No. Assets in a trust are owned by the trust, which is a separate legal entity. The trustee acts as a fiduciary and administers the assets under the terms of the trust for the benefit of the trust beneficiaries.
I disagree - real estate is titled in the name of the trustee. Bank accounts are titled in the name of a trustee. A trust can’t be a party in a lawsuit - only the trustee can. A trust can’t enter into a contract. The trustee can. The trust holds the assets but the trustee controls them. It is different than a corporation that way. A corporation can own assets. A trust can’t can’t. It is an empty vessel controlled by the trustee who fills it with assets the trustee controls.
Ownership is not a helpful concept for trusts, conservatees or minors. Control is. “For the benefit of” is. None of them can enter into contracts so they can’t open bank accounts.
No, the trust does in fact own the assets. Otherwise trust could not be used the way they are to protect assets. Contracts are signed by the trustee on behalf of the trust, just as a corporate officer signs on behalf of a corporation. When money is in a trust, the beneficiaries are considered to “own” their share of the trust for financial aid purposes. Even real estate is titled in the name of the Trust - and again, the trustee signs all the relevant papers. The reason the trustee is listed on the bank accounts is because they are the person who has access to the money - they are signatories, but if you dig down into the paperwork, the Trust is the owner, and tax documents are issued in the name of the Trust with the Trust EIN, rather than the Trustee’s SSN.
So the question really does become “Who is listed as the owner” of the structured settlement. If the parents, acting on behalf of the minor, have the ability to sell the contract, it is most likely owned by them or the child.
(These two sources are related.)
FWIW
https://www.fastweb.com/financial-aid/articles/must-a-trust-fund-be-reported-on-the-fafsa-even-if-access-to-the-trust-is-restricted
http://www.finaid.org/savings/trustfunds.phtml
Real estate is NOT titled in the name of the trust. It just isn’t. It is titled: “Joseph Smith, trustee of the Smith Family Trust”. Same goes with trust bank accounts. True, when a trust becomes irrevocable it has its own tax id number, but it uses the settlor’s (trustee’s) ss# before the person dies. It is the trustee who has legal ownership.
Don’t go by what I say, you can just google it:
https://estate.findlaw.com/trusts/trusts-an-overview.html
“The basics of trust creation are fairly simple. To create a trust, the property owner (called the “trustor,” “grantor,” or “settlor”) transfers legal ownership to a person or institution (called the “trustee”) to manage that property for the benefit of another person (called the “beneficiary”).”
Done arguing. Not relevant to the question, anyway.
Sorry, but you have it backwards. A trust can own real estate, and the deed would list the trust as the owner (a trustee name might be included to identify the person acting in agency for the trust); a trust can sue or be sued, again through the trustee acting in agency; a trust can own bank accounts, and the trustee typically has signature authority; a trust can enter into a contract, just like a corporation or other business entity can. The trust has assets because the grantor(s) provided assets that became trust property. Now, a trustee can also be a grantor, but he or she doesn’t have to be. A trustee can quit, be replaced in some cases (depends on the trust language), and might die before the trust is dissolved. If as you say the trustee owns the property in the trust, what happens to the trust assets when these things happen? The real answer is, the property stays with the trust, because the trust is the legal owner, not any particular trustee.
I am very familiar with this concept because I am currently serving as the trustee for four different trusts, two of which are full or part owner of different pieces of real estate (the trust is named on the deeds and the property tax bills), all four of which have bank and/or investment accounts that name the trust as the account owner. If I were to resign as trustee, I would not take the trust assets with me, because they don’t legally belong to me. I exercise control over the assets of the trusts for the benefit of the trust beneficiaries, according to the terms of the trust documents.
Ownership is critical, because it determines who has what kind of legal rights and responsibilities. Again, a trust can enter into a contract and can open a bank account, as long as these powers are not denied in the trust instrument or restricted in some way by state law.
Again, you are misunderstanding. The trustee of a revocable trust still has legal ownership of the trust assets (and this is why financial and tax matters use the trustee’s/settlor’s SSN) because the trustee/settlor can alter or cancel trust provisions at will (hence the designation “revocable”); the IRS treats the trustee/settlor and the revocable trust as one and the same entity for this reason. An irrevocable trust is very different and is a separate legal entity with its own capability to legally own property (and its own EIN for tax purposes), with one or more trustees controlling the assets and acting as an agent for the trust. The trustees of an irrevocable trust generally do not have the powers to alter or cancel trust provisions at will; they are bound by the terms of the trust instrument.
I can understand how there may be some confusion about this topic given the significant differences between a revocable and an irrevocable trust. My previous comments are based on the principles attributed to an irrevocable trust.
@lookingforward – those are useful cites. Thank you. The most interesting point I found was the distinction between a court-ordered restricted trust (not countable) and other trusts (countable). Trusts established in a personal injury case would potentially be court-ordered, I would think.
I looked up annuities and financial aid, and annuities apparently are excluded from reporting requirements from the FAFSA. There are blogs on structured settlements that are conflicting and confusing regarding the impact on financial aid, but generally the issue is whether the distributions are counted, not whether the principal is (because annuities aren’t). So – the dispute in this thread is a valid one, and the best thing to do is to ask the experts as to this particular structured settlement.
The trust owns the assets, and pay income tax on any income produced by those assets. Yes, some trusts are set to distribute all taxable income, but the trust still files a tax return (under its EIN), and issues K1 statements to the beneficiaries, who then use the K1 to complete their tax return.
To expand on what BelknapPoint wrote, Conservators and Guardians can also open bank accounts, and those typically
use the beneficiary’s SSN, whether they are of legal age or not. And minors can certainly open bank and brokerage accounts, they typically will have an adult as a co-owner, but their SSN is listed first, and tax documents come in their name. Those assets belong to them, and are listed under them on the FAFSA even if they are 17 or younger when they start college.
Please provide a link to the source of this information. Distributions from annuities should be reported on FAFSA. See my post #28 in this thread which details how this happens.
And… research on minors owning property…http://www.finaid.org/savings/ugma.phtml
Whether a minor can own assets changes from jurisdiction to jurisdiction, which is probably the source of the passionate debate here. As an overbroad generalization, a minor can own property in the sense that a third party taking property from a minor is stealing. However, a parent taking property from a child isn’t stealing. It may be a breach of a fiduciary duty, but not stealing. That conclusion varies somewhat from state to state, though.
UTMA/UGMA accounts are, in effect, trusts that allow for “ownership” by the minor “beneficiary”, but the minor doesn’t control the funds and can’t access them. The minor’s ss# is used to establish it. The income from those accounts is taxed to the minor and is considered the minor’s for FA purposes. The custodian/trustee has control of the funds.
It comes down to: what does it mean to “own” something? If you can’t access, use or control it but your name is on it, do you truly own it? As I said above, “ownership” isn’t as useful of a term as “control” is, from a legal standpoint. “Ownership” is maybe more useful from a taxation standpoint. “Availability” seems to be more the issue from a FA standpoint.
I would like to know in what states a parent acting as custodian of a UTMA could not be legitimately sued by the child/beneficiary for conversion if the parent used the UTMA funds for a purpose that clearly did not benefit the child.
Yes, especially when the asset can only be legally used for the benefit of the owner/beneficiary. It should be obvious that in the case of property held under a UTMA, the reason the legal owner does not have unfettered access and control is because in the eyes of the law the minor owner lacks the mental capacity to make informed decisions as to the use of the property. This is similar to the rationale as to why minors cannot legally enter into contracts on their own.
Here’s an interesting little piece on this subject:
https://www.thebalance.com/spending-childs-utma-money-illegal-358134
I think we are saying the same thing in different ways. I am absolutely not endorsing a fiduciary take money as their own. If a parent dips into an UTMA account to take a trip to Hawaii, that is plain wrong and punishable behavior. The parent is a fiduciary. A third party taking that money isn’t a fiduciary, and there is an important difference – a parent breaching the fiduciary duty is obviously worse. Will it get charged as a crime? Not unless the situation is extreme and has more to it than a parent misunderstanding what the UTMA funds can be used for.
I could cite all kinds of legal authority in my state and how fiduciary law applies in conservatorships, trusts, probates, guardianships, etc. But custodial duties to beneficiaries of UTMA accounts, etc have zero to do with how a structured settlement annuity impacts financial aid. Maybe my trouble in this thread is that I am using short cut colloquialisms rather than getting hyper-technical about legal definitions. I don’t want to put anyone still reading this thread to sleep. 
I will happily geek out over the nuances of fiduciary duties owed to people who lack capacity, but in a separate thread.
The North Carolina case cited in your article – that a parent got in trouble for paying for a kids’ medical care out of the kid’s money instead of the parents’ own-- blows my mind. I clicked through to the source blog. There is a lot more to the story than just the medical bill thing – a nasty divorce, a checkered past and a lot of other poor decisions with the funds set aside for his daughter. Plus, the threat of jail time is overstated in the article. The only fiduciary mentioned in your article who got jail time got it for contempt, not for the raiding of the UTMA account. All of the cases cited in the article pertain to a beneficiary suing in civil court. The article doesn’t say what the suits were for, but my money is on breach of fiduciary duty being the cornerstone of the claims. I agree with the point of the article – a dire warning against helping yourself to your kid’s money. But it is an oversimplification and hyperbole, even if deployed for a good cause. Not saying a fiduciary can’t end up in prison for taking money out of an account – pretty sure that had something to do with Bernie Madoff landing behind bars. But there are lots of reasons why a parent who spent UTMA money on something other than the kid would not end up charged with a crime.
To throw another issue back into the mix, annuities are not counted on the FAFSA but they are counted on the CSS Profile (unless they are qualified annuities). So do you place the money in an annuity and assume the child will attend a school that only uses FAFSA (tie their hands)? If it’s in an annuity and the child attends a school using CSS, it counts as an asset, but is not available to make payments.
Regarding the court-ordered trusts, not only does the existence of the trust have to be court ordered (which might not be the case in a pre-trial settlement - the court approves the settlement, but doesn’t necessarily order it), but the RESTRICTIONS must be court-ordered. That means the court would restrict the use of the money only for medical expenses. If you’re certain there will be medical expenses, that might be the way to go. But if the settlement is meant to cover lost earning potential, it might be a poor choice.
A minor child may get funds to cover plastic surgery (depending on the injury) but medical opinion is to wait until after puberty/adult growth. So a 12 year old may be getting a settlement intended to be used for care which cannot take place for another 10 years.
Again- interesting sidebars, but without clarification from the OP we are all wasting our time here. And lots of arguing if we’re talking about 50K, paid out over 10 years. The impact on financial aid is trivial in that case, regardless of who owns what, who declares what, etc.
I really really really don’t want to continue debating about whether a trust owns assets or the trustee does. But I also don’t want to leave the issue out there as ambiguously stated or wrong. It is a common misunderstanding, but a trust is not an entity like a corporation is. It is more like a contract than an entity. A contract can’t own anything.
“A trust is a three-party fiduciary relationship in which the first party, the trustor or settlor, transfers (“settles”) a property (often but not necessarily a sum of money) upon the second party (the trustee) for the benefit of the third party, the beneficiary.”
“The trustee is the legal owner of the property in trust, as fiduciary for the beneficiary or beneficiaries who is/are the equitable owner(s) of the trust property.”
https://en.wikipedia.org/wiki/Trust_law
It is shorthand to say a trust owns assets. But legally it is the trustee who does. The beneficiaries are “equitable owners”, which is a technical way of saying they have an interest in the assets, but no ability to control the assets – just like the minor with an UTMA account.
The EIN runs with the trust agreement, in the sense that the person who serves as trustee changes, but that the existence of a trustee relationship doesn’t – you wouldn’t change the EIN every time a new person takes the helm. The trustee is responsible for filing taxes, from the trust corpus (not out of their own individual pocket). I think of a trusteeship like a hat. Put it on, you have duties to the beneficiaries. You take it off, and you are an ordinary person – you have to keep separate records for when you have your hat on and when you don’t. Someone else puts the hat on, they have the duties instead of you. The EIN belongs to the hat.
Assuming the trust is an actual entity as opposed to just an agreement is a rookie mistake an estate attorney learns the hard way (I did and I will therefore never forget it) – the first time you have to file something in court and you name a trust as a party, as opposed to the trustee. It will be rejected by the court. And if you try to title real property in “the Joseph Smith Trust” as opposed to “Joseph Smith, trustee of the Joseph Smith Trust”, you will be rejected at the recorder’s office. A bank will insist that the account be titled in the name of the trustee and will want to see the trust declaration that establishes the agreement that puts the person in charge. The trust is a relationship, an agreement, a contract, but not an entity that has any duties or rights in and of itself. The settlor, the trustee and the beneficiaries have rights and duties under a trust agreement.
I will let others address the FA/FAFSA/CSS questions. Not my thing. But I am pretty comfortable with my legal training regarding the technicalities of trust law. If people want to disagree with me on it, I am pretty comfortable with that, too. In the real world, the distinction of who owns the trust asset doesn’t matter a darn bit.
Moving on this time for real, I promise.
In fear of stirring the pot, I almost didn’t post again. The discussion took an interesting unforeseen turn into the land of trusts, but I guess that’s what happens when threads take on a life of their own. I just want to say thank you to everyone who commented. It has certainly been very enlightening. We will take all the information we’ve learned to help inform the decision we make. Thanks again to everyone who chimed in!