Hi - I am a newbie and trying to plan a bit in advance. There is so much to lean, this really is a niche area. Well, About 10 years ago, the vacant lot next to our house was purchased and put it in the children’s names.(was not my decision was an inheritance) I think the cost was about 12k for the lot. It has not increased in value and even if we wanted to sell it, we probably would not find a buyer as it is a very rural area. I have two children 14 and 16. How much will this hurt the children for financial aid? Total household income is about 72k. Should we put the property in our name? We could probably attach the deed to our home. S is a sophomore so we have some time to decide.
thanks so much.
clara
I am not sure about property transfer implications.
I guess if you could sell the lot before then, you could put the money in a college savings account for both kids. It would be considered a parent asset.
Also if you wanted to hang onto the lot, in case one of the kids or a grandparent might want to build next to you, and it was in the parents’ name it would also be a parent asset. Again find out about transfer and tax implications if any.
But if your income is over $70,000 and with one in college you probably will not have an EFC low enough to qualify for Pell. You could try an EFC calculator.
But this is just for federal aid, you might still get state aid or if a school meets full need you might get grants from them. Running net price calculators on college websites can help you see what aid a particular school might give.
But we are in a similar income range and we know we don’t qualify for much need based aid so we looked at schools where merit aid will bring it into affordable range.
I would suggest putting the property in your name. Parent assets are assessed at 5.6% for FAFSA purposes. Student assets are assessed at 20%.
But really, for FAFSA purposes, this isn’t going to net you more federally funded grant aid, because at your income level, your child wouldn’t likely qualify for federally funded grant money.
But still…I would get that property onto the parent name.
It’s great that you are thinking about this now and planning ahead!
Both kids own the property? The value for each would be half the 12k it’s worth, or 6k. Student assests are assessed at 20% for FAFSA. So the asset is only going to add about 1200 to the kid’s efc. Your income is too high for Pell, so honestly, before you engage in the financial gymnastics required to transfer the title, think about the worth of such a transfer long term. What kind of tax implications are ther for you? What might the transfer itself cost?Lowering an efc by 1200 won’t get dollar for dollar in more aid. Should the property ever become valuable and you wanted to transfer it back, what kind of problems might that create? You are really wise to think ahead. I’m just going to encourage you to think ahead even farther.
It’s not clear from your post whose money was used to purchase the vacant lot. If it was really money that belonged to your children, than you will probably have issues if you simply decide to retitle the property in the name of a parent. In some states, it may not be possible to do that, at least until the minor child reaches the age of majority and is legally able to make his/her own financial decisions. If parent money was used to purchase the property and it was titled in the name of the children, possibly as a way to shelter parent assets, than in the eyes of FAFSA it’s a parent asset already, regardless of whose name is on the title.
The best solution would be to add the lot to your property, having one bigger property. Whether that can be done will depend on whether the area has been platted, title matters. If it becomes part of your property, you won’t have to list it as a separate asset on FAFSA, and it will just increase the value of the primary residence. It might even decrease the taxes as it will be assessed as one lot, not two.
The down side is if your area restricts building to one structure per lot. If so, by combining the lots you are actually decreasing the value because now you have a very nice yard but cannot build on it (might increase the value of your house/lot because no one can build right next to you). Once the lots are combined, you might not be able to separate them again. So states have requirements that platted lots be a certain size, or that you cannot leave parcels landlocked, or that a plat is required for any lot under 40 acres.
Using what process to divest the children of their interest in the vacant adjoining lot?
attaching it to your deed would likely have the least FA impact.
Yes, I agree with @ordinarylives, I would not do anything hasty.
In our state there is real estate transfer tax and inheritance tax so if the value went up or it might be more beneficial for the children to own the property, just some things to keep in mind.
The parents cannot annex a property they do not own onto their lot. They can only do this if the are owners of the property.,.at least that is the case here.
The children can deed it to the parents, and since the children are minors, the parents would sign the deed. Children who own property do such things all the time, often without even knowing they did it because they have adults making the transactions. Parents have a lot of power to decide what to do with the property of their children. In a few states, if the child earned the money, there are statutes that regulate how much must be put in trust (Jackie Cooper laws) but in most the parents have total control of unearned income, and of a lot of the earned income too. This property is not in a trust.
It’s likely the parents have been paying the taxes on this property with the parents’ money.
That doesn’t matter. If the property was purchased with money that belonged to the children (an inheritance), than the property is legally an asset of the children. The parent can’t just take the property from the child - there’s a word for that: theft.
Before doing anything, check the EFC if the property is in your name instead of your children’s name. If the EFC is higher than CoA anyway, it is not going to change anything.