Yep, legal advice to those who pay me for it, mostly banks. In all the discussion here, I’m looking at it from the banks position - who owns the account? That’s who owns and reports the money iN that acount on that filing day… The OP asked if she had to report money she held in her account. My answer as the banker is ’ that’s your money. You own what’s in your accounts.’ But you can own other assets too, like money in a shoebox or a bunch of gift cards or a money order. In your example, the child still owns the money, he’s just given it to his parents to hold. It wasn’t a gift at all, it’s a bailment.
I wouldn’t advise anyone to make a conditional transfer of money from child to parent with the understanding that it MUST be transferred back on demand. That money still belongs to the child, so the child still needs to report it on a fafsa and it will be assessed at the student’s 20% asset rate. You dont disagree that the student needs to reportall assets, whether in a bank account under his name or in a shoebox or in his wallet. Your example has the studentstill owning the money he’s given to the parents to hold. Then the next question is what do the parents need to report. My opinion is that the parents need to report all money in their accounts since the bank deems that their money. Money in a shoebox may not be yours, but money in a bank account is. The obligation to pay it back to the child on a future date is not considered by the fafsa questions bease thats a personal obligation.
If the parents want to argue that it is not their money, that they are holding it for their child, they can argue that with the financial aid officer, just like they can argue they received more in income in the tax year because of a bonus, or a one time payment and it shouldn’t be considered when determinng need. They can’t just decide not report it as income because that isn’t fair and THEY don’t considerate their asset, they have to report it and ask for the exception. Do people reason that certain assets should not be reported because it’s not really their asset even if held in their accounts or titled in their name or that it will be sold next week? I’m sure they do all the time, but I’m not going to advise that they not report assets held in their name on the fafsa form. The instructions say to complete the questions for assets held on the day you file. Is the money in the account on the day you file? You must report it. Does the child actually own the assets (your hypothetical)? Then he needs to report it too. Yes, a stupid outcome from trying to avoid the reporting by the student, but that is the hypothetical you proposed, not a gift but a conditional transfer.
Why do all that? Don’t hold money in your account you don’t want to report. Don’t make conditional transfers. Report the money in your account and apply for professional judgment if it is truly a unique situation and you couldn’t avoid holding the money for someone else on the day you file. If you do want to transfer the child’s money, open a 529 or make the transfer a true gift, not to be transfered back.