FAFSA LLC & Trust Guidance

We need to figure out the following:

We currently have a fair amount of money in cash largely due to the recent sale of our primary home and some from an inheritance. We purchased another primary home in a less expensive region of the country and were looking to use theses funds to purchase a duplex as an investment property for cash or at least have a cash offer as a fallback option in todays hyper competitive real estate market.

We currently have an LLC set-up to purchase and conduct the day to day business of managing the rental property(s).

We also have a family trust set-up (a Revocable Living Trust) in which our primary residence and automobiles are also included (this was largely due to my current health and to make things easier for my family upon my death)

We have a son (senior) who is primarily looking at going to a state school for college.

My question(s), regarding the FAFSA application, would it be wise to take the cash that we have and payoff our mortgage. Would it increase our chances of obtaining financial aid and by how much? Should our primary residence and vehicles be reported as assets since they are included in the Trust or should they be treated as non-reportable assets? Am I allowed to take the balance of cash (or portion) and make a capital contribution to the LLC to purchase a duplex as a way of shielding assets or would I have to report this?

Thank you in advance for any guidance or suggestions.

You need to report everything. Trying to hide assets is rarely possible. As for paying mortgage vs. having cash in the bank, it very well may make no difference in your aid. Go to the school’s NPC and enter all of your information with and without the cash you could possibly use to pay down the mortgage. You will see a difference in your EFC, but you may very well NOT see a difference in aid. Oh, and the assets in your trust are just like any other assets. Report cash & investments. The value of cars & primary residence, for example, are not reported (regardless of whether or not they are in a trust).

Your primary residence isn’t mentioned at all on the FAFSA form.

However, the value of a trust is an asset…but you need to be very clear on how the trust is set up. Simply putting assets in a trust doesn’t mean they can be left off of the financial aid forms. What other monies are in that trust? Your primary residence and your cars won’t matter on the fafsa.

Re: your LLC…again. I thought that rental properties were listed as assets (equity) on the financial aid forms…and rents as income. Be aware also that deductions allowed for business owners by the IRS are sometimes added back in as income for financial aid purposes.

If your student is applying to schools that use the CSS Profile, expect to report everything.

i guess i’m trying to figure out what type of aid from a state school you are hoping for.

pell grants are for students with pretty low incomes. If your EFC is app. 6K or less, you’d get some grant money. Your EFC is based mostly on your income, assets do play into the formula.

loans - a student can get a loan no matter what; that’s around $6K per year more or less.

state grants - again, mostly for low income families. Gift aid, maybe a little if you have a low EFC, but the vast majority of state schools dont have large endowments for need-based aid. Merit is your best bet at state schools.

with our first kid, we played “financial gymnastics” trying to lower our EFC; it helped lower it a bit, but absolutely made no difference in the aid any schools gave (all FAFSA schools). it just left us with less cash to pay the bills! kelsmom is a retired FA officer; she’s spot on when she suggests looking at the net price calculators (NPCs) on each school’s web site to see what they say.