<p>Where can I find definitive information about the effect of a trust on financial aid?</p>
<p>With a knowledgeable accountant, or investment advisor, or attorney. There are all sorts of variations in trusts involving beneficiaries, trustees, irrevocability (is that a word?), etc.</p>
<p>I am an attorney, and would like to become more knowledgeable. I’m familiar with the trust and the trust documents in question (I am a trustee), but I’d like to see if I can find written information, preferably online, that addresses how financial aid offices will view a trust.</p>
<p>In every case I have ever seen, a trust was viewed as an asset. I had a student who could not touch his trust until 35, the trustees had no ability to free up money for any purpose (which is unusual). The school he chose was of the opinion he could borrow aginst the trust anyway. </p>
<p>Not sure you’ll find anything in writing as it is a school by school issue.</p>
<p>according to FAFSA a trust fund must be reported as an asset</p>
<p>[What</a> is your current net worth of investments?](<a href=“http://www.fafsa.ed.gov/fotw1011/help/fotw33c.htm]What”>http://www.fafsa.ed.gov/fotw1011/help/fotw33c.htm)</p>
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<p>and from [Completing</a> the FAFSA 2010-2011/The Application Questions(89-91)](<a href=“http://studentaid.ed.gov/students/publications/completing_fafsa/2010_2011/ques5-1.html]Completing”>http://studentaid.ed.gov/students/publications/completing_fafsa/2010_2011/ques5-1.html)</p>
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<p>Thank you for your responses! The trust in question is not in the parent’s name or the student’s name; it wasn’t created to hide assets and the assets in it never belonged to the parent or the student. The parent is a beneficiary; the student is not even named in the trust documents. The parent and the student have no right to ever receive income or principal from it; the funds could be distributed to the other beneficiaries. </p>
<p>I agree that a trust can be an asset–but in this case, is it an asset <em>of this parent</em>? In the case described by RedRoses, it was the student’s trust, and while he couldn’t touch the money until age 35, at that point he had a right to it.</p>
<p>As I read the FAFSA instructions, this trust is not required to be reported as an asset of the parent or the student because the funds aren’t in the parent’s name or the student’s name. However, if any income or principal from the trust is paid to the parent, it must be reported as income on FAFSA. </p>
<p>CSS Profile asks a different question: whether the parent or student is a beneficiary of any trust. Therefore, it seems that CSS Profile would require that the trust be reported.</p>
<p>Comments? Other sources of information?</p>
<p>I’m not following, I’ve never heard of a trust that names people and some may get money while others may not. Typically everyone named would be beneficiaries. What am I missing, this is interesting.</p>
<p>Redroses, I think you’re thinking of the type of trust that is created for the benefit of a specific individual–for example, a parent could decide to put assets in trust for a child to shield the assets from the parent’s creditors or under the mistaken belief that this will entitle the child to financial aid, or a court requires the defendant who caused the auto accident to put the million dollar settlement in a trust for the benefit of the victim, to be used only for his health, education and welfare needs over his lifetime (and not squandered by the relatives).</p>
<p>Without going into too much detail, I’ll say that the trust in question was created by someone other than the parent or the student years ago under a will as a legal method to allow the surviving spouse to disclaim assets so that the whole estate would not be subject to estate tax. While several people are indeed named as beneficiaries, the trustees may make distributions to those beneficiaries under certain conditions (generally based on need). Nobody has an absolute right to receive a certain amount, or even any, distributions, particularly if the trust is depleted before this parent has need of it.</p>
<p>Is that really legal? Is there a definition of need? Would it work today?</p>
<p>Redroses–the attorneys who drew up the will assured me that it was legal. It is called a testamentary trust because it was created by a will. The reason such a trust is used is that otherwise, upon the death of the surviving spouse, the assets in the estate could be large enough to be subject to the 55% estate tax. There is no estate tax this year, but next year the estate tax will be imposed on estates of greater than $1 million. The challenge is that assets will usually pass to the surviving spouse free of the estate tax, but it is impossible to know when the surviving spouse will die, how much the assets will be worth then and what the law will be then. Someone owning a house or some rental property in an expensive real estate market and having a few retirement assets could unexpectedly have an estate subject to estate tax in the future. The will would name the surviving spouse as a beneficiary of the trust so that the surviving spouse does not have to worry about dying destitute.</p>
<p>This particular trust doesn’t have a definition of need. The trustees (of which I am one) have some discretion. I take my responsibility very seriously and always consult the other trustee before making distributions. Also, it would be quite irresponsible of me to deplete the trust to pay for my own child’s college expenses, particularly as the surviving spouse is one of the beneficiaries.</p>
<p>As far as I know, the trust would work today. I would suggest that any married couple that owns assets that could be worth more than $1 million in the future make sure that the wills are up to date and reviewed by an estate attorney. Of the five wills I have read recently, two had major errors–one will inadvertently contained language that would negate the surviving-spouse exemption from the estate tax, and another was deemed invalid by the probate court because it had been signed but the signature wasn’t notarized and both witnesses had died.</p>
<p>Back to the issue at hand–I am grateful that this trust exists for the beneficiaries that need it, and I will, of course, disclose whatever is required. I am just trying to find out the requirements in advance, because if the existence of this trust will automatically mean that my child is not eligible for need-based aid, I won’t go to the time and trouble of applying for it (and she needs to answer the “need-based aid” question on the Common App soon). So if anyone has additional information on which trusts must be disclosed and how they will affect financial aid, I would love to hear it!</p>
<p>what if a trust in child’s name set up long ago in will for protection of child in case parent became sick etc… Is there a legal way to transfer assets before college to a parent so that the child’s trust would not essentially be wiped out. What accounts would anyone recommend (529- but money is already paid taxes on)…is there a time line to liquidate. The trustee has very wide leeway and can even step down, making me trustee but same questions would arise. We are not wealthy and this poor planning is costing us almost 35k in aid if assets were simply in either parent’s name. Can not find clear advice anywhere, even from trust attorneys! They never had a family who qualified for FA before us I guess-lol…sad really.</p>
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<p>If the parent is a beneficiary of the trust, FAFSA (and Profile) require that their value share of the trust be listed on their forms. It does not matter if they will ever have access to the money or not…if they are beneficiaries of the trust they are required to list their share of the value.</p>