Trust fund and FA

calmom
Wed, 22 Jul 2009 02:51:26 +0000

Let me try to explain this in simple terms.

Right now, the kid has a fund of $35K to use to go to college. That fund is not enough to disqualify him from receiving financial aid. The worst case scenario is that it boosts his EFC by $7000. If he does get into a college that meets full need – and which doesn’t expect any information or contribution from his custodial father, then the balance will be met in grants & loans. He might have to take $7K of that trust fund toward the first year of college, leaving $28K in trust for the remaining 3 years.

If his mom decides to spend all that money so it won’t be counted on a FAFSA… he might get lucky and find some college that will meet 100% of his need and does not ask for any information or contribution from the noncustodial parent. (Good luck with that, though – I never found any college like that).

But it is more likely that he will face a gap – perhaps a very large gap – and when he goes to his mom wondering about his trust account, he will be confronted with the news that the money is gone. So then he is going to have -0- money for college – and no way to fill the gap. (At least with the $35K in funds, if he faced a significant gap, he’d have cash on hand to fill it for his first year.)

I’d note that in addition to the potential issues with the non-custodial parent, the OP said her sister had “erratic income as an artist.” That mean she probably has self-employment income, requiring her to file a schedule C & disqualifying her from the simplified needs test. Also, “erratic” could mean that she veers between good years and bad, if her work has the potential of drawing in occasional large lump sums – so you don’t even know what the parental income and assets are likely to be in the year the kid goes to college.

Reading between the lines in the opening post, I see a parent who is hard up for money looking for a good excuse to delve into a $35K trust fund for an improper purpose (“expenses related to son’s care” “he has to eat”). I say improper because legally the parent is responsible to provide for the basic needs of her minor son (food, clothing, etc) - raiding a trust account for that reason is definitely not appropriate … but I can see where a family that is hard up for funds could be lulled into thinking that was the way to go.

Again, the 529 account is a good idea. But the parent has a legal duty to preserve corpus.