<p>If a grandparent left $$ for a child in a trust, that trust would be considered the child's asset for FA purposes. Say the trust puts the $$ into a 529 account. How would that be reported for profile and FAFSA? It's my understanding that if it was the child's 529 account this year it wouldn't be reported and next year it would be the parent's asset. Would moving the trust asset to a 529 accomplish the same thing (moving the $$ from child's asset to parent asset)?</p>
<p>bump......if only to highlight that estate planning should consider that assets left to children, even if in trust, could significantly effect financial aid. Any advice as to how to move this from being considered "student" asset to "parent" asset for FAFSA/Profile calculations?</p>
<p>My anonymous online opinion is that the assets get unfavorable treatment as long as its in the trust and even if in a 529 owned by trust. If you're the trustee with discretion to move funds out or discontinue the trust, discuss with a live financial advisor. For 2009-2010 a 529 owned by child and a 529 owned by parent will be given the same asset treatment for FA purposes, but I think a trust f/b/o kid is going to continue to be treated negatively.</p>
<p>Yes. The 529 status was changed this year but last year it was considered differently. The bottom line is not to save money in the student's name if you can help it.</p>
<p>Whether you can move the money in the trust into a 529 in the parents' name (or even in the child's name) depends on the type and language of the trust. Is this a living trust in which the grandparents reserve the right to change the beneficiary? If so, grandparents can simply change the beneficiary to the parents while everyone knows that the money is for the kid's college education.</p>
<p>Is it revocable? Grandparents can revoke, and the money then doesn't get reported for anyone.</p>
<p>Or is it a trust set up under the terms of a will, in which the beneficiary cannot be changed? </p>
<p>It may be that there are restrictions on the funds and where they can be invested based on the language of the trust documents.</p>
<p>This is an issue you'll need to visit with an attorney - first find out where you can invest the money, and in whose name. Then meet with an accountant to figure out capital gains issues and whether moving the money makes sense from a tax standpoint. Only then can you decide which is your best move among legally permitted ones.</p>
<p>Chedva makes some excellent and interesting points. His comment about the tax standpoint made me wonder - and I have no clue how trusts work so I might be completely talking out of the back of my head here - if money is taken out of the trust does it (or part of it) become income to the student for tax purposes? Student income over the protected allowance on FAFSA (@3000) is hit at a very high rate for the EFC - 50%. So that is something to consider (or not if there is no impact on student income).</p>
<p>^^^depends how the trust is set up. If all trust income goes to the beneficiary, the beneficiary would get income taxed on the trust income. If the trust doesn't make any distributions, and income piles up in the trust, the income is taxed to the trusts. And trusts have higher income tax rates than individuals. If the purpose of leaving the kid $$$$ is to pay for college, a 529 plan is usually more effective than a trust and lots of great tax breaks.</p>
<p>My parents set up trusts for all of the grandkids for education, or they can have it for whatever when they reach 23 (I think). They also set up 529 funds, but kept them in their name (not ours or the kids). We have taken money out of the trusts for college. The child paid taxes on the capital gain (which was really bad, because the trust is stocks and the stocks were so low when they were purchased!). We count what is left in the trust as an asset of the child's on the FAFSA. The 529's are not counted as anything, because they don't belong to us. I have not touched that money yet.</p>
<p>Chedva, I'm assuming if this is an irrevocable trust with no financial benefit, it would not be reported as an asset? I've been trying to find out this answer for a week. If a family has an irrevocable trust whereby the trust owns property and there are trustees who manage the trust, and there is no financial value to the trust as it is irrevocable and property cannot be sold...no interest, no financial gain...does this get reported on the FAFSA or Profile.</p>
<p>Great points, thanks everyone. Looked at the trust agreement - this is an irrevocable trust, f/b/o the child. $ can not be moved out unless it's to pay for specified expenses. Education is one of them. The student is appreciative that his grandparents left him money towards college, but on the other hand it would be nice if it was considered at the "parent " rate for financial aid purposes.
From a tax perspective this trust specifies that the income stays in the trust and is taxed at the trust level. That means it is not income to the student. Some trusts specify that income is distributed to the beneficiary, and in that case would be income to the student. If the income is mostly capital gains, there is often little tax penalty for keeping the income in the trust as the capital gains tax rate is the same for trusts and individuals. The mostly capital gains tax rate is the same at the trust or individual level.<br>
Moving the $ into a 529 plan, within the trust, is allowable as long as certain investments that are permissible by the trust agreement are offered in the 529 plan. This would help with tax planning going forward, although capital gains would be realized upon liquidating the current investments.
But going back to the question – now the student has an "asset" for FAFSA and profile - any thoughts on how to shift this to “parent” asset?</p>
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now the student has an "asset" for FAFSA and profile - any thoughts on how to shift this to “parent” asset?
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Unfortunately, you can't. An irrevocable trust means that the ownership cannot be changed legally.</p>
<p>Agree with Chedva - other than what you move to the 529 account which would be a parent asset there does not seem to be much you can do. Though be cautious of the cap gains in a year you are filing FAFSA as any student income over $3080 (plus taxes) increases the EFC by 50%. ( or is the gain still taxed to the trust? I'm clueless about trusts.)</p>
<p>At least the income can stay and be taxed in the trust, so it doesn't count as student income at all, even though the trust, even if it invests in a 529 plan, will increase EFC as it is a student asset.</p>
<p>Can someone help with this? Because of our cash savings, a private university denied us financial aid. We appealed, documenting that we have two disabled 19-year-olds at home, and our savings are meant to cover foreseeable expenses for them. The university did not budge. Now, we are considering putting most of our savings in a revocable living trust to benefit our disabled children. Can anyone predict how a private university would react to this, when they see about $300K disappear from our FAFSA assents?</p>
<p>Assets are not supposed to be changed on FAFSA. The only time you can change them is if they were reported wrongly in the first place, which is not the case here. Changing it would certainly raise red flags and the school would probably reverse the change as it would not be allowed.</p>
<p>It would not help anyway. Trusts have to be reported as assets on FAFSA.</p>
<p>I didn’t mean that I would change this year’s FAFSA. I meant next year’s FAFSA would reflect the movement of assets into a trust for my other, disabled children. We are required to refile a new FAFSA each year. I still would like to hear from someone who knows more about trusts. If your student is not a beneficiary, then I do think you are asked to list a trust on FAFSA.</p>