Trust Fund - cannot draw from it til 21

<p>My S has a small trust fund but is not able to withdraw until 21. Currently the college is counting that as an asset which means he has to contribute 3500 plus work study and student income. The trust fund I am guessing is only worth about 6000 It does fluctuate based on the market. The trust is set up as a custodial account and the true owner is his GM. Is it worth for us to call financial aid and explain this situation. He will have to get a loan in order to meet this. Any advise is appreciated. This is my first post....</p>

<p>If his grandmother is the legal owner, then why is it an asset for your son?</p>

<p>Either way, a $6000 asset is probably not causing him to have to contribute the entire work-study and loan. Part of that money should be protected. </p>

<p>The school may have an expected student contribution regardless. </p>

<p>How much loan is the school expecting? They may be expecting that he take out the loan and pay it off when he’s 21 when he gets the money. That would be a reasonable expectation. </p>

<p>However, if they behave like it’s a “memory-less system” and each year expect that money to pay for a new loan, that might need to be addressed. After all, a $6k trust fund can’t cover repeated loans of several thousand per year.</p>

<p>That said, schools do often expect a student contribution, so that may really be the issue here.</p>

<p>Thanks for the response Mom2</p>

<p>His work study is 3000 and his student income is 1500 which is what everyone is expected to contribute at Yale. I guess I really should not have put this down in the CSS but I thought there was an area that ask if any Trust funds exists regardless if you can draw from it or not.</p>

<p>We did extensive research into trusts. If your son is the beneficiary of a trust, his value of the trust must be listed as an asset on the FAFSA regardless of whether or not he can draw on it. I know that sounds ridiculous, but it’s the way it is. We actually asked to NOT be included in a trust for this reason. The rules regarding trusts on the FAFSA and Profile are very clear. If the person is the beneficiary of a trust…regardless of when that person can draw on the trust…their share of the value must be listed.</p>

<p>If the child can draw on this later on…could you take a loan which could then be repaid when he is able to draw on that trust? This sentence shows WHY a trust is listed as an asset…it will be able to be drawn on to pay college costs at some point in the future. It is an asset…even if it can’t be tapped right now?</p>

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<p>You are correct…there IS a place and you were honest when completing the Profile. I believe there is a place on the FAFSA as well.</p>

<p>Colleges assume that your costs will be paid through past earnings (savings), current earnings (income) and future earnings (loans). If you take a loan, your child will be able to repay it with his trust fund asset in the future.</p>

<p>Few more questions

  1. next time I fill out the CSS, what amount should I used if they expected him to have used 3500? The main issue I have is I have no idea what the value of the trust because it basically is a mutual fund and really has plummeted to the amount his gm has put in 10 years ago. My S does not get any statements because it all goes to his gm. He only gets the statement to claim it on his taxes which does not tell us the value. Actually it is mailed to gm and she mails it to us during tax time</p>

<ol>
<li> Should I try to see if he can be removed as a beneficiary or is it too late? I read somewhere if the person can claim the the capital gain, then it is their asset</li>
</ol>

<p>If your son has to put this on his taxes, it is HIS asset. You need to contact the grandmother to find out the value of this. </p>

<p>I have to tell you…it’s wonderful that you have this, even if you can’t use it right now.</p>

<p>If you are not drawing off of the asset, the amount remains the same for next year. It would only decrease if the value of the asset decreases.</p>

<p>The school has determined that your family contribution is $3500 more than it would be without this asset. The school doesn’t care where that money comes from. BUT unless you are withdrawing funds from the trust (which you say you can’t do), the value of that trust would remain the same (or increase or decrease depending on what the market is doing).</p>

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<p>If you have no idea…what did you put for the value THIS year…and where did you get that number?</p>

<p>Also if this trust was gifted to your son, most likely it’s irrevocable and the beneficiary can’t be changed.</p>

<p>*Colleges assume that your costs will be paid through past earnings (savings), current earnings (income) and future earnings (loans). If you take a loan, your child will be able to repay it with his trust fund asset in the future. *</p>

<p>I can understand that logic. However, what I don’t understand is that if a loan is expected each year (because of that money), how does it take into account that a loan was taken previous years because of that money. Is it a memory-less system? Will the same $6k be expected to pay back loans of several thousand every year?</p>

<p>*His work study is 3000 and his student income is 1500 which is what everyone is expected to contribute at Yale. *</p>

<p>If everyone has a similar expected contribution, then maybe the $6k didn’t really figure in. Why does your son need to borrow $4500? Why doesn’t he just do the $3k in work study?</p>

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<p>Mom2collegekids…loans are the SAME for anyone taking them. If you take loans in year one…that is NOT taken into consideration in your financial aid calculations. Debt (including college loans) is not factored into college financial aid calculations.</p>

<p>The difference here is that the loan taken by this student will EVENTUALLY be able to be at least partially paid back by the student. </p>

<p>I’m not sure I totally understand the OPs situation. Is the EFC $3500 HIGHER with the trust? She says she doesn’t even KNOW the value of the trust. A trust would be a student asset…assessed at 20% of the value. If the OP doesn’t KNOW the value of the trust…how did she enter a VALUE for the trust on the FAFSA or Profile forms (either in a finaid calculator or a real form)? You gotta KNOW the value.</p>

<p>The irrevocable part of a trust is for the person who GIVES it…it means the giver can never take it back or be part of the trust. It does not mean that a beneficiary cannot opt out…but it all depends on HOW the trust is written. We had to consult an attorney who specialized in trusts to find out if we could opt out in the future. The way ours was written…the answer was NO. So we opted out before it was finally drafted.</p>

<p>thumper1
I guess I did not explain very well…I put down a value in my CSS based on the time I did asked but never saw any paper work but figured she gave me the present value. So when I fill out my CSS/Fafsa, do I subtract the loan my son plans to take out (3500) from his trust’s present value at the time when I am filling out the 11-12 form?
Just to clarify his Student contribution is a total of $8000</p>

<p>Student assets 3500
Student income 1500
Student work Study 3000</p>

<p>A utual fund worth the same as 10 year ago? Can GM move the money?</p>

<p>Good question about deducting the loan. It should work that way but I don’t think it does.</p>

<p>If the student is 18, UGMAs and UTMAs become the student’s property at that time in most states (I think a couple are 21). The kid can then go out and spend that $$ on a cool car. There are no restrictions on what UGMAs are used for once the kid hits majority, which is part of why we decided not to fund it and just put savings in our names instead. Other reasons to put the money in our names is that it’s assessed at a much lower rate for FA, and should we ever need liquid funds due to medical bills or unemployment, we can get our hands on it.</p>

<p>A student is free not to draw on the UGMA and use other family funds/student loans to replace that $3500 contribution expectation. It is still an asset to be counted next year, though.</p>

<p>My older S has not drawn on his UGMA yet (not that it would buy more than a couple quarters’ worth of books), but it is still a part of his expected contribution every year. He has used cash flow from his job instead.</p>

<p>What I meant is that during …</p>

<p>YEAR 1, FA office sees that $6k asset and figures a $3500 contribution from it, but it can’t be touched), so the student must borrow $3500 to cover the expected contribution. </p>

<p>YEAR 2, FA office sees that $6k asset and figures a $3500 contribution from it, but it can’t be touched, so the student must borrow $3500 to cover the expected contribution.</p>

<p>and so forth until the student reaches 21 and can end this craziness…</p>

<p>So, for about 3 straight years, the FA office will keep counting on that same untouchable $6k asset and keep expecting a $3500 contribution because of it…for a total of $10,500. So, at the end of 3 years, that $6k asset is now an $4,500 negative debt???</p>

<p>I must be missing something.</p>

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<p>Unless you are taking money OUT of that trust, you cannot reduce the value of that trust by the amount. If you are taking loans…you are taking loans like hundreds of thousands of other college students. There is NO PLACE on the FAFSA or the PROFILE to indicate that you have taken out loans to pay for college. That is not included in the equation.</p>

<p>NOW…when you get to the point where you ARE taking money from the trust (after son reaches his 21st birthday), then the value of the trust as an asset will be reduced (unless interest rates go way up) and therefore your son’s asset amount via the trust will be reduced each year you take money from it. BUT loans that are going to be repaid at a later date…sorry…those are NOT deducted anywhere on the FAFSA or Profile. </p>

<p>Just FYI…your son, by completing the FAFSA should be eligible for a Stafford loan. The maximum is $5500 for freshmen. Is he taking that loan? That would be a way to deal with a good chunk of the $8000 of his contribution. Once he is able to draw on his trust, he can pay off those loans.</p>

<p>Yes Mom2collegekids…that asset amount will remain the SAME unless it is drawn upon…like ANY OTHER asset that isn’t touched.If the parents had a savings account and they didn’t want to touch it…the balance would also be the same for all those years. </p>

<p>I’m not sure what folks don’t understand about this. If the trust is NOT drawn upon…the value of any “money” paid to the college cannot be subtracted from the value of the trust. </p>

<p>If you don’t take money out of your bank account, your balance cannot be reduced by the amount of loans you might take instead either.</p>

<p>I think mom2collegekids analysis is correct, sad though that may be. Had the grandparent set up a 529 for the child, it would have been much, much better.</p>

<p>Is this something “professional judgment” can take into account, particularly at the point where the outstanding loans equal the amount in the trust?</p>

<p>*Yes Mom2collegekids…that asset amount will remain the SAME unless it is drawn upon…like ANY OTHER asset that isn’t touched.If the parents had a savings account and they didn’t want to touch it…the balance would also be the same for all those years. *</p>

<p>I can understand that - especially if the account is accessible. But, I think it’s a bit odd that this small amount keeps getting “hit” when it can’t be accessed. </p>

<p>Imagine if the trust was for $50k and couldn’t get touched. Each year the child would get no aid and would be expected to borrow $50k to go to school. Each year, that same $50k in an untouchable trust keeps the child from getting any aid. Then, at the end of 4 years, the child ends up with $200k in debt with only $50k to pay the debt back. Yet, a child with $50k in a touchable account doesn’t face this problem.</p>

<p>It’s a little nutty, because if they had access to the money, they could use it the first year, it would then be gone, and then aid could be had each year.</p>

<p>Mom2collegekids…the trust isn’t getting “hit”…the reality is it is NOT BEING REDUCED. Unless an asset is reduced in amount it cannot be just reduced on the finaid application forms. It doesn’t matter if it’s “accessible” now or not…just doesn’t matter. I know this…researched it EXTENSIVELY…the difference in our case was that the trust was NEVER going to be accessible by anyone in our family as it was written up in such a way that ALL the trustees AND beneficiaries had to agree to sell…ALL OF THEM (about 20 people in all). This made it virtually impossible for selling it EVER. Fortunately for us, we were approached about this BEFORE it was finalized and declined to be part of the trust…for a LOT of reasons.</p>

<p>The thing that is the rub here is the “accessibility” of this trust. But honestly…for finaid application purposes, it doesn’t matter.</p>

<p>ararab…we inquired about a professional judgement before we declined the family trust. We were told very politely by the finaid folks…NOPE…it was an asset…period.</p>

<p>Professional judgements, however are made on an individual basis at each school. I seriously doubt that a trust that can be drawn upon at age 21 will yield a professional judgement by a college. But ask…nothing ventured, nothing gained.</p>

<p>the trust isn’t getting “hit”…the reality is it is NOT BEING REDUCED.</p>

<p>Oh, I know it’s not literally being “hit.” I just meant that a school is expecting the same dollars to be spent over and over…and you can only spend a dollar once. </p>

<p>I would hope that in such a case, the family could contact the school and say, “Ok, you’re expecting him to spend $3500 towards his education. He’ll have to borrow the money and pay it back at 21 when he has access. Now, next year, can you give us any guarantee that you’ll only expect $2500 contribution, and then after that, zero?” </p>

<p>What if the student just “gives back the money” to grandma and says, I don’t want it? Then Grandma can give it to him again after he graduates? Or, can the student give his share to someone else? Can he give it to his parents? Then it would likely be either protected or would count less.</p>

<p>Mom2…the kid may not have the choice. It all depends on how the trust is set up. IF the family doesn’t want the child to have the trust,they would need to contact a lawyer specializing in trusts and have them review the trust document.</p>

<p>BUT I’ve gotta say…I think it’s foolhardy to give up a trust that the kid will have ACCESS to in 3 years. The Stafford loans will more than cover the amount that the trust is increasing the EFC. Then once the trust becomes accessible, pay off the loans.</p>

<p>It would be the same if the kid had a savings account that he wanted to save for grad school (or a car or whatever). The money is THERE and can be used. This kid is LUCKY…as his trust is accessible to him sooner than many.</p>

<p>BUT the OP needs to find out the value of this trust. They do not want to overestimate the value on the financial aid forms.</p>