Swallows to Capistrano ( Financial Aid Myths and Realities )

Parent Cafe
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<p>You are right DocT. The fellow was blowing smoke. There are no legal ways to shelter income in a trust for the kid or yourself (although you will find accountants that tell you it will work). You are required to disclose all of that data. Corporation won’t work either. </p>

<p>And calmom’s answer is correct. In fact I don’t know if my mileage was added back in. I always assumed they had let that slide and I don’t deduct meals and entertainment. The items I know were depreciation on the C , farm loss and farm depreciation on the F , phantom income #1, and phantom income #2.</p>

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<p>The only possible way may be to have accounts outside of the US but I’ve never looked at that. The rich do have some tax breaks but they also lose many breaks ( dependents, college tuition credits, writing off rental income except when selling etc)</p>

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<p>Hmmm … maybe the kid has friends whose parents are not on the up & up?! Better possibility is that he is as clueless as I & he believes all he (thinks he) hears. He is so enthralled by the amount of money his classmates’ families have that he literally aches to be rich. </p>

<p>Sorry to go off topic …</p>

<p>P.S. I am far from rich & I don’t qualify for the whole piece of the tuition credit pie.</p>

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<p>Nope. They ask about those off-shore or foreign accounts and assets , too. If you own a castle in Germany and nothing but a pup tent here you are still hosed. If you are honest that is.</p>

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<p>In response to the ‘How does an average kid find financial safeties?’ thought -</p>

<p>I’ve been talking to the fastweb people, and they are talking about including a database of college-sponsered scholarships in addition to their regular ones. This could make that much easier.</p>

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<p>Kelsmom, think generation-skipping trusts. But that’s for inheritance taxes.</p>

<p>Putting money in trust will not shelter it from college FA depts. We put some $$ (not a whole lot) in an irrevocable trust for my S many years ago before our finances went to pot. Even though he cannot touch it until after college, some schools expect him to find a way to borrow against it and exhaust it over 4 years. (Not complaining, just reporting.) </p>

<p>anothermom2: you are assuming that a state school is cheaper than a private school. In many cases it is not because the state school has little or no FA to offer. (Not to mention the fact that not everyone lives in a state with a great state university…) For those with a high-achieving kid and little money, the best way to go is likely an elite school that “meets need.” And if the kid is able to get into Harvard or Yale, then the low-income family has really won the lottery.</p>

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<p>This is correct.</p>

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But a middle-class kid with parents who have some unsheltered assets? Two years ago - not so good. Today? Well, I don’t know how the new iniative deals with assets . Overall,I’m guessing it would be at least some better (no loans). Any reports?</p>

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<p>Not to throw a monkey wrench into the whole “trust” discussion, but I have been advised by one planner of one trust strategy for one situation that does work reasonably well with FA applications.</p>

<p>This would be special needs and medical care trusts. </p>

<p>With the special needs trust money is placed in a irrevocable trust for the needs of a disabled special needs sibling (housing, supervision, medical, etc.) that may not be adequately provided by governmental agencies. It allows the family in effect to dedicate certain assets to the long-term care of a family member. Since the moneys cannot be used for other purposes (support of parent or non-disabled sibling), it is not subject to FA analysis.</p>

<p>Mind you that typically since these trusts are often set up to allow families with some assets to supplement the rather spartan provisions of government disability programs (SSI et al). However, the rules of these governmental programs usually require these trusts to repay the government at the time of death of the beneficiary for governmental services that were paid for the beneficiary. Fairly complicated to explain and not necessarily germain to the subject.</p>

<p>The other trust that is generally not part of the consideration of FA analysis (expcept tangentally - I’ll explain) are injury settlement trusts. Often, lawsuit settlements for severe injury will allow for the creation of a trust to pay for the medical/living support care of an individual significantly harmed in an accident. Since the assets are not in control of the beneficiary and can only be used for a specific purpose not related to education (medical costs and assisted living expenses typically), the benefits are not considered income, nor are the assets owned by the beneficiary.</p>

<p>However, I am told the to the extent reimbursed expenses from these trusts offset any “medical costs” these medical costs cannot be included in the FA paperwork filings (the tangental relationship to FA).</p>

<p>Once again, these are corner cases in the “trusts” issue that serve to isolate certain events and the assets/income that cover these events from unrelated program eligibility. </p>

<p>Other trusts, I agree, are not going to get around FA filing requirements.</p>

<p>Disclaimer: this is not a legal opinion, but that of a financial planner I consulted at a disability event.</p>

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<p>Thanks for mentioning that, goaliedad, we too have the situation of a disabled sibling with special-needs trust. One of my first posts was to ask whether the trust affected EFC for S1 and S2.</p>

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<p>catbird,</p>

<p>If you have set up an irrevocable trust for the benefit of disabled sibling (with no leak through to other family members), those assets (although administered by you) should not be a part of S1’s FA filing. Do double check with the attorney that set up the trust to make sure everything is done correctly, though. You may be required to document all of this, of course.</p>

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<p>Quick question for the legal eagles among us: Why would anyone set up an irrevocable trust that restrict the use for … educational expenses of the beneficiary? </p>

<p>It seems that many financial planners and attorneys received a Kevin Trudeau flyer in the mail about the greatest techniques to shelter or protect income and assets. Irrevocable trust that cannot help fund an education? Stashing assets in the name of the children? </p>

<p>Too bad, the warning that “This will probably be VERY detrimental for financial aid purposes” was probably printed in a font smaller than a 4 point font.</p>

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<p>I don’t know if this would be useful to others - but lately I’ve tried out some new language in talking with other parents about financial aid, and it seems to make sense. I suggest that they make sure they can tell an “affordability story” for every college on their child’s list - that is, assuming the child gets in, how could they afford it. Each college will have a different affordability story because of differences in costs, financial aid policies, and the child’s relative strength as an applicant. But if they can’t come up with any affordability story for one of their colleges, then it should be bumped off the list. Parents can see from the example stories some of the information they need to find out. The stories are still over-simplified from the realities people have been describing in this thread, but it’s a way to get started.</p>

<p>Some example affordability stories:</p>

<p>“At Chapman University, I could probably afford to go because they meet 100% of financial need, and most of the aid is likely to be in grants rather than loans. I’ve tried a couple of family contribution estimators, so I have a good idea of how much the college will expect our family to be able to pay and it’s very little. If I get a good job every summer and work during the school year, my family should be able to handle our contribution.”</p>

<p>“At Denison University, I could afford to go if I got a merit scholarship of at least $10,000. My parents have enough money to cover the rest. It has to be a merit scholarship because I’ve run several financial contribution estimators and I know I won’t qualify for need-based financial aid. My chances of getting a merit scholarship at Denison are good because Denison gives merit aid to 50% of its students, the average merit award is over $13,000, and my SAT scores and grades are in the top 20% for Denison.”</p>

<p>“At UC Berkeley, I could afford to go if I got 90% of my need covered by financial aid, since my parents have enough savings to cover a 10% gap as well as their expected family contribution. If I get less financial aid than that, I’ll go to community college for two years and then apply to UC for my junior year. I know that only a few community colleges in California have the right courses to transfer into the architecture program I’m interested in, so I will go to one of them. My family will keep saving while I’m in community college so I’ll have enough money for UC even if I don’t get enough financial aid.”</p>

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<p>xiggi, a Supplemental Needs Trust is an irrevocable trust set up for a person with disabilities, that doesn’t disqualify him/her for SSI or Medicaid. The funds can be used for the individual’s education, medical care, housing, travel, recreation, etc. Is that what you were asking?</p>

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<p>I would be interested to hear a report also.</p>

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<p>Calreader: That is a good suggestion. However, for a number of schools that financial aid process is so opaque that it is virtually impossible to determine ahead of time what kind of financial aid will be offered.</p>

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<p>Calreader, this is brilliant. Each situation is different and each story is different-- and the child will pick the one with what looks to him/her to have the most appealing ending.</p>

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<p>DocT, I know, that makes it hard. So some of the stories that we put together after lots of careful research will turn out to be totally off base. But what to do? The process doesn’t seem very clear even for our state schools that use only the FAFSA - we don’t know how they decide who to gap and by how much. At best, the stories are educated guesses.</p>

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<p>Catbird, this is what I was looking at:</p>

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<p>And if the S is the beneficiary of the trust it is counted as a student asset, not parent asset, even if the student can’t touch it (as stated above, schools will expect him to find a way to borrow against it)</p>