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Trusts (Revokable v. Non-Revocable) & EFC

DavidbfDavidbf Registered User Posts: 18 New Member
Would love your input or direction on where to find information.

Our D is headed off to college for her Freshman year, we qualified for and received significant financial aid.

My wife's father has approached us about putting his estate into a "revokable" trust with the 4 children (My wife being 1/4). He is 69 years old and in reasonably good health, he already has a will that accomplishes the same but suddenly seems to want to being moving things to a trust

We would be named in the trust but not have any access to the funds. We are very reluctant to do this since it seems that being a part of a Trust would mean that that our portion (25%) would have to be listed as an asset and yet we would have no access to those funds.

I did a quick figure on our D's colleges net price calculator by adding additional real estate (not sure that is the right way) in the amount of the trust and our EFC went up by by about 5% of the trust amount per year or 20% over 4 years...multiply that by 4 kids and you have 80% of the Trust value...of course we have no access to those funds.

My question....

Do all Trusts get listed as an Asset, Revokable v. Non-Revokable?

Thanks for taking the time to respond if you have experience with this.

Post edited by Davidbf on

Replies to: Trusts (Revokable v. Non-Revocable) & EFC

  • thumper1thumper1 Registered User Posts: 63,453 Senior Member
    Someone else will need to chime in...

    It is my understanding that if you are a beneficiary of a trust of any kind, regardless of whether you have access to the money or not, you are required to list your share of the value of the trust as an asset on the FAFSA and Profile. This is what we were told when we did research about this issue ourselves.
  • happymomof1happymomof1 Registered User Posts: 25,329 Senior Member
    Your numbers are spot-on. It would be best for your wife and siblings to sit down with their father, and find out why he wants to set up a trust. It could be someone is trying to sell him financial services that he doesn't really need, or it could mean that he is making the wisest choice for his own situation. In either case, it would be useful for him to know that this option is not one that is good for the grandchildren right now.
  • mom2collegekidsmom2collegekids Registered User Posts: 82,539 Senior Member
    What's the story if the parents have a Living Trust and you'll inherit it when they die?

    I'm not sure how that's different from not having a trust but parents naming you as heir in a will.

    I think (not sure) that in both cases you aren't considered an owner until the parents die.

    My parents had a Living Trust and my siblings and I were beneficiaries. The trust included their home, their stocks/investments, their IRAs, and their savings accts. There were also three life insurance pay-outs. I lost my last living parent last Nov, and we became owners of the trust. At that point, I felt that one sibling's share of the networth was mine. I didn't feel like that before.

    For us, it made no difference since we don't qualify for aid either way. But if we had applied for aid in past years, I never would have thought to include that. For one thing, I wasn't aware of its value nor would my parents have revealed that while alive anyway, because at that point, it was their money/assets.

    It is wise to set up a Living Trust if you have assets that exceed (I think) about $150k (varies by state) otherwise the estate goes into Probate after the person dies.
  • swimcatsmomswimcatsmom Registered User Posts: 15,649 Senior Member
    My understanding is the same as Thumper's - if you are named a beneficiary of a trust you must declare the value of your share of the trust on FAFSA even if your access to it is restricted. The only restrictions to a trust that exempt it from being reported on FAFSA is court ordered restriction such as trusts set up for accident victims support.

    FAFSA apart, please have your FIL seek some serious advice about this - from someone who is not trying to sell him the trust idea. My FIL moved his assets into a trust and it has been a real PITA since he died. It has actually cost us more in taxes than it would have if his estate had been left through a regular will and is a constant source of stress and annoyance. It also causes some family friction that would not exist without the trust. My FIL was talked into the idea of the trust by someone who made a fee by setting it up, totally unnecessary for his estate which would not have attracted estate duty anyway and the bane of our lives since he passed away.
  • mom2collegekidsmom2collegekids Registered User Posts: 82,539 Senior Member
    Wow...there are literally millions and millions of people whose senior citizen parents have set up Living Trusts and I really doubt many/most of them are putting "their share" on their FA applications largely because: A) they don't even think about it. B) they don't think they have to. C) they may not even KNOW that such a thing even exists (some parents don't broadcast these things. D) they don't think of it as "their" asset yet. E) the have no idea of the worth, and grandparents shouldn't have to reveal that stuff for FA purposes.

    I would think that if this is true, that colleges would have long figured out that people are innocently not reporting these assets, and therefore a SPECIFIC question would be put on the forms.

    Again, I find this a bit hard to believe. Living Trusts can change the beneficiaries (without even telling them). An adult child can be named, or not named and the person wouldn't even know about it. Also, the % of the share can be unknown. Maybe parents have decided that a special needs child gets 300% share, but hasn't told the other siblings.

    If you've been named the beneficiary of a life insurance policy, would that be included to? If not, why not???
  • thumper1thumper1 Registered User Posts: 63,453 Senior Member
    Mom2...we are talking about irrevocable and revocable trusts...not living trusts.

    But still...these ARE assets. The reality is that ALL trusts can be dissolved under some set of circumstances thus leaving the beneficiaries with a tidy sum in many cases.

    I happen to agree that these should be reported assets, not something that is kept from the financial aid folks.

    The best way to deal with this... Do not allow your kids to become beneficiaries of a trust before the age of say...25.
  • mom2collegekidsmom2collegekids Registered User Posts: 82,539 Senior Member
    A Living Trust can be irrevocable or revocable, so I wasn't sure if they were considered reportable.

    If Living Trusts aren't reportable for FA, then maybe that's what the OP's FIL should do.
  • CTScoutmomCTScoutmom Registered User Posts: 1,387 Senior Member
    With a living trust, being named a beneficiary is similar to being named a beneficiary of someone's life insurance. You don't own anything until that person dies - much the same as being a remainder beneficiary (or secondary beneficiary) or a regular trust.

    If the money is yours, for your benefit, it is reportable. Yes, with 3 or 4 kids it means you won't end up with much after FA takes its share. And yes, this is another way that the system hurts middle class families.

    Dad wants to give the money to the kids, but there are issues involved. First, he might not be ready to give the money away just yet, or to cede control of the money. He may want some say in how it's used. But he also may want it out of his ownership (not the same as control). The longer he keeps it, the more likely it counts toward his own assets if he ends up in a nursing home, up to 3 years after he gives the money to you!

    As a family it might be beneficial to sit down with a financial planner - one who is paid to advise you, rather than one who is paid commission based on your final decisions. The former has the most incentive to do what is right for you, because the final outcome has no bearing on his own income.

    You need to look at financial aid considerations for you and your siblings, regarding college costs, but you also need to look at the impact of medicare eligibility for your father. A trust might be the best solution, if it allows money to be taken out for college - medicare with otherwise require the money to be spent down on your father's medical expenses. That's a reasonable expectation, but it means he wouldn't be able to help with the college expenses.

    As for how much would end up going to college, your calculation is only somewhat accurate. Two factors - they take about 5.6% (.12 is available, they take 47% each year) which would be based on a reduced amount of savings each year (unless you recover the 5.6% in earnings. Also, if your kids overlap at all, you can reduce the number of years. We have 3 kids, who will be in college over 11 years (1 year of overlap). Our savings will be reduced to 49.8% over those 11 years. If you truly have 16 years of college expenses they will take just under 63%. Still a lot of money, but not as bad as the 80% you thought, and still better than the 100% medicare would take.
  • thumper1thumper1 Registered User Posts: 63,453 Senior Member
    In our family situation, creating a trust was somehow an advantage for those creating it. Luckily, we were told about it prior to its establishment, and we were given the option to opt out, which we did. Note, however that permission is not needed to include you as the beneficiary of a trust. Many grandparents view this as a favorable way to deal with their assets/asset transfer.

    Like I said earlier, ask that your kids not be beneficiaries until age 25 or 30 when college will be done.

    Re: the parents as beneficiaries, like I said...we declined being part of a trust which had a very very high dollar value. The issue was not US, it was that all decendents forever would have the same obligation, and we didn't want this, not knowing what our kids' financial situations would be in the future. Nevermind that in our case it was a piece of real estate we didn't ever use or want to use.

    By the way...if this IS real estate, I recommend the book Saving the Family Cottage. It is a must read for any family who thinks a trust is the best way to deal with this issue.
  • cptofthehousecptofthehouse Registered User Posts: 26,432 Senior Member
    Whether the trust is revokable or irrevokable, or whether there are strict stipulations about getting any of the funds is irrelevant for FAFSA. If you are named on the trust, it's yours in assets. However, if a trust is set where you are not named on the trust except as a future beneficiary then it may work differently.

    However, as when you are talking about PROFILE schools, they can look at these things anyway they feel like it. When it comes to a school's own money it comes down to the discretion of a financial aid officer, and with money so tight and so many families who truly have nothing to pay the school costs, I don't think too many are going to give a big fat trust laden with enough to pay a nice chunk of college expenses much of a bye. I wouldn't. What are these trusts for if not for the future, and what is the education for? Unless there is some pressing medical condition involved, I would not give such trusts an inch.

    As Thumper says, this situation comes up in a lot of scenarios. I agree that tying up someone future opportunities due to some trust that has stipulations so that getting much financial benefit from it can be limiting.
  • Mom22039Mom22039 Registered User Posts: 466 Member
    This is so interesting. I'm a 1/3 beneficiary of my mother's now irrevocable trust, and my father has full access for his lifetime (my brother is the co- trustee with my father). I was given a copy at the time of my mothers death. (I knew about it beforehand). They don't reveal an annual accounting and we don't see the tax returns. It would be very easy to skip reporting this. We don't file FAFSA nor Profile, so we are not hiding anything, but I also don't see how it could be linked to us.

    Also of interest we are also 1/3 beneficiaries of a life insurance trust. For that one, I am a trustee and I have the documents.

    Also 10 years ago, my husband and I created trusts which we have never funded!

    It would be great if CC could pull together a Q & A with experts on this.
  • annoyingdadannoyingdad Registered User Posts: 3,026 Senior Member
    The longer he keeps it, the more likely it counts toward his own assets if he ends up in a nursing home, up to 3 years after he gives the money to you!

    The lookback period changed to 5 years in 2006.
  • SchokoladeSchokolade Registered User Posts: 1,111 Senior Member
    I am the beneficiary of a trust, and one of its trustees.

    I called each college to which my daughter applied and asked how trusts would be treated for financial aid purposes. One of my goals was to determine whether it was worthwhile to file for financial aid or not. I asked difficult questions until I spoke to someone who seemed to know the answer or until I gave up.

    In some cases, it seemed as though the financial aid people were so in awe of a trust that we had no hope of receiving need-based financial aid anyway--or they advised applying and told me they would see what they could do. In other cases, the financial aid people distinguished between an income beneficiary (one who has the right to receive current distributions, whether or not she has received any) and a contingent beneficiary (one who will share in the proceeds of the trust if and when it is dissolved).

    Far and away the most-knowledgable and most-comprehensive answer came from the financial aid person to whom I spoke at Stanford.

    I concluded that none of the eight colleges required a student to apply as a freshman in order to receive aid later if circumstances changed, and that none of the colleges would offer us any aid her freshman year anyway.

    The question about a trust on the Profile is poorly-worded, but very broad. There is a question about whether the parents have a trust, and one about whether the student has a trust. The Profile also requires people who are completing it to submit a copy of the trust documents. Then the financial aid officers reading the Profile, not you, decide whether and how to account for any trust assets.

    Because my daughter would not be eligible for financial aid her freshman year or her sophomore year, we decided not to file for it. Some colleges tell everyone that they should file for financial aid. If you won't receive any money, however, it is probably not worth it.
This discussion has been closed.