Fafsa nightmare

Paying for College
1

<p>Confusing directions on the FAFSA led me to call and ask for help. I couldn't believe the answer I received from 2 different customer service reps. Can someone please verify I got accurate information? I specifically asked if a Prepaid College Plan which was funded by a trust and which names my son as the beneficiary should be claimed as HIS asset or my asset? (I am the Grantor of the trust and my sister is the Trustee) I was told that the money in this trust need not be reported on the FAFSA as anybody's asset. I was floored because the FAFSA directions do not seem to indicate this. So I'd like to verify .... Here's my scenario.</p>

<p>My son is my dependent as indicated in a divorce agreement, so the information being reported on the FAFSA is his (the student) and mine (the parent). Several years ago, I created a trust fund for all my kids. Money from my portion of the equity in our home was put into this trust fund. My sister is the trustee and I am the grantor of this "REVOCABLE TRUST". My sister recommended using part of the money for a Florida Prepaid College Plan. My son is listed as the BENEFICIARY and the trust is listed as the OWNER. I, however, am the GRANTOR of the trust, and if I want to, I can tell my sister to pull the money out of the FLA PREPAID PLAN and use it for investing toward the future. Heck, could even tell her to use it for anything I wanted to!</p>

<p>I described this to 2 different customer service reps on the FAFSA help line and asked if the money in this FLA PREPAID PLAN should be claimed as an asset of the STUDENT or the PARENT. Both times, I was told "NEITHER". You do not have to report Trust information. I hate to look a gift horse in the mouth, but can somebody please tell me if this is really the case???</p>

2

<p>I don’t have an answer for you…but I’ll be interested in the responses. We actually declined being part of a family trust (thank goodness they asked) because WE were told that whomever was the beneficiary of a trust had to list their share of the trust as an asset on the FAFSA. Ours was an irrevocable trust. And this was also seven years ago!</p>

3

<p>

</p>

<p>Not going to touch the trust issue, but wanted to point out that the parent who should be completing FAFSA is the parent the student lives with the majority of the time . . . regardless of what your divorce agreement says or who claims the student as a dependent.</p>

4

<p>Going to give you two links here to look at. One is the financial aid expert at fastweb, which in turn has a link to the Dept of Ed. Link 1 is
[Ask</a> Kantro: Which 529 College Savings Plans are Reported on the FAFSA? - Fastweb](<a href=“Which 529 College Savings Plans are Reported on the FAFSA? | Fastweb”>Which 529 College Savings Plans are Reported on the FAFSA? | Fastweb)</p>

<p>Link 2 is [IFAP</a> - Dear Colleague Letter](<a href=“http://www.ifap.ed.gov/dpcletters/GEN0610.html]IFAP”>http://www.ifap.ed.gov/dpcletters/GEN0610.html)</p>

<p>From that second link here is a paragraph (or two), which seems to indicate that if a plan is owned by another person not on the FAFSA (your sister), it is not reported:
SUBJECT - Treatment of Qualified Education Benefits </p>

<p>HERA Change - The term “qualified education benefit” now includes Coverdell education savings accounts, prepaid tuition plans offered by a State, and qualified tuition programs (known as 529 prepaid tuition plans and 529 savings plans) and makes consistent the treatment of these benefits in need analysis. None of these plans are used as an adjustment to the student’s COA, nor are they treated as estimated financial assistance (EFA) or as a resource in packaging Federal student aid. Instead, they are treated as assets of the owner of the plan (regardless of the beneficiary of the plan) in the calculation of the student’s EFC, unless the plan is owned by a dependent student. If the dependent student owns the plan, it is still not included on the FAFSA nor is it included as an adjustment to the COA or considered as a resource or estimated financial assistance. [See page 4 of GEN-06-05]</p>

<p>Additional Information - In addition to not including the value of a plan that is owned by a dependent student, if someone whose information is not included on the FAFSA, such as a grandparent or a non-custodial parent, owns a plan, its value is also not reported. An institution may use professional judgment to include in the calculation of the student’s EFC, the value of plans held by others, but not the value of a plan held by the dependent student. As usual, the use of professional judgment must be done on a case-by-case basis where the institution has determined that there is something special about the case. It cannot be used anytime the institution discovers that there is a plan owned by someone other than the parent or the student. </p>

<p>The value of the asset that must be reported on the FAFSA is, for savings plans or saving accounts, the balance of the account at the time the FAFSA is completed. For prepaid tuition plans, the value to be reported is the “refund” value of any tuition credits or certificates purchased under the qualified education benefit. The refund value of a prepaid tuition plan account is the amount the owner of the plan would receive if the account were liquidated as of the date the asset is reported. This information should be available from the plan’s administrator.</p>

<p>Note that the value of all plans owned by the parent of a dependent applicant must be reported as an asset of the parent. The value of all plans owned by the independent student applicant (or spouse) must be reported as an asset of the student. These include accounts with a designated beneficiary other than the student for whom the FAFSA is being completed, such as a sibling of the dependent applicant or a child of the independent applicant.</p>

<p>Hope this helps. Perhaps check with financial aid dept at intended college, or an accountant who has experience with FAFSA.</p>

5

<p>More specifically, I think my question is this: Since I am the GRANTOR/SETTLOR of the trust, aren’t any college plans owned by the trust really MY assets?</p>

<p>That’s the real question. (And thank you for your assistance. You helped me focus on the real issue and I appreciate that)</p>

6

<p>I think you had better check with whoever drew up the trust for you on second thoughts! The trust is listed as the ‘owner’ you say, so that would seem that no one actually owns it, in which case it would not be reported. Also recommend you talk to FAFSA again and ask for a supervisor (and get a customer name or number of whoever you talk to), and take written note of what you were told. You can also ask specifically where in the Higher Education Act that information is to be found, so that if anything does happen, you have yourself covered.</p>

7

<p>I want to reinforce a prior post. You may be making a more basic mistake. The divorce decree is irrelevant to FAFSA. If your son does not live with you, your financial information is not what is used. Perhaps you are equating this to who claims him as a dependent on tax returns.</p>

8

<p>Okay, my son is my dependent AND he lives with me. The question here is about asset reporting as it relates to trust funds.</p>

9

<p>

</p>

<p>LotsaWork, you appear to be a new poster who may not be familiar with “forums like this”. Those of us who have been around CC for many years know that new posters often make incorrect assumptions about dependency rules. Also, many times the initial post in a thread doesn’t give all the information needed for people to give informed replies. Dodgersmom and cartera were merely trying to clarify whether your son actually lived with you so that you could get the correct answer to your question, even if they didn’t know the answer themselves. And thumper1 is one of the wisest and most respected posters on the Financial Aid forum. She wasn’t “messing up” your post, she was telling you what she was told about who must list the trust as an asset on the FAFSA. She and the others are not posting just to hear themselves type.</p>

<p>I don’t know the definitive answer, either, but my guess is that if this is a revocable trust, then you as the grantor of the trust are the owner and should report the value as your asset. But like Cairde said, you should verify this with someone at the FAFSA help line rather than base your decision on replies received from strangers on an internet forum.</p>

<p>If you dial back the attitude a bit, I think you’ll get more help. Good luck!</p>

10

<p>I think there are two questions here. </p>

<ol>
<li><p>Prepaid college plan monies- I believe these are not reported on the FAFSA as indicated above.</p></li>
<li><p>Remaining revocable trust money- I was told that money IN a trust was a reportable asset. So perhaps another call to the FAFSA helpline about the money that remains in that revocable trust should be posed.</p></li>
</ol>

11

<p>There are times when the information one gets from the “FAFSA people” is not correct. Ultimately, the ones who makes these determinations are the specific fin aid officers at the specific colleges. Having read both your description and Cairdre’s post, I am inclined to believe what your phone contacts said. If you did not note who the people are, as closely as they will let you id them, and the time/date of the cal (less important since phone records will let you track that), call again and do note that info. Then go ahead and use is as such. I am just telling you what I would do in a case like this which is go with the most preferable way of interpreting it and note where the info was received. There is a risk when you do this that the aid officers, if they can see this, will change the info, or if it come up in verification, it will.</p>

<p>I have a friend whose mother left a trust and the way it works is that that the assets in there are and were not reported for financial aid. Whether that was truly the right way it should have worked, or not, I don’t know but she got fin aid for two kids for college thus reporting it, not to mention a lot of other low income benefits for herself. The benefits of putting money in the trust, I guess. </p>

<p>Where the issue may come up again, and do ask if you call again, is for future years as to how the distributions from the trust are reported. This can be relevant because if it is counted as income, its impact is the heaviest on the EFC. And if there are going to be years of that stream of income, it is a relevant issue.</p>

<p>The thing is, with FAFSA, unless you have a very low income, like poverty level, what is guaranteed by a low EFC is that your student can get Stafford loans, up to $5500 freshman year and if the EFC is low enough is that $3500 of it gets subsidzed interest. For those with extremely low EFCs, there is the PELL grant with a max of about $5K a year. Few schools will meet the need that is defined by FAFSA. </p>

<p>However, if a school should, and it has happened, such as a school like BU that uses FAFSA only, a large award that first year can be taken away by an increase the next year, and then not reinstated regardless of circumstances because the schools do not guarantee to meet need. </p>

<p>Also, if your son is considering schools that also use PROFILE, this trust could be handled a whole other way, and in such a case, you should talk to the fin aid director at the particular school and get their take on it, both for the first year and subsequent ones.</p>

<p>This is not the only issue that falls outside the lines of standard financial aid. You may not get any satisfaction as to how to handle this in that polling aid officers may get you different answer and just because an answer makes sense to you doesn’t mean it is the right one. There may be a vacuum in terms of how this handled since nothing is there about it. I have found that accountants and professional financial counselors are not so great in terms of how FAFSA, PROFILE and the whole college thing works especially if it is not spelled out. You can often do better than their guessees by using Google as they are likely doing and sifting through the sites.</p>

12

<p>BU is a Profile School.</p>

13

<p>Really? Were they always, Thumper? I know NYU just switched, but thought BU stayed FAFSA only. I know someone who got a major award from there with a NCP situation which eliminated their chances for good aid from a number of other schools. Maybe they are PROFILE but do not use NCP info.</p>

14

<p>Yes BU uses NCP Info. <a href=“CSS Profile – CSS Profile | College Board”>CSS Profile – CSS Profile | College Board;

15

<p>This is only tangentially related, so I hope I don’t get yelled at, but FWIW, here goes.
I am the trustee of my dad’s estate. When he was alive it was a revokable trust, and it did not have its own tax ID. It used his SSN. So, for tax purposes, the assets in the trust were considered his. Does your trust have its own tax ID or does it use your SSN? This might make a difference when reporting assets, especially since you will also have to provide your tax return and it should have these assets reported there, especially if they are earning interest and you are getting 1099s.</p>

<p>As others have said, this is a separate issue from a 529 or the FL prepaid plan. If you pull the money from the FL plan, IIRC (I am not a FL resident but have friends who are) I believe you get the investment back that you put in, but not the interest it earned. </p>

<p>Sounds like you might need to talk to your accountant.</p>

<p>Welcome to cc. Hope posters can give you helpful suggestions.</p>

16

<p>As anyone who has ever dealt with a government department knows, oftentimes if you have anything out of the ordinary to ask, it takes a lot of digging to get the answer! Sometimes you know more than the person on the other end of the phone, sadly!! I have been AMAZED at the amount of work it takes to get a child enrolled in college, the bewildering array of rules and regulations when dealing with federal and state laws, and then different departments tell you different things! And then there are the exceptions, and exceptions to the exceptions. And we are just a simple case, no trusts, pre-paid plans, or 529s. You also have to know the ‘right’ questions to ask. No wonder the college drop out rate is so high, does it really have to be this confusing?! So I do not blame LotsaWork one bit for being frustrated. Where we are, even if you are applying for aid or not, a FAFSA is required just to be considered for scholarships - I think this is the norm now. In the end though, it is the agency itself (FAFSA) who must give the answer, rightly or wrongly, which is why I have found it a good idea to document everything a college, financial aid person, or gov agency tells me. Tedious but necessary. Good luck LotsaWork, when you find out the answer, let everyone know.</p>

17

<p>Jym is right, I have heard, too, that the assets of the trust should belong to the person’s whose SS# is used for the trust earnings. If that trust has it’s own number, then you have another question.</p>

18

<p>Boston University has used the Profile since at LEAST 2001 and continues to do so. My son is a BU grad, and we completed it for him and it was a required submission.</p>