Very strange financial aid question..husband has a trust fund

Paying for College
1

<p>Hello!</p>

<p>I am an independent student, married, in my mid-20s (go to college right out of high school, kids, trust me) and am one semester of pre-requisites away from application to my school's nursing program. This program accepts applications only once per year, so if I don't complete my pre-reqs this semester, I'll be another year behind. I'd really like to graduate before I'm 30.</p>

<p>Background: I come from a very poor family; my husband comes from a very wealthy one. His father left him a trust fund that is not in his name and will not be in his name for several more years. However, this year, because I was in school and not earning as much as I usually do, he had to take $6,000 out of the trust fund.</p>

<p>When I filled out our FAFSA, I listed our gross income as $25,000, and specified that $19,000 of that was from wages and tips. I didn't mark the $6,000 because I didn't think it fit any of the other categories: it IS an asset but it's not money in a bank account, I don't think you can quite call it "interest," and it's not a business or farm. </p>

<p>So, my FAFSA got rejected with an ISIR code stating that I need to change something in lines 40-42 - the asset portion of the FAFSA. My financial aid officer told me I need to disclose the trust fund there somehow because "my numbers don't add up," but I am thoroughly confused.</p>

<ol>
<li>How do I disclose this asset? I guess it best fits in the "interest" category?</li>
<li>Do I disclose the full amount of the thing or just the amount of money we received from it this year? It's not even in my husband's name yet and won't be for another 7 years.</li>
<li>In the event that I can't get this error fixed & processed by the final deadline for tuition (this Friday, and the school will only extend it to the 25th for my extenuating circumstances), how can I come up with $4,000 for tuition?? As I've stated, my family is very poor - I actually called & begged all of them & the total contribution was $40. And my husband doesn't have access to his trust fund - that $6k was for an emergency - so he can't take money out of there. I have only fair credit; he has none. We have no co-signers. :/</li>
</ol>

<p>ANY help or insight would be appreciated - I'm sorry this is so long =(</p>

2

<p>my husband comes from a very wealthy one. His father left him a trust fund that is not in his name and will not be in his name for several more years</p>

<p>Can you clarify?</p>

<p>If it was left to your H, then it is in his name even if he can’t access the money yet. There must be some document that says that the trust fund has been left to him…maybe with the caveat that he can’t access the money till age XX.</p>

<p>Since your H’s family is wealthy, why not ask one of them to lend you the money and sign something that they’ll get paid back when your H gets access to his trust.</p>

<p>Your family is rather irrelevant…you’re not a dependent and they have no money. </p>

<p>When will your H have access to his trust.</p>

3

<p>The $6,000 should have been declared as income on FAFSA (I was not sure from your post if you did so)</p>

<p>When you say it is not in his name, do you mean he does not have free access to it? Even if he can not yet access the trust money (though if he was able to get $6,000 of it in an emergency it appears he can access it), if he is the beneficiary of a trust, the full value of the trust must be must be reported as an asset on FAFSA. From the FAFSA instructions:</p>

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<p>So on FAFSA you should report the $6,000 you took out of the trust as income. The balance in the trust should be reported as an asset.</p>

<p>The reason the “numbers don’t add up” for FAFSA is that you can’t have $6,000 income from a trust fund and not report the existence of the trust fund. Once you correct your FAFSA, the trust fnd may mean you are not eligible for grant aid. However you will still be eligible for federal loans which do not require good credit or a cosigner.</p>

<p>As mom2 stated, your parent’s income is irrelevant as you are married and therefore independent. Only you and your husband’s income and assets are relevant.</p>

4

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<p>Well, you can’t have it both ways - either he can access the trust fund or he can’t. So if you were able to get $6000 from the trust fund, that means you can access it. Yes, I understand there may be restrictions, but you nonetheless have some access to the funds.</p>

<p>I would also think you should be disclosing the interest that your husband is earning from the trust fund - even if it’s being reinvested and not distributed. Doesn’t he have to disclose it on his tax return?</p>

<p>Aha - and I see that swimcatsmom has already told you what you need to know regarding disclosure of the trust fund for purposes of FAFSA.</p>

<p>As for the $4000 you need, borrow it. Worst case scenario, your husband can actually borrow against the future trust distribution . . . it would be exorbitantly expensive, but there are private lenders who specialize in things like this.</p>

5

<p>I did report the $6,000 - I’m not dishonest. I just reported it as income, but as I said, because it wasn’t a wage or tip, I didn’t list it as such… it was just undefined if that makes sense? My “gross income” was listed as $25,000, which includes the $ taken from the trust, and wages, tips etc were reported as $19,000, so the $6,000 wasn’t “spoken for,” so to speak.</p>

<p>The name/possession of the trust is “The Trust of (husband’s father’s name)” for now. When he comes of age in several years, apparently it will be in his name. This is documented in his father’s will.</p>

<p>He does not communicate with that side of his family because they tried to disinherit him after his father passed away - didn’t even let him take the sweatshirt his father wore most, so asking them to contribute is really not an option.</p>

<p>But to clarify - despite the fact that he does not have possession of the trust fund and I will never have access to it, I need to disclose the full amount as an “asset” and the amount we took out last year as “income?”</p>

6

<p>The trust fund has its own tax ID and files taxes separately. </p>

<p>Since I seem to be getting a bit of flak about my use of the term “doesn’t have access,” let me clarify: my husband’s father died when he was a child. The executor of the trust is said father’s brother, who stole quite a bit of money from my husband and would not let him take his father’s favorite sweatshirt after his death. If my husband needs $, he has to contact this uncle and basically beg; the uncle then removes the funds from the trust and writes a check to my husband.</p>

7

<p>How does he get access to the money if it is not in his name? Is it a gift or is it a loan against the fund? That is what is key here, I would think. Some trust funds do allow the funds to be withdrawn under certain circumstances. Was this reportable as on your tax return? Were taxes paid on this withdrawal? </p>

<p>My inclination, and this is just the I look at it, is that if this is an asset in someone else’s name, but allows withdrawals to someone for certain purposes only, then it should be reported as a gift since that is what it would be if the father were alive and were giving your husband this money only under certain stipulations. You will have to talk to your financial aid officer specifically about this, however, as I am just telling you how I am seeing this.</p>

8

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That was the correct way to report it. There is lots of income that is not reported as a wage or a tip. The reason wages and tips are asked for separately is so that FAFSA can calculate allowances for social security and medicare taxes.</p>

<p>The $6,000 will have shown up on your tax return as income from a trust which is why an error report was triggered when you did not report a trust fund in your assets. Even though your husband’s access to the trust fund is restricted, his name must presumably be on it somehow as a beneficiary? That makes it a reportable asset for FAFSA. </p>

<p>It does not matter that you personally will never have access to it, you are a unit as far as FAFSA is concerned and the income and assets of both of you are taken into account for FA purposes.</p>

<p>Yes, the $6,000 is reported as income (which you have already done), and the balance in the trust is reported as an asset.</p>

<p>If you are sure that your husband’s name is not on the trust at all (which seems unlikely if he will come into full ownership in 7 years), can you get hold of the terms of the trust to show to the school? I don’t think it is likely you can convince them not to take it into account, but trusts are weird and complicated things and I am no expert.</p>

<p>Also if your husband truly thinks his uncle is not being honest in how the trust is being handled there is legal recourse for that. I am sure through the courts the trust could be placed in the hands of an objective third party. It might be worth your husband talking to a lawyer for advice about this. (it wouldn’t change his access date to it, but might put it in the hands of someone he can trust).</p>

9

<p>If the executor “stole quite a bit of money” from your husband, then you can get him removed as executor . . . and arguably (depending on your husband’s age and the statute of limitations in your state) sue him to recover the missing funds. Or, simply get him replaced and the new executor can take legal action to recover any stolen funds.</p>

<p>You do need to look at the will and any trust documents and see exactly how they’re drafted and what your husband’s legal rights are.</p>

<p>Meanwhile, if begging is what is needed to get the funds to pay for your tuition . . . well, get the FAFSA corrected first, but then . . . beg.</p>

<p>If the trust is not in your husband’s name (although it sounds like it must be - with a distribution date 7 years from now), but if it turns out that it’s NOT in his name, then I’d guess the best way to treat that $6k is as a gift.</p>

10

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<p>I don’t think anyone means to give you flak, we are just trying to understand. It is the fact that you did receive a payment from the trust that has flagged your FAFSA as incorrect. A school FA officer would have the same confused reaction as everyone here. But it is a moot point really. Unfortunately this is a case of a trust that has voluntary restrictions placed on it (by your husband’s father). FAFSA requires the value of such a trust to be reported (which of course makes it very difficult for the beneficiary who can not acces that money). Trusts with restrictions imposed by the courts, such as trusts set up for accident victims, are not reportable, but trusts with voluntary restrictions are.</p>

11

<p>I know of a situation where a trust fund was set up in a relative’s name with the stipulation that he could take out money from it only under certain circumstances which included the payment of medical expenses, educational expenses and other very carefully stipulated circumstances for first degree relatives. In other words, the owner of the trust was in charge of dispensing money to his blood and legally adopted nieces, nephews, brothers and sisters. Those moneys were considered gifts to those who were given payments. </p>

<p>It poses a problem with CSS PROFILE because those are funds that are available to the students covered under such a situation, but the amounts in that trust were subject to the discretion of the owner of the trust. He came up with a figure that he felt was reasonable, given the current situation of relatives that potentially could use the money and also what he felt needed to be kept in reserves for emergency. It caused so a problem so that the relative after one year’s payment declared that no funds would be dispensed for college for anyone, just loans. </p>

<p>Any trust in a student’s name has to be reported as an asset and I believe the way it has to be reported is complicated, or so it seemed to me, and this is regardless of any restrictions on the trust unless court ordered (such an one set up due to an accident and reserved for medical need–but it has to have gone through the courts, not just so designated by anyone). It does no favors to restrict access to a trust when a student needs funds to college because FAFSA and even more so PROFILE are not going to care what the terms of that trust are.</p>

<p>However, this trust is NOT in his name. So it is not his and any withdrawals are a gift from the person who owns the trust and the money is given to your DH under his terms. Which, to me, is the same if that person were still alive and held the money with the intention (and so written in his will) to turn the money over to someone at a given point in time, but would gift the person with them money under certain conditions. On the other hand, unless the conditions are pretty danged specific, it can be argued he has access to his money for just about anything, then it is, for all intents and purposes, his.</p>

12

<p>If your H can’t get the money for a couple more years, then you may need to take a gap year, work a lot, set aside money for school NEXT year.</p>

<p>At this point, with your H’s trust needing to be included, you’re not likely going to qualify for any aid. </p>

<p>It sounds like all you’ll get is a $11,500 loan.</p>

<p>How much is your H earning? Can he work/earn more?<br>
From the above, it sounds like you’re the only one working…or maybe I don’t understand.</p>

13

<p>I’m not an expert but here’s my take:</p>

<p>It seems from what the OP has posted that the husband’s right to the trust is not anywhere in the trust documents, only in the father’s will. The husband has not inherited the trust yet. The trust is filing it’s own tax returns and paying taxes on it’s earnings. Inheritances are not taxable income when received though there could be estate taxes if it’s large. This isn’t a case of a trust that has restrictions, it just hasn’t been inherited yet so I’m not convinced it’s a reportable asset.</p>

<p>The detail, I think, is in how the $6000 was handled and where it came from. On what authority did the Uncle give it to the husband out of compliance with the will? It still doesn’t sound like it would be income to the recipient. Income taxes have already been payed on the money the the father put in the trust when the money was earned and on the earnings of the trust.</p>

<p>As cpt posted this somehow may be a gift from the trust.</p>

14

<p>Whose name is the trust in? Who owns the trust? It’s just sitting there in its own name, and the only person who can take money out of it is the trustee, his uncle, and he can take the money out any time your husband wants it if the uncle deems it is appropriate (if you husband begs and grovels enough, in other words?) Any accountants, attorneys, financial aid counselors familiar with such trusts that are not in anyone’s name but certain people can get money from them if the trustee feels like giving out the funds? </p>

<p>FAFSA is clear about trusts in student’s name, but this is a whole other story. It seems to me that it’s like giving a person, like the uncle a sum money and saying he can dispense it to certain people as he feels is necessary, What he gives out is a gift. After a certain time, the ownership of the funds goes to the OP’s husband.</p>

15

<p>The OP posted that the trust is still in the father’s name:</p>

<p>“The name/possession of the trust is “The Trust of (husband’s father’s name)” for now. When he comes of age in several years, apparently it will be in his name. This is documented in his father’s will.”</p>

<p>I doubt the Uncle could legally give any money to anyone not named in the will as an inheritor of the trust.</p>

<p>This is a matter for an expert and unfortunately there is a time constraint.</p>

16

<p>

I’m no expert on trusts, but I think they often file their own tax returns and pay their own taxes. My FIL left his not very valuable estate in a non revocable trust with my husband and SIL as beneficiaries. It doesn’t really hold any assets but has income from property that he sold and held the mortgages on (so I guess the mortgages are held as assets). Any income that is taken out of the trust during the year by by H & SIL is taxable to them and not the trust. At the end of the year the trust must file a return and any income not redistributed is taxed to the trust (at a very high rate). The whole thing is the bane of our lives as it makes everything so complicated and actually costs us much more in taxes than if it had not been put in the trust. </p>

<p>I hate trusts.</p>

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<p>As a rule, Swimcatsmom, that is the case with trusts. Unless life exactly fits the situation for which a trust is designed, it can be more burdensome than outright giving out the funds and cause all kinds of trouble. In the case of trusts in a student’s name, they can cause the problem of being reportable as an asset, therefore making the student ineligible for financial aid and yet, make the fund inaccessible. </p>

<p>One of my dearest friends has been battling her own sister for the last 20 years because of a stupid trust and the way it was handled.</p>

18

<p>

Can a trust be in a dead person’s name? </p>

<p>I was assuming that the $6,000 appeared on the tax return and this is was triggered the error flag from FAFSA. Is this the case OP? If that is the case then it must appear as a distribution from a trust so it doesn’t seem to me like the gift scenario suggested earlier would be correct. </p>

<p>Very complicated situation. It sounds like the OP needs some expert advice.</p>

19

<p>

So true - it is a PITA. There is not a large sum of money involved in ours, but we have not even been able to file our final tax returns yet this year. My SIL is in charge of the trust and has always filed an extension for her own taxes and then filed the last day of the extension. She appears to be doing the same thing with the trust despite my husband begging her to file the damn thing and we have no idea how we will get our taxes filed even by the extension date if she does that. Part of the income to the trust would not even be taxable if it were not going through the trust (the value of the capital part of the properties on the date my FIL died) but it seems as if they are taxable because of the way it is all set up. </p>

<p>Ironic as my FIL was trying to avoid estate taxes but wouldn’t have even incurred any as his estate was well below the value that incurs taxes.</p>

<p>(sorry OP - don’t mean to hijack your thread).</p>

20

<p>" I was assuming that the $6,000 appeared on the tax return and this is was triggered the error flag from FAFSA. Is this the case OP? If that is the case then it must appear as a distribution from a trust so it doesn’t seem to me like the gift scenario suggested earlier would be correct. "</p>

<p>Yes, exactly. Sorry I didn’t state it this clearly, but that’s essentially what the financial aid officer told me. There were no taxes paid on the money paid out of the trust… I think I do need to talk to an expert haha my head is spinning!!! Would an accountant be the one to contact?</p>