UTMA's, FAFSA, and FinAid

Paying for College
1

<p>Complicated situation and we can't get our brains around it.</p>

<p>Son has turned 21 and we've had a UTMA (myself as Custodian "For Benefit Of....") for him since he was little. It has just been sitting there, we've never taken any distributions or anything. Now that he's 21 and will have some school loans coming due, we are thinking we should now close the account and distribute the money into his bank account. </p>

<p>However, when this UTMA is closed, will the money be reported on OUR (parent) taxes, or his? I believe it's ours.</p>

<p>Next, should we have been reporting this asset on the FAFSA all along? We hadn't, because nothing had ever been distributed - we were letting it ride so he'd have it to start paying off loans after graduation. </p>

<p>So now we're on to child #2 who will be entering college this fall. Same type of account (UTMA, me as custodian, "For Benefit Of...."). We'd like to do the same thing - let it ride until after graduation. But we want to make sure we're not in violation of anything. Even if we're not distributing this money now, does it need to be reported on FAFSA? And as HIS asset or Parent's Asset?</p>

<p>If so, what might we expect to happen to the aid he's already been offered and that we've signed for? Would it affect just loans? Or could it affect merit scholarship amounts?</p>

<p>Wanted to get some feedback here before calling the school. This stuff is waaaay over my head.</p>

<p>Thanks in advance for any thoughts!</p>

2

<p>UTMA accounts are required to be reported as assets on FAFSA. A UTMA belongs to the student and is reported as a student asset. The FAFSA instructions do state this.</p>

<p>As the UTMA is the property of the student I would expect any taxes would be in the students name.</p>

3

<p>UTMAs are accounts that are owned by the child, not the parent. Since children under the age of 18 or 21 (depending on the state) cannot legally own assets, the UTMA allows for the parent to be custodian until the child is no longer a minor. Since the account is the child’s, it should have the child’s SSN associated with it, and the child would report any income or gains realized on his/her taxes every year if applicable. If there were no dividends or realized capital gains, then presumably there would be nothing to report to the IRS.</p>

<p>Any account owned by the child is reported as a child asset on FAFSA. It doesn’t matter if nothing is distributed from the account, it’s still an asset of the child.</p>

<p>The existence of a UTMA shouldn’t have any effect on merit aid, but it will definitely have an effect on the FAFSA EFC. The value of the UTMA will be assessed at the rate of 20% for FAFSA. So for example if the UTMA has a value of $10,000, it will increase your child’s EFC by $2000 per year.</p>

<p>You should correct the FAFSA for child #2 and report the UTMA as a student asset.</p>