Joint account and Financial Aid

Paying for College
21

Even for married joint owners, when the money does belong equally to both, the interest is only reported to the first listed SSN. Bank is required to report to the first named account holder so that’s what it does.

As far as the bank is concerned, joint owners are joint owners. Any owner can wipe out the account for the purposes the account was set up for or for other reasons. That goes for the creditors of the account owners too, who can attach the account for judgments, taxes, child support, etc. One owner can argue “Oh, but that’s not my money, it’s Granny’s” but usually the creditor doesn’t care and the bank can’t stop it (there are some exceptions for SS checks and other ‘protected’ funds, but as you can imagine it is difficult to separate these funds once they are co-mingled). If the OP wrote a check to pay her debts, not just Granny’s, the bank is not going to stop the check from clearing because it isn’t for the Granny’s benefit. The bank is not policing accounts.

The presumption for any asset is that it belongs to person it is titled to. The car titled to the parent belongs to the parent, not the child who drives it, pays for the gas, maybe even bought the car. The beach house belongs equally to the 6 siblings, even though only 4 of them use it and pay the maintenance on it because that’s the agreement they made. Title is going to overrule agreements.

FAFSA and CSS forms don’t ask for just assets that you feel you own, they ask for assets. No need for judgment on whether the asset is ‘really’ yours. 529 plans for other children have to be reported even though that money is not really the parents’ asset, will not be used for this student, deposits were made by third parties specifically for the younger child. Rules say report it, it’s an asset within the parent’s control. There is a way to avoid this, and it’s by putting the account into the name/control of someone else, like a grandparent. Financial gymnastics? Yes, but required to avoid reporting it.

The original question was would the OP be required to report assets held in her name. Yes, IMO, she must report all accounts in her name.

22

This is not correct. FAFSA is absolutely interested in who owns the asset.

From Completing the FAFSA 2015-2016:

*Part ownership of asset. If your parents own an asset with others and therefore only own a portion or percentage of the asset, they should report the net asset value that represents only their share of the asset owned. They would determine the current market value of the asset, reduce the value by any outstanding debt, and then multiply the net asset value by their ownership percentage. This result is then reported on the FAFSA./i

https://studentaid.ed.gov/sa/sites/default/files/2015-16-completing-fafsa.pdf

You have a fundamental misunderstanding of how 529 accounts work. A 529 account that is owned by the student (and where the parent or someone else may be acting as a custodian if the student is under the age of majority) is not reported on FAFSA or Profile that is completed for a sibling. If the parent is the owner of the 529 account, and the beneficiary is a sibling of the student who is filing FAFSA or Profile, this is reported as a parent asset, because the parent can change the beneficiary at will (with restrictions), or even close the account and take all the money back, with a tax and penalty hit. So you see, a parent-owned 529 account really is an asset of the parent. And a 529 account owned by a sibling of the FAFSA/Profile filer is not reported.

Not under the facts as reported by the OP. OP’s name is on the account, but her mother, the joint account holder, owns 100% of the account assets. Therefore, under the FAFSA instruction copied above, OP would be correct in reporting her ownership share of the account as 0%. In other words, the account does not get reported on FAFSA.

23

"Part ownership of asset. If your parents own an asset with others and therefore only own a portion or percentage of the asset, they should report the net asset value that represents only their share of the asset owned. "

Quote form your own post, BelknnapPoint. Joint owners of an account own 100% of the account. Each joint owner can spend the entire account. There are other types of accounts where the amount deposited aren’t equally owned, but a joint account, like a house held in joint tenancy, is 100% owned by each joint owner. Upon death, the money/house passes to the other joint owner(s). OP said the money is in a joint account. She owns 100% of it in the eyes of the law.

In the case of a joint account, it isn’t part ownership an the ‘therefore only own a portion of percentage of the asset’ doesn’t apply. The account is 100% owned by the OP and 100% owned by her mother.

24

http://www.elderlawanswers.com/be-aware-of-the-dangers-of-joint-accounts-7575

25

Nope, I disagree with your analysis. It doesn’t matter what the bank will allow, or what happens legally if one joint owner dies. What matters is the FAFSA rules, because FAFSA isn’t being filled out according to the bank’s rules, or according to the rules of survivorship. If mom dies, I agree that OP will become owner of 100% of the account assets and in that case would need to report the account balance as hers on FAFSA/Profile, but thankfully mom is still alive, and as OP is stated, the money in the account belongs to mom. All of it. And that’s what FAFSA and Profile want to know: is this money available for the parent to use to pay for child’s education? And here, the answer is no.

As far as “she owns 100% of it in the eyes of the law,” I’ve previously pointed out to you that this is not always the case. In fact, the example I showed you involved a woman who was added to her father’s account as a joint owner for the same reason that OP was added to her mother’s account - to help with paying bills and taking care of other financial business. The daughter looted the account and spent the money on herself. She was sued by her father, and while the court found that she had access to the account as a joint owner, she did not own the money in the account such that she was able to appropriate it for her own use.

Common sense and logic says that according to your interpretation, if two adult siblings are joint owners of an account with a balance of, say $100,000, and both have a child in the same class at the same college, the college would assess both parents the full value of the account for financial aid purposes. Sorry, but you can’t spend the same dollar twice.

26

There is a very easy way to deal with this.

Change the bank account so that it is the mother’s account, and the daughter has signing ability for checks…easy peasy. Any bank can make that happen.

27

Maybe, maybe not. As I mention upthread, I recently was told (by a teller and then a manager) that in order to remove a joint account holder from an account, the account would have to be closed and a new account opened. (Note that this did not involve the death of the account owner whose name I was asking about removing - I assume in that circumstance, presenting a death certificate would suffice.) But you’re right - if the bank will do this, it’s probably the easiest way to delineate who the money in the account belongs to, while retaining OP’s ability to assist her mother with finances.

28

And I disagree with you, BelknapPoint, but OP can take both opinions and decide what she wants to do.

If two sisters own a joint account, they do own 100% of the account and both would have to claim 100% of the asset. No, you can’t spend it twice, but one could spend the entire 100% so why should one college give FA based on only half the account when that sister might just be the one who cleans out the whole account? Because the bank and the schools don’t know the intent of the joint owners, or if one is going to take all the money, they just go with the law that each owns 100%. Yep, that is a double penalty if both file FAFSA, no different than a paycheck that is counted as income in one column and as a cash asset in another. Double whammy. As thumper1 says, don’t set it up as a joint account. Don’t hold lake property as joint tenants (because then you own 100% of it as does the other joint tenant), but as tenants-in-common. There are ways to avoid the problem of being assessed ownership of the entire asset - don’t set it up as a joint asset.

In the cases you cited, the bank still considered the assets owned 100% by the joint owner and the bank did allow one joint party to take the entire account. If the woman in your case was a parent filling out the FAFSA, should she have claimed only half of the amount in the account, when she did actually take the entire amount? If the father had sued the bank, the father would not have won as the bank followed the law and treated it as 100% owned by each party. The court made a decision in equity, not rule of law, of what the daughter did, disregarding the legal status of the account that it was 100% owned by both. The court did not rule that the account wasn’t 100% owned by both, but that the intent on the parties was different than what the law provided. They, in fact, had set up the account incorrectly for what they wanted to do, which was have the daughter act as a custodian for her father’s money. The court fixed that error but it didn’t have to, it could have just ruled, in law not equity, that the account was a joint account and each party had the right to the whole.

But why do it the hard way, the way you have to explain it to the FA officer, ask CC members for opinions (which differ), to question and worry if you are doing it the correct way? Just change the ownership of the account. Do it the safe, no questions, no gray issues way.

OP could benefit from fixing the account now, as she said she doesn’t want the balance to become hers upon the death of her mother. She can fix that now too by having the mother designate a Pay on Death beneficiary.

29

So, if four siblings, each the parent of a college student, inherit a lake house from their parents, valued at $200,000, and they hold it as joint tenants, each sibling would have to report the property on FAFSA as an asset of that sibling with a value of $200,000? No way. The rule that I quoted in post #21 comes into play. Your reasoning defies common sense, and is tied to rules, laws and practices that are not relevant to a financial aid scenario.

If OP had not already been added as a joint owner on her mother’s account, it would make sense to advise her against doing that, if her objective is to simply have signature authority on the account. But she came here asking how to treat the account for FAFSA reporting purposes, having already been added as a joint owner. If she doesn’t report the account on FAFSA, there will be nothing to explain to the FA officer, because no FA officer will ever know. And there is no legal, ethical or moral problem with that.

P.S. You’re misreading the case I pointed out to you. I suggest you go back and read it again to get a fuller understanding of the court’s analysis and decision.

30

What is the difference of a “joint owner” vs. a “signature authority”?

I get that as a joint owner you are saying the money is also yours, while as a signature authority you are saying " it’s Mom’s money but I can sign checks"

However, earlier it was stated that since a joint owner can take all the money out it is considered their money for FA reporting purposes. Well, can’t someone with signature authority also take all the money out? If a joint owner is on the hook for that money for that reason, why isn’t the signature authority?

By the way, I’ve had the same issue with trying to remove a joint owner on an account. I’ve been told by two separate banks that the only way to do this is to close the account and open a new one. Weird huh? They seem to want to protect the joint owner from being removed but they have no problem simply closing the whole account!

31

Yes, Joint Tenants - a legal term - own 100% of the asset. That’s the law. If you want to advise your clients that they can disregard the law of ownership, that is your opinion and your option. I would not advise my clients to do that. I’d advise them to report the assets as legally held or change how they are held.

Your quote from FAFSA says if they don’t own 100% of an asset to claim only the part they own. In Joint Tenancy or Joint account owners, they do own 100%.

Most non-married people take title as tenants in common for real property, and most other things are deemed to be co-owners with equal ownership (like a car titled to two people, each own half). If it is ‘Joint’, that has a legal connotation, that they each own 100%. The law gives that presumption because otherwise, every matter would end up in court and it would be a ‘he said/she said’ situation, or that’s not what we meant. In fact, most married people hold title as tenants in common. Joint tenancy has a few benefits (passes on death outside probate), but many negatives, like each joint owner owning 100% of the assets. Each person needs to decide if they want the convenience of avoiding probate and the risk of giving power to a joint owner, or give up the convenience and choose a different type of account.

In your example, if 4 siblings own the property as joint tenants and one dies, he’s out. Now 3 own the property. The dead sibling’s spouse gets nothing. Fair or not, that’s how it is. It’s probable if the siblings went to mortgage the property, the bank would require the title to be changed to tenants in common because it is such as mess to deal with joint tenants (who aren’t married) because when one dies and his ownership is gone, the spouse shouts “I didn’t know that! I want my lake house”.

32

It took me ten minutes to help an elderly relative re-title a bank account and another five minutes to get a POA notarized so that ownership of the assets was made explicit… less time than it will take the OP to read through our analysis of her issue.

I do hear about issues like the OP’s frequently-I am not sure why people are afraid to walk into a bank branch, sit down with the manager, and clear up any problems then and there. And if your particular bank wants to close your joint account, and then open a NEW account in mom’s name with you having signature authority- why in heck is that so difficult? It costs nothing to close a bank account. And the bank will happily keep the requisite amount in the old account to cover checks that have been written but not cleared so that mom isn’t bouncing checks to the pharmacy and the grocery store. The bank will likely waive the cost to order brand new checks.

Again- a ten minute exercise. Surely worth it given the POSSIBILITY that the intent- Mom’s assets, and hers alone- could be misconstrued.

33

Just as you had a fundamental misunderstanding about how 529 accounts work, so too do you have a fundamental misunderstanding regarding joint tenancy.

Joint tenancy means that each joint tenant owns an undivided fractional share of the property. “Undivided” meaning that each joint tenant has access to and use of the full property; a line cannot be drawn through the property that says “this part is mine and that part is yours.” “Fractional” meaning that each joint tenant’s interest in the property can be expressed by a fraction, the numerator of which is one and the denominator of which is equal to the number of joint tenants.

*To create a joint tenancy, the co-owners must share “four unities”:

Time - the co-owners must acquire the property at the same time.

Title - the co-owners must have the same title to the property. If a condition applies to one owner and not another, there is no unity of title.

Interest - each co-owner owns an equal share of the property; for example, if three co-owners are on the deed, then each co-owner owns a one-third interest in the property regardless of the amount each co-owner contributed to the purchase price

Possession - the co-owners must have an equal right to possess the whole property*

https://en.wikipedia.org/wiki/Concurrent_estate

There are many other similar examples/definitions that I could provide a link to, but one should be enough. Note that the term “joint tenancy” as used here applies to real property. Situations involving other types of jointly held property (for example, a bank account that is titled to joint owners) can and will be treated differently. The point is that various examples you have used to support your opinion about how to report a jointly held bank account for FAFSA purposes have been shown to be invalid.

Finally, at least where I’m from, holding real property as joint tenants is very common, especially among spouses. Holding property this way avoids putting the property through probate when one spouse dies, and therefore is expedient, efficient and cost saving.

34

Wikipedia, a fine law school. I have my opinion, you have yours. If there was only one right answer, there would be no reason for court cases and disputes. OP can decide if she wants to take the risk in following Wikipedia or just set up the account in a risk free way.

Any joint owner has the legal right to the entire amount in the account. How does that mean they only own 1/2 or 1/4? Each owns the entire amount -no matter how much each contributed. The bank defines who owns the account.

Possess the WHOLE property. 100%

35

Certainly if the Wiki article is wrong and you are right about this aspect of joint tenancy, you can provide a link to a site (maybe even to a law school site?) that supports your argument. Right?

Possess: use, take advantage of, have control over. Different than owning. A renter can possess an apartment as a legal tenant, but the renter does not own the apartment.

Well, the bank defines who has access to the account. Joint account holders may have their own agreement or understanding about who actually owns which assets in the account, but they’re probably not sharing that information with the bank, nor should they. The bank’s not going to keep track of that, nor should they. And the discussion here is about what FAFSA or Profile considers to be ownership, not what the bank does. Besides, you were trying to use joint tenancy (joint ownership of real property) as an example of why joint bank accounts should be considered as owned 100% by each joint account holder, and I’ve shown you why that comparison fails.

*As with the tenancy-in-common, a joint tenancy can be created in three or more people. If one of the three people dies, his or her interest is shared by the remaining joint tenants. For example:

Ralph owns an apartment in fee simple absolute. He conveys his apartment to “Alice, Norton and Trixie as joint tenants with rights of survivorship.” Alice, Norton and Trixie are now joint tenants. If Alice dies, then Norton and Trixie will share the portion that Alice leaves over. Thus, Trixie and Norton will each own a one-half interest as joint tenants.*

http://nationalparalegal.edu/public_documents/courseware_asp_files/realProperty/ConcurrentOwnership/JointTenancy.asp

36

MODERATOR’S NOTE: This has become a disagreement between two posters, so I am closing the thread. You two can continue to discuss this, politely, by PM.