's name. I probably would have done it and had regrets. </p>
<p>Well, um, I really DIDN'T want to provoke a long argument about ethics. </p>
<p>[Caution: Rant ahead] Especially since I'm in no mood to debate ETHICS at a time when the general agreement in our society seems to be that it's just fine to take care of the rich at the expense of everybody else. Now, why would I feel guilty about that? Tough pill (for me, anyway) to swallow.</p>
<p>But anyway, I'd first like to know what is legal or illegal and that is why I'll continue my search for the information from the feds. When I used to work for Medicaid, there was a clear time frame after which money could not be transferred. I presume that somewhere in the Federal student loan laws there is a similar stipulation. If I ever find it I'll let you all know.</p>
<p>Momsdream: I didn't read carefully enough to see that you were not talking about the same person (for college FAFSA) when you talked about the trust fund in your daughter's name. Sorry.</p>
<p>Weenie, what the...? Hey, I have been a Democrat all my life but even I know that almost half this country pays no income tax whatsoever, and the "rich" (usually defined as those making over $200,000) pay the lion's share of the taxes. I figure my 100 grand a year in federal, state, and city taxes "takes care of everybody else"......</p>
<p>I agree with voronwe. It is no different than welfare fraud. The system only works as intended when everyone is trying to foot their own bills and save to the best of their ability, and the scholarship money is there for genuine need only. Clearly 'affluent' people can be devestated by medical expenses, etc, and then they would have genuine need. Even the child of an inveterate gambler might have genuine need. But if the assets are there, why should other people's money ever be spent first? </p>
<p>I mean, who would go to Thanksgiving at the soup kitchen who did not truly need the meal? Similarly, people who job the system for aid should be ashamed. Maybe there is less of a shame barrier because tuitions are so enormous and so many middle class families get/need aid, whereas only desperately poor people go to the shelter for dinner. </p>
<p>My parents put themselves through college, did well financially, and now give a lot to their alma mater. They would be absolutely horrified to think that someone who spent down ther home equity on a speedboat or shifted their assets to others was getting a dime of that money. </p>
<p>Abuses like this drive up tuition for everyone else.</p>
<p>Momsdream - a parent can still save for college - it's just that under the current need-based financial aid system, its unwise to put the savings in the child's name. But of course you can save money under your own name. You don't want a tax-deferred college investment account, because this also would reduce financial aid -- but there are other ways to do this. For example, I bought some savings bonds that are in MY name but have my son listed as beneficiary on the bond. I intend these to be used for his college, and since he is the beneficiary, if I were to die, the bonds would immediately be his. They are US Savings bonds, so if I cash the bonds in and use them to pay my son's educational expenses, the tax on the interest will be waived. But they are in my name -- reported as my asset, not his. </p>
<p>This whole dilemma arises only for families who do qualify for need-based aid, of course. Most families with 6-figure incomes are better off transferring assets to their children or taking advantage of tax-deferred college savings plans, simply for the tax benefits that affords them. So really, the idea of transferring assets to kids is something that the affluent should do. Middle or lower income families should save, too - just not in their kids' names.</p>
<p>I don't know if it was already noted but finaid.org web site has info about ugma accounts tranferring money and all kinds of helpful info
It is really confusing, I do our taxes but finaid seems much more difficult, or tedious anyway. I am heading out to a NELA sponsored info meeting tonight so I will see if I can get some answers on this question.</p>
<p>Regarding the trust fund in a siblings name. The Profile asks for assets in siblings names, BUT in the help section it clarifies, this is PARENT'S assets held in children's names. Such as the way some agressive accountants may have you put a business in your childs name, but you have control of the asset. If the asset is really the other child's asset, then it would not be reported, as I read the forms.</p>
<p>I have no brains for finances....seriously. I don't even open my 401K envelopes anymore. I know, that's bad!</p>
<p>Would it help or hurt to take more deductions this year? I know I'm not writing off nearly as much as I could. Does it matter for EFC purposes? If I write off less, I'm paying more taxes (which is less money for tuition). But, if I write off more I have more in my pocket (more money for tuition). I'm not saying that I would avoid write-offs for the sake of greater aid, because I pay either way. I'm just curious about the impact either way....if at all.</p>
<p>For the record, I am not even contemplating applying for financial aid. Not wealthy, but have enough income and assets that we won't qualify. No merit aid either; We won't be moving assets around because it won't make any difference. So, I was not making the argument on my own behalf. However, I think it is wrong to accuse someone of unethical behavior if they are legally transfering assets so they will qualify for more financial aid. I am not talking about "hiding" assets or making illegal transfers. Actually, I was only thinking about specifically moving money from a college savings account in the child's name to the parents' names. Especially if we are talking about a family that does not have a lot of assets and income and they are only doing what a financial advisor or tax advisor would tell them to do if they could afford one. There are more extreme measures, such as transfering ownership of the Rolls Royce from the child to the babysitter that even I would consider unethical.</p>
<p>weenie, I believe the medicaid rules (and tax rules) apply to transfers made in contemplation of death. College financial aid rules could be similar, but I am (obviously) not familiar with the rules!</p>
<p>I think the big controversy comes when we see anecdotal evidence of the wrongness of the formulaic situation. I have two sisters.....the ant & the grasshopper. The ant sister is blue collar, husband in construction, no real benes, no good retirement fund. Therefore, they chose to work hard and save and buy inexpensive little houses one at a time, fix them up, pay the mortgages off and move on, renting the old ones. They own 4 properties now and have two relatively small mortgages, they live on far less per month than any one I know, they are very frugal. The rental properties are their only retirement fund. Those assets prevent them from getting much financial aid in FAFSA situations, as only the primary home is protected.</p>
<p>My grasshopper sister lives in a much higher value area, her one home is worth my ant-sisters 4 properties; however, she has refinanced repeatedly, always taking out the income and using it for things she "needs." She would qualify for a much higher aid grant on FAFSA forms, though her white collar husband has a retirement fund (thank God!) and benefits.</p>
<p>So, it feels "unfair" for the spender to get more aid than the saver. Interestingly, both families' college students are living at home and attending the local public U.</p>
<p>The desire to game the system derives from the perceived wrongness of the grasshoppers benefitting more than the ants. I will let you know this spring, when we get our offers, whether high home equity puts us out of the running at our top private school of choice. We have lower income, but higher assets, as we have endeavored to pay down our mortgage over the years and have more equity than debt, but once again, we consider this our retirement and would not risk it for university. I have learned a great deal on this board and made sure to apply to a real safety with merit aid guaranteed by scores, so have a private safety there...thank you cc parents.</p>
<p>SBMom wrote:
[quote]
But if the assets are there, why should other people's money ever be spent first?
[/quote]
</p>
<p>I think that there are two very different sets of circumstances being discussed in this thread, and its important to distinguish them. One is the affluent family who has the financially ability to pay private tuition, but deliberately hides or transfers assets to try to qualify for aid. That is clearly unethical -- but probably not as common as people think Since financial aid is determined primarily on income (not assets), this isn't going to work for most families earning 6-figure incomes -- they would need ways to hide or minimize their income as well as their assets. Bottom line - if the family has $150,000 income and mistakenly spends down their savings on luxury items to qualify for financial aid - they are in for a nasty surprise. </p>
<p>The other circumstance is the middle income family -- let's say earning $50,000 a year, who honestly want to save money for their kids college - but even the amount of savings doesn't come close to paying for a private education. This family's income is not going to let them put away $160,000 in savings for each of their kids -- they may be lucky if they can set aside $1000 per year, and their kids end up with college savings accounts with about $20,000 in them. That's not even going to get their kid through one year of private college -- and with housing costs factored in, it won't get the kid through much more than a year at their state's university. This family will qualify for need-based aid in any case - but that kid's bank account will increase their EFC by about $7000 the first year. So lets say that this family also has $30,000 in savings in the parents' name - and hypothetically if all the assets were in the parents name (total $50K), their EFC with their income is set at $10,000. But with the kid's separate account -- the parents are exposed to more financial risk (less money in savings as a cushion against emergencies) -- and at the same time the EFC is $17K. This is simply a case of financial planning -- you would never have faulted this family for choosing to buy a home rather than rent in order to get the benefit of a mortgage interest deduction -- even though that leaves them paying less tax every year than their renter neighbors -- so their college savings plan should likewise be designed to maximize their eligibility for aid. </p>
<p>But the point is, this family's eligibility for aid doesn't come from shifting money around - it comes from their income level. </p>
<p>The problem comes when son is a high school junior and the parents suddenly realize that his $20,000 bank account is going to cost the family $7000... and at that point, decides to move the money. Then, ethically & legally - its too late. They can't undo the damage their mistaken financial plan has caused -- but the temptation is there to spend down that money. I do think that it is legit to spend down the money if it is spent for the kids' benefit. (Paying for a car for the kid, travel expenses to visit colleges, tuition for a summer program, etc.)</p>
<p>As I have a slight headache already, I'm not absorbing all the data in this thread, but in the preceding example, wouldn't paying all the first year's college expenses from the student's savings mitigate a fair amount of the "penalty" and maximize the parents' safety net?</p>