Just open an account in a federally chartered bank. Open an account as joint owner with a minor. When my kids turned 18, they sent them a form to sign that it was no longer a ‘teen’ account. Same account number, same requirements, I’m still listed as joint owner.
^ Then the bank account of the younger sibling would definitely count as a parent asset, since it is a joint account between the parent and the sibling. Obviously you can open a teen account but that would be counterproductive. The point is to determine what does NOT need to be reported to a Profile school because it is a sibling asset. My point was simply that the instructions and examples are inherently confusing for most people who hear UGMA, then bank or investment account and automatically assume they have to report the sibling’s UGMA account as a Profile asset when they apparently do not if it truly is a sibling asset.
Where the joint account is helpful is for your college student because you can have a joint account where you can put her spending money or whatever and if you are listed as the first owner it is your asset and tagged at the lower parent contribution rate.
This is not true.
This is also not true. Show me in the FAFSA or Profile rules where it says “if you are listed as the first owner it is your asset.” What matters is who the money belongs to – period. For a joint bank account with multiple names listed on the account, any one person can have anywhere from 0% to 100% ownership of the assets in the account. It’s up to those completing the financial aid form(s) (parent and student) to accurately report assets owned by the parent(s) and student.
If the student has $5,000 (or whatever amount) saved up in a bank account in her name and then, immediately prior to filing FAFSA, withdraws that money and gives it to her mother for deposit in an account solely in the mother’s name with the understanding that it is still the daughter’s money and the mother is just temporarily holding it, that doesn’t magically turn that $5,000 into the mother’s asset for FAFSA reporting purposes. Such a result would be ridiculous and would leave the asset reporting rules meaningless.
The first owner on a joint account (not a UGMA) gets the 1099 if there is any interest or dividends and pays tax if any. . Therefore, for IRS purposes is considered the owner. I am not in the habit of paying tax on things I do not own.
As for a joint account with a college student, the parent, if listed first, gets the 1099, pays tax if there is interest. The parent then reports it as a parent asset since the parent payed tax at parent rates on the account (in some cases may not be worth it). Since the account has already been reported once on FAFSA and Profile, the student would not then report it again. I cannot speak as to whether student A wants to manipulate the system and give money to mom to hold before FAFSA reporting. Given that people do all sorts of gymnastics before completing FAFSA, buying things early, prepaying all sorts of bills that are not yet due, it would not surprise me. I do not believe there are FAFSA instructions specific to joint accounts, if there are please post them.
I am talking about an established parent college student joint account, that is in place for a number of reasons including convenience, sometimes lower fees because the parent has a relationship with the bank, a way for parent to monitor the account so the kid does not overdraw since a bank will not normally give you access to your 18 year old’s account. Unless the kid has had a summer job at an investment bank, chances are the $2000 he earned as a golf caddy last year was gone by December, well before the FAFSA. Whatever is in the joint account by February was probably money that his parents contributed anyway to meet his living expenses.
One wrinkle, Most joint accounts are joint accounts with right of survivorship. So each owner is deemed to be the owner of the entire account under general law. Each owner can withdraw all the money or close the account without consulting the other owner (exception accounts that require two signatures but that is unusual). So you are not off the hook with sibling joint accounts (even if the sibling is listed first) since they are not otherwise reported but would have to show why this is not your money if ever questioned.
You are making this waaaay too complicated. The asset is reported, or not, depending on who owns it. It’s that simple.
A parent and a student’s sibling can be joint owners on a bank account, and the money in the account might be owned 60% by the parent and 40% by the sibling, and only the 60% would be reported on FAFSA (pick any percentages you want that add up to 100%). It doesn’t matter whose name is listed first on the account. It doesn’t matter who gets any 1099 form. It doesn’t matter who pays any tax due on interest earned. What matters is who owns the asset. Period. Heck, the parent’s name could be the only name on the account and if the parent was holding money in the account that belonged to the sibling, the parent would be justified in not reporting that money on FAFSA; the parent is not the owner.
So what? You should be well aware that how the IRS looks at things is not how the financial aid world looks at things. On tax forms, a non-custodial parent can easily and legally claim a child not living with them as a dependent. In the FAFSA world, this doesn’t fly. This is just one of many examples.
Please quote and provide a link to the FAFSA instructions that say to report a joint parent-student account with the parent listed first, who gets the 1099 and pays tax on any interest, as a parent asset on FAFSA.
Part ownership of asset. If you (or your spouse) own an asset with others and therefore only own a portion or percentage of the asset, you (or your spouse) should report the net asset value that represents only your share of the asset owned. You would determine the current market value of the asset, reduce the value by any outstanding debt, and then multiply the net asset value by your ownership percentage. This result is then reported on the FAFSA.
https://studentaid.ed.gov/sa/sites/default/files/2016-17-completing-fafsa.pdf
You are confusing ownership with control and access. The first does not equal the others. Also, you are trying to apply “general law” (whatever that is) to procedures for completing FAFSA. FAFSA has its own set of rules for how to complete the application.
Just plain wrong. Where do you get this idea from? If you provide a link or reference, maybe I can help you figure out where you are going wrong. If you were ever questioned (highly unlikely), you would simply say, “the money belongs to the student’s sibling.” As long as it’s true, there’s no way that anyone can prove otherwise.
An asset, yes, such as a partnership interest where you have documentation on how you treat any proceeds from the asset on your taxes, such as a K1 or an agreement with your business partners. If you inherited something there was a will or trust. There is no proof when you set up a joint bank account with your teenager. When was the last time you and your teenager signed an agreement with regard to her bank account?
In a bank account
http://www.elderlawanswers.com/be-aware-of-the-dangers-of-joint-accounts-7575
The rules for this vary by state but this is one common interpretation.
No one will care if this is a $200 birthday money account but if it is a substantial amount they may.
Actually this whole question arising from UGMA is much more of a CSS issue than FAFSA.
That is precisely my point, there are no rules one way or the other so do what makes sense. Are there rules of FAFSA or CSS that I missed? Feel free I am always happy to learn.
No reason I should be aware, other than with 401ks added back in and credits, my tax return is my basis for filing FAFSA and the Profile, pretty much works out the same. I have no experience with divorced parents so have no clue how custody is treated and have never inquired.
The bottom line is you believe that for money contributed from parent assets to either a minor sibling’s bank or investment account either a joint account or a UGMA that what the parent “believed” at the time of the contribution, that all the money belonged to the minor sibling, means that it does not have to be reported as an asset. I think if you were ever questioned (whether or not likely) you would have to establish, especially in a joint account, why you believed that was the minor’s exclusive property. If you have used the money only to benefit the sibling it should be easy to prove. If you opened the account the week before filing FAFSA and the money, especially a large amount is sitting there unused in a joint account or UGMA, good luck.
News flash: a bank account is an asset. The FAFSA instruction I quoted and linked to makes no distinction between types of assets. With a parent-child bank account, you don’t need documentation of ownership interests, you just need to know how much of the money in the account is owned by the parent and how much is owned by the child, and then report it that way. Again: you are making this much more complicated than it really is.
You are quoting from an elder law website to support your claim regarding how FAFSA assets are reported? And I’ll repeat: while joint ownership of a bank account provides equal and full access to the account by the joint account holders, access and/or control does not equal ownership. Courts have determined that a joint account holder can be charged with stealing assets in the account that rightfully belong to the other person named on the account.
UGMA/UTMA accounts are treated the same by both FAFSA and Profile.
So you’re making up your own rules? Here’s what makes sense, and it’s the easiest thing to do: report the asset according to who owns it. The rule that I quoted and linked to in post #64 applies.
You now have spent enough time on CC to have 685 posts, many of them in this particular forum, which is why, in my opinion, you should be aware of the basic differences between the IRS and FAFSA regarding dependency. The issue is a frequent one here in the Financial Aid forum.
If the money “contributed” from parent assets to a sibling’s account (investment account, bank account, UGMA account, whatever) is a bona fide gift, then it belongs to the sibling and is not reported. Maybe only the parent knows the true intent of the transfer, but as previously mentioned, the reporting of assets is largely based on the honor system. If the account or transfer is questioned and the parent says “that’s a gift to student’s sibling,” tell me, how is anyone going to establish that that’s not the case? There are lots of easy ways to intentionally under report assets on FAFSA and Profile; lying about a gift to a sibling that really isn’t a gift is only one of them.
I make no assumptions about your or anyone’s areas of interest, why do you make assumptions about mine?
This started from the Profile question regarding money held in the name of siblings.
The elder law area it where the issue of joint bank accounts and who OWNS them, not just controls them has been extensively litigated. Outcomes vary tremendously by state. Probably the cases you refer to have happened in one particular state. In other states the outcome might be different.
I understand. While FAFSA doesn’t have a question comparable to Profile’s PA-105, parent assets held in the name of a sibling should still be reported on FAFSA as a parent asset, just the same as on Profile.
I’m interested in seeing how other courts have addressed this issue. Can you provide links or citations to some of these other cases?
I believe that the core issues in the elder law cases are materially different from a parent/child ownership issue.
1- In elderlaw cases, there are typically other people involved- legitimate heirs, who (for example) watched a sibling raid an elderly parents assets. So the question- if mom has dementia, and one sibling co-owns a 40K checking account, and that sibling buys himself a car was he within his rights to do so- and that gets asked by the other three siblings who have some “standing” vis-a-vis those assets assuming Mom has a will which leaves her estate to the four kids.
2- in other elderlaw cases there is massive fraud being alleged- kid makes mom “indigent” by stashing assets, giving them away, etc. and Mom now qualifies for various asset- tested entitlement programs. I’ve seen a lot of ads by “financial planning professionals” which claim that you too can “save” mom’s estate for yourself when she passes by “our time-tested techniques”. Not all of them are legal BTW and the lookback period means you really need to plan ahead even for the legal ones.
3- in still other elderlaw cases, there are competing claims (second wife of affluent elderly man vs. the children from a previous marriage, for example.) First wife left everything to her husband with a presumption that those assets would eventually pass down to the kids. Current will of the husband leaves everything to second wife. What was the legal status of the first wife’s bank accounts which were held jointly with the husband?
I don’t understand why elderlaw title and ownership issues are at all relevant to financial aid but I’d love to be educated.