I have read that a student who has a “trust fund” must report that as an asset on the FAFSA.
My father is working with an estate lawyer to draw up a trust for my son, who is in his first year of college.
The lawyer says that he does NOT have to report the trust on the FAFSA, because it doesn’t become a trust fund until after my father has died.
Is that true?
" Trust funds must be reported as assets on the FAFSA, even if access to the principal is restricted**. The main exception involves a court-ordered trust to pay for future medical expenses of an accident victim"
Will the trust be funded prior to your father’s death or does the funding occur as part of his will?
It depends on the type of trust and when it becomes effective. If your father is working with an estate lawyer to draft a will that includes a testamentary trust that will benefit your son, the attorney is correct, nothing will need to be reported on financial aid forms, at least until your father dies. A testamentary trust is a part of a will and only becomes effective (and funded) when the testator dies.
Here’s an example: Let’s say my widowed mom states in her trust that my kids will inherit my portion of her estate if I die before she does. If my kids were in college & I died, they still don’t have any money and don’t report anything on the FAFSA. If my mom died after me & while they were still in college, they would inherit at that point. But because her trust says that they can’t access the money before the age 35, as it is to be held in trust until they reach 35, they can’t touch the money for college. But they have to report that trust as an asset.
Some colleges ask the question a bit differently on their institutional forms. D’s private college asks for the “value of any trust the student is the beneficiary of, even if the funds are not currently available”.
This kind of question would not apply to a testamentary trust while the testator is still living, because there is no trust yet in existence - a trust is only a possibility, as the testator could change the will before dying, and even if there is no change to the will, it might be the case that there is nothing to fund the trust with as the estate is being settled.