<p>I am contemplating changing ownership of my home to one of three children (oldest) who is in a college that only uses the FAFSA. Eliminating my home equity will be helpful in obtaining aid for my second child who will enter college in 2009 and is only applying to schools that use both the FAFSA and CSS profile. My income is minimal and the loss of the interest and real estate tax deduction will have virtually no effect on my tax situation. Are there are negative effects in relation to aid my son may be eligible for at CSS profile colleges? I am aware of the potential pitfalls regarding loss of ownership and thus control over my residence</p>
<p>Wow. I cannot imagine transferring ownership of your largest asset to a child, so that you can potentially get more federal money. When the house is in that child’s name, there is nothing to prevent him from selling it and taking the proceeds. Not that he would, but stranger things have happened.</p>
<p>If your income is minimal, you will qualify for aid anyway. I would never do what you are contemplating, particularly since it is doubtful that you will need to, with minimal income and a child in college already.</p>
<p>Consult a lawyer.</p>
<p>I think colleges have seen it all in terms of parents trying to hide assets, so they know where to look. In addition to the FAFSA and CSS, colleges will request a copy of your federal tax return, as well as your child’s.</p>
<p>What does your oldest think of this plan? I’m not sure one of my kids would want to take on the legal and financial responsibility of a home if they were already happily situated somewhere else.</p>
<p>Agree with posters above - your child may get more financial aid than you think.</p>
<p>OP - If what you’re proposing was simply done don’t you thing a lot of other people would be doing it? The potential for creating a huge mess is ENORMOUS. Find another way, please.</p>
<p>Do you cheat on your taxes, too?</p>
<p>Is what you’re contemplating doing really what you want to be teaching your children?</p>
<p>OP, if your income really is “minimal,” then you need to look for schools where your kids would get some need based aid and/or could go for low tuition. Your proposal really makes no sense to me.</p>
<p>Can your oldest actually buy your home for close to market value? If not, and you give the home to your oldest, remember that you will probably have to pay gift taxes on the transfer - can you afford that? Would you get enough additional “financial aid” to offset those taxes?</p>
<p>If your oldest can buy the home, will you then have additional liquid assets that could be tapped? That could put you in a worse position than you are in now - home equity is not considered by FAFSA, but liquid assets are.</p>
<p>How about your mortgage? Does your oldest have sufficient income and credit history to qualify for a mortgage? Your mortgage company/bank isn’t simply going allow you to transfer title but keep the same mortgage. Doesn’t matter if you’re paying the mortgage amount in “rent” to your oldest; they’re going to want a different instrument attaching to the home.</p>
<p>You’re unlikely to come out ahead in this scenario.</p>
<p>
</p>
<p>I was thinking the same thing (especially about the lesson being taught), but I didn’t have the you-know-whats to say it. Glad someone did.</p>
<p>Im dying to know who this is- obviously they realized it would not be regarded as above board so they posted under a new screen name. I doubt someone would use this as their first post on CC.</p>
<p>What I have found is, if you need to ask if something is ethical/legal? It isn’t.</p>
<p>Wow! Every time I think I’m about old enough to have heard it all … I’m always amazed at people who believe the “rules” are only for everyone else.</p>
<p>I don’t think I’d trust anyone enough to sign my house over to them.</p>
<p>Repetitive of above post</p>
<p>If you have a mortgage you probably won’t be able to do this. Most mortgages have due-on-sale clauses so that if you sell (transfer) the house, the mortgage lien must be discharged. Unless your son can get a mortgage to pay off your existing one, the strategy becomes moot. </p>
<p>If you don’t have a mortgage, a transfer to your son will probably trigger a gift tax requirement (at least to file a return…probably not to pay any tax). You can only give 12,000 a year to anyone before you begin to “eat into” your lifetime gift/estate tax exemption of a total of $1MM. Probably you would’nt have to pay any taxes anyway, but it does use up the exemption today rather than later.</p>
<p>Generally sounds like a bad idea that will have other repercussions.</p>
<p>I doubt that it is worth it.</p>
<p>You are reflecting poorly on your parents.</p>
<p>As a couple of posters said - you will trigger gift taxes if you do this.</p>
<p>Ethics aside, I would not recommend this. Even if the lifetime credit is applied to this and no gift tax, remember that once an asset is transfered, it is the transferee’s property. An agreement to transfer back after the other kids graduate, probably would equal a sham transfer to start. The mortgage issue is real, although, if the debt were being paid, it might be difficult for a lender to foreclose on a non monetary default. The OP would be on the hook for the mortgage, and would not even own the house.</p>
<p>Owlice, razorsharp et al, and with respect, really, although I personally would never try this, or advocate it, I hope you realize that this type of maneuver is done daily by many. IMHO, the senior citizen “medicaid trust” is one that is common, and penalizes those who feel ashamed to be on medicaid, or taking money for the poor when they have money. Lots of grannies in their florida condo own nothing by choice so that if they have to go to a nursing home the government will pay. There are many legitimate strategies to minimize taxes as well, many of which are geared to minimizing estate taxes. Legions of estate and tax attorneys and accountants make their living in this manner. While there may be ethical questions, for the most part if a legitimate strategy is used there aren’t legal questions and they are not cheating. Not to say do it, but just to point out that this never stops.</p>