Can anyone offer their advice please: My kids have inherited a very generous trust fund from their grandparents… Problem is the funds are not available until the youngest child is in his mid-20’s. I know the assets must be declared on the FAFSA - Can they still qualify for some sort of financial aid ? How do I approach this situation? Thanks
Am I correct in assuming that the trusts are in your kids’ names individually?
What type of financial aid are you asking about? Merit aid? Sure, a generous trust fund will have zero impact on financial aid that is based exclusively on merit. Need-based aid? There’s no way to answer your question without you providing specific numbers that cover student and parent income and assets.
You might try running the Net Price Calculators without the trust money (with parent income, assets, student’s other income and assets) and see if other need based financial aid is projected. If not, it may not be worth it to move things around and possible owe taxes in earlier years.
If the NPC shows there is some need based aid available, then run it with the trust, and decide if getting an accountant involved is worth it.
@twoinanddone what would an accountant have to do with the funds IN a trust?
Typically the amount in the trust is an asset for the student if they are a beneficiary of a trust. It doesn’t matter if the money becomes available later than the college years.
The good news…you could agree to co-sign loans for your kiddo and they could use the trust fund money to pay off the loans when the trust money becomes available to them. However, if they don’t pay…you will be responsible for this loan repayment.
This is a wonderful gift from the grandparents. But trusts do sometimes have restrictions. And apparently this one does.
Merit aid won’t be affected by trust asset amounts. Consider looking at colleges where merit aid is a possibility.
I dont Know if this is possible, but perhaps a loan can be made against the trust.
Understandably, colleges won’t want to give their money just so folks can hang onto theirs with a delayed trust payout. Obviously you all didn’t set the terms, but colleges won’t care. The money exists and will eventually payout.
If borrowing against the trust isn’t possible, then perhaps cosigning student loans with a written/signed notorized agreement that the trust payout will be used to immediately pay off the loans.
My kids had testamentary trusts from when my sibling died — not large, but not tiny. We declared them on the financial aid forms as required; there really isn’t any choice. Then explained the terms of the trust to the college FA offices. One improved kid’s aid, a couple others did not. So it is worth the conversation, but don’t count on it.
I believe that the ‘typical’ trust fund, while restricting distributions until age 25/30/35 or whatever, also allows earlier withdrawals for the purpose of education or healthcare expenses. The request for funds would go to the trustee, and it is at their discretion, but according to the 2 people I know who are trust and estate attorneys, this is a very common scenario … there’s no better use for a grandchild’s trust fund than to pay for college!
There really isn’t any such thing as a “typical” trust; the language of the trust will say what the funds in the trust can and cannot be used for, and as long as there aren’t any legal violations in the trust provisions, the trustee is obligated to manage the trust as specified by the grantor. The grantor, and this includes grandparents, will decide what the funding priorities are, and higher education may not be at the top of the list, for whatever reasons.