<p>I am again totally confused again how to value this asset, please help:</p>
<p>My father passes away about 7 years ago and left a family trust. We receive $X amount of income per year that is reported on our taxes via a K-2. The income is derived from some income producing real property…</p>
<p>How do I value this “asset” as an investment. I saw the example below but I am not quite understanding the formula I saw listed below:</p>
<p>The net present value is the amount a disinterested third party would be willing to pay in exchange for the future cash flows from the trust. For example, assuming a 5% discount rate, a $10,000 payment 10 years from now would be worth $6,139 now. (If you were to invest $6,139 in a tax-free account earning 5% interest and reinvested the interest, the principal balance would reach $10,000 in 10 years.) When there are multiple future payments, the net present value of each payment is calculated separately and the results are added together. For example, a $1,000 annual payment for 10 years would have a net present value of $7,722. The first payment has a net present value of $952, the second payment has a net present value of $907, and so on, until the tenth payment has a net present value of $614. The net present value of these payments sum to $7,722.</p>
<p>What am I missing and is it easier than the above formula to figure out?</p>
<p>To make it simple, if my K-2 shown, for example,indicates $10,000 “Net Rental Real Estate
Income”–can I figure out the value of the “asset” by this amount assuming that I own a 1/6th portion of the trust?</p>
<p>I guess I was confused by the formula I found. Is the income any relevance to the value of the Trust or do I just take the value of the property in the Trust as of this date and divide it by my % of interest in each property? This is how I initially valued it but I was not sure if this is how it works for FAFSA if I actually do not own it outright and only receive some income.</p>
<p>I thought the net present value is the value of the property if you were to sale it (minus any mortgage).</p>
<p>It sounds like you think the value is what another person would make payments to you. Maybe I’m misunderstanding…but I don’t think that right.</p>
<p>Maybe I’m wrong, but this is how I would look at it.</p>
<p>If the trust included a 10 unit apt building, and the building had a value of $2,000,000 (no mortgage). But if I were to quickly sell it, I would net 1.7 million, then I’d have to state that the value is $1.7 million…AND…I’d have to list the annual income from the 10 units (minus expenses).</p>
<p>Maybe I’m wrong, but that’s about how I see it…</p>
<p>We almost had a family trust. It was worth a lot of money and we derived NO income from it at all. We were told to take the current value of the trust, and list our percentage of that value on the FAFSA and Profile. </p>
<p>Since you also have income from your trust, that has to be shown somewhere on your forms as in addition.</p>
<p>OK, so I listed the our portion of the value of the trust property.</p>
<p>The income from the trust shows on out tax return via a K-2, and is figured in our income. Does this income also need to be shown elsewhere on the FAFSA form?</p>
<p>1) the payout received from trust this year is counted as income for this year. If some of the income is retained inside the trust, then you do the NPV calculation based on when it will be paid out, and this is counted as an asset. </p>
<p>This assumes the payout does not include any principal, which in the case of a trust containing real estate, seems likely.</p>
<p>2) If you have any ownership rights to the assets in the trust, that is reported as an asset. For example, if the real estate could sell for $100,000, and your share is 10%, you have an asset worth $10,000. Then you calculate the NPV based on when you can actually take the principal out of the trust, and report that as an asset. If you can never get the principal out, that implies an asset value of zero.</p>
<p>It is possible to have income rights without having any ownership rights to the underlying asset. In that case, you would not have anything to report as an asset.</p>
<p>Not an accountant, this is my opinion.</p>
<p>What do the trust documents way about who actually owns the property in the trust?</p>
<p>Ours was a trust whereby we were NOT able to gain anything from the property making up the trust. We were told that this did NOT matter…we were required to list our percentage of the value of this trust even though the way the trust was written, it could never be sold.</p>
<p>We were fortunate that we were given the option of declining this trust…which we did.</p>
<p>Just a clarification…our trust could be sold, but it was not an easy thing to make happen. We were told that the value of the trust had to be listed because almost all trusts…ours included… do have provisions for liquidating the trust. And the beneficiaries of the trust would get the proceeds.</p>
<p>The trust lawyer, and the FAFSA folks said there are VERY few trusts that cannot be liquidated. Another example the FAFSA folks gave us was trusts whereby someone didn’t get their payout until the student was say age 30…the current value had to be listed even though the family had no access to the funds for many years.</p>
<p>I can’t weigh in any better than anyone else here, to be honest. I never had a student whose family reported a trust at all, much less one this confusing. If I had run into an issue like OP’s, I would have had to contact the federal training officer for guidance.</p>
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