<p>I am writing as the parent of a college applicant. I have a family farm listed in my name. However, the grandparents have a life estate in the farm. I do not receive a penny of income from the farm and probably won't for some years - not until the grandparents die. Do we, as parents of the college applicant, have to report the investment farm on the FAFSA? Will it make a difference one way or another?</p>
<p>Immediately ask this question of FAFSA directly. You can email questions in and theirs is the only opinion that matters. </p>
<p>It may make a huge difference – but at least you’ll know the ropes. If you get an answer you don’t like, don’t give up. Talk, directly, with the finanicial aid officers at the college(s) where your student will attend. (Really tough if you are waiting to hear from 12 colleges, but the burden of communication is on you. Try talking to a safety school first and then, with that practice under your belt, continue on with the other colleges). </p>
<p>We know a local family that inherited the family cabin. It is a ramshackle place but dear to the extended family. Bottom line for them was the cabin (located in a high value area) is part of the family assets and that affected the student’s aid qualification. </p>
<p>After much discussion, the student decided to attend the local community college for two years. Keeping the cabin in the family was more important to him than starting at a four year college. </p>
<p>Keep in mind that the economy is in the toilet and college costs are galloping. It might make you feel better to run through a school’s calculator site using your numbers without the family farm – you might find that you qualify for not much aid anyway (horrible but true all too often) – and that might make you feel better -ish. </p>
<p>But then you need to go back and do the FAFSA correctly and honestly – even if the numbers are awful for you. Sometimes things work out in the end and your kid ends up with the Bessie Best Scholarship for Left Handed Tuba Players because your kid is the only left handed tuba player that completed the FAFSA at Happy College this year. Good luck!</p>
<p>I hope Thumper chimes in here because I think she knows about how things work when something is in your name (like a trust or property) even if you won’t see any money from it for awhile.</p>
<p>I think you have to report it. I think the thinking is that it is still an asset and that at one point that asset can pay off a loan or something. </p>
<p>However, Olymom is right…your income alone may prevent you from qualifying for much. And if the schools don’t meet need anyway…then EFC might not mean much if you’re over Pell Grant limits.</p>
<p>If your student has only applied to FAFSA only schools run the numbers with and without the value of the farm. Federal aid is virtually non existent unless you are very, very low income. If you have a student that applied to Profile schools it could be a problem.</p>
<p>Hi all…Our situation was a trust…and I know PLENTY about trusts. For trusts, it does NOT matter whether you have access to the funds or will EVER have access to value of the trust. You are required to list your share of the trust as an asset on the FAFSA (and Profile)…oh and if your kids have a share, their share gets listed too.</p>
<p>We were dealing with a piece of real estate where the beneficiaries of the trust were any family member over the age of 18. The trust was worth a VERY considerable amount of money. We would have had to list OUR shares…plus the value of the kids’ shares…as they were each over 18. There were many reasons we begged out of the trust, but one was the financial aid issue as it would not have impacted JUST our generation of kids, but each generation in the future as well. Luckily we were able to be excluded…caused some family “issues” but it was the right thing for us.</p>
<p>The reality is this farm DOES have a value…and you will be able to cash in on it at some point. </p>
<p>I agree with Olymom…this is a question for the FAFSA HOTLINE…but really do not be surprised if you are told you must list your share of the value of this property…since it is in your name…as an asset on the FAFSA. My guess is it will be viewed as any OTHER property that you might own but really can’t sell or gain access to funds through. It’s in your name.</p>
<p>Do let us know what they say.</p>
<p>I hope the average person answering the phone at FAFSA has a clue what a life estate means, but I’m doubtful. I don’t think the issue is whether you have to list the farm as an asset–it is one–but how you value it. The encumbrance of a life estate decreases the value of the farm. The question becomes, if you sold the farm today, encumbered as it is by the life estate, how much would you get for it. Among the issues taken into account would be the expected term of the life estate, something an actuary would have to determine. (Think of it this way–what kind of a discount off current market value would you expect if you bought a place today you couldn’t take occupancy of for some unknown number of years?) I think if you have a defensible number, you aren’t likely to be second guessed.</p>
<p>Potential to sell is only part of what is considered. The bigger issue may be potential to borrow against.</p>
<p>Having dealt with this issue during verification, I can answer the question:</p>
<p>A family farm (including equipment, livestock, etc.) isn’t included as
an investment on the FAFSA if:
• it is the principal place of residence for the applicant and his family
(spouse or, for dependent students, parents), and
• the applicant (or parents of a dependent student) materially participated
in the farming operation.</p>
<p>Otherwise, the farm is considered an “investment” farm, and the portion of the farm in your name must be reported as an asset on the FAFSA.</p>
<p>If you have to report value, it is calculated in the following manner:</p>
<p>The current net worth is reported for land, buildings, machinery, equipment, livestock, and inventories. The current market value of an investment farm is reduced by the debt owed on it to determine the net worth. Farm debt means only those debts for which the farm was used as collateral.</p>
<p>MommaJ - Thanks for the great answer. I hope I am correct in understanding that I only need to report the my remainderman portion of the farm’s value. If I use the actuary charts and come up with a percentage of 65% ownership then I only need to report 65% of the current market value. That does help some . . . if I am interpreting your answer correctly. </p>
<p>Kelsmom - The problem with the farm ownership is that even though the farm is an investment farm in my name, I receive no proceeds whatsoever. The grandparents receive all proceeds due to their life estate in the farm. There are no buildings on the farm nor equipment or livestock. And unfortunately, or fortunately, there is no debt on the farm.</p>
<p>It doesn’t matter. You are not being asked to report income. You are being asked to report assets. If your name is on it, you have to report your share.</p>
<p>If you have to include the assets, income generation really has nothing to do with it. We have land from which all we do is pay taxes and hike around on it every once in a great while but it is an asset that has value that we have to include. I like Momma J’s approach to valuing it as you will need to “value” the asset and keep a record of how you valued it. You “could” sell it, but as she suggests the value could be somewhat diminished because of the encumbrance. The rule of thumb for valuing assets is to use the amount you could gain if you had to sell it quickly. For instance if our land was worth $50 an acre and nearby acreage is listed for a year or longer for it to sell I’d have to find out what it’s worth if I had to sell/move it in a month or better yet this week. I call real estate agents and get their opinions via e-mail keeping Kelsmom’s list in mind and stick them in my tax folder in case of an audit. You might want to consult a land conservancy or someone familiar with farm sales and family encumbrances to get an idea of “today’s” value.</p>
<p>How does sharing with other siblings work?
My husband’s father died a few years ago and left his half of a ranch to the 4 sons. The other have is my mother in law’s (community property), but she has a life estate in the 4 brothers’ half.
I’m not sure of the value. There is a house on the property, but the only income is a grazing lease from a neighbor. The primary purpose of grazing lease is to get an ag exemption on the property taxes.
Would my husband have to list the value of his 1/8th of the property?</p>
<p>Yes, you have to report whatever share of the net asset value belongs to your H.</p>
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<p>That does not matter at all. It doesn’t matter that you receive nothing NOW…the fact is it’s an asset.</p>
<p>123 tweedle…you list YOUR share of the value of the asset.</p>
<p>How will my H’s 1/8th affect financial aid package?<br>
It’s of no real value to us until my mother in law passes away. It’s not like home equity. How on earth would we be able to borrow against it?<br>
Will schools treat it like investment property?</p>
<p>I’m a little calmer now.<br>
How would we go about valuing the property? We could, I suppose, find some neighboring ranches of similar size and look at their tax appraisal values or see if anything comparable has sold (I doubt it given the general market). But how on earth would we factor in the reduced value the encumbrance of a life estate causes? How do you come up with a number for that? How do you determine the value when there isn’t a market?</p>
<p>Talk to a local realtor?</p>