Should I report this on the Fafsa ?

Question

My father passed away, his property was sold and the liquid cash was set up in a testmentary trust for me which my aunt controls as the trustee. I do not have direct access to this money.I did not earn engough money on my own, so I have had to take money out of the trust. My aunt could deny me any time and even use this money herself legally I am told.Who owns this money and should I report it on my fafsa?

Answer 1

An excellent question -- and one that might even trip up some financial aid administrators. Now, I'm not a lawyer, but my understanding is that your aunt, as the trustee, is considered the legal owner of the trust. You, however, are the beneficiary. As such, you will generally be required to report the trust fund on your FAFSA even if your access to the money is restricted.

So, you now need to determine two things: (1) WHETHER you report the trust fund and, (2) HOW to report it, if necessary:

WHETHER you report the trust depends on the whether your access to the money is restricted and by whom. You say you don't have direct access to the money, right? You need to determine who made it that way. According to Dept. of Ed regulations, if the trust was restricted by a court order (i.e. a court order that requires you to use the funds to pay for certain medical costs rather than, say, for your education) then you would NOT need to report it on your FAFSA. But if your aunt herself imposes a few restrictions, then you will still need to report the trust fund on your FAFSA.

Now, HOW you report the trust, according to federal guidelines, depends on the terms of the trust. I generally don't like cut-and-pasting my answers, but I will here in case you don't want to read the PDF (linked below). Here's what the Dept. of Education has to say about reporting your trust on the FAFSA:

"Interest only: If a student, spouse, or parent receives only the interest from the trust, any interest received in the base year must be reported as income. If the interest accumulates and is not paid out, the recipient must report an asset value for the interest she will receive. The trust officer can usually calculate the value of the interest the person will receive while the trust exists. This value represents the amount a third person would be willing to pay for the interest income.

Principal only: The person who will receive only the trust principal must report as an asset the present value of his right to that principal. For example, if a $10,000 principal reverts to a dependent student’s parents when the trust ends in 10 years and the student is receiving the interest, he would report the interest he received as income and report as a parental asset the present value of his parents’ rights to the principal. The present value of the principal can be calculated by the trust officer; it’s the amount that a third person would pay for the right to receive the principal 10 years from now—basically, the amount that one would have to deposit now to receive $10,000 in 10 years, including the accumulated interest.

Both principal and interest: If a student, spouse, or parent receives both the interest and the principal from the trust, the student should report the present value of both interest and principal, as described in the discussion of principal only. If the trust is set up so that the interest accumulates within the trust until it ends, the beneficiary should report as an asset the present value of the interest and principal that she is expected to receive when the trust ends."

Answer 2

You have to report this money to them, you have to be honest or you can get in trouble if they find out you did not report this. It may help you because you have no access to this money, they will decide. The money is yours but your Aunt has the control until you are of age to handle the decision with the money. Try and see if you will qualify for the student aid, Good Luck.

Answer 3

Since you have shown you can take money from your trust, then you should report it.