Question: My daughter is a senior in high school and is applying for financial aid for college. She has a special needs trust and we were wondering whether the assets of the trust should be included on the financial aid application? Answer: There is some debate on this subject by estate and special needs trust advisors, but as a general rule, the assets of a special needs trust would be included as a countable resource for financial aid purposes. The issue boils down to a student’s access to the trust funds. Any student applying for financial aid must disclose not only her own income and assets, but her family’s income and assets as well. The instructions on the FAFSA application make it clear that most trust funds are to be considered as investments that must be reported. For example, if her parents have created a living trust for estate planning purposes, then the assets in the trust still belong to the parents (and as such, are included in the “family” share of a student’s financial aid calculation). If the student is the beneficiary of another trust, then the portion of the trust funds that can be spent on the student are usually considered the student’s assets for purposes of the FAFSA. However, a special needs trust generally does not allow the beneficiary to withdraw trust funds other than in the sole and complete discretion of a trustee. One important purpose of this type of trust is to reduce the beneficiary’s resources in order that she be able to qualify for government benefits. While it might not seem logical that the funds should be counted as the student’s asset on the FAFSA, the U.S. Department of Education’s Federal Student Aid Handbook specifically provides that when the settlor of a trust has voluntarily placed restrictions on its use, then the student should report its present value as an asset. While there are some estate planning attorneys who do not agree with this position, I think the general consensus is that this language requires an applicant to list the funds held by her special needs trust on her FAFSA. Comment: From what I can tell, funds in a special needs trust restricted by court order are not required to be listed on the FAFSA. However, this isn’t the end of the story. For example, what happens if a child without special needs applies to college but her sibling has a special needs trust. Should her sibling’s trust count as “family” assets? Bottom line, if you have a child applying for financial aid, it would be wise to consult a special needs planner or financial advisor who is well versed in this area. If you have any questions or would like more information please contact Steve Shane at: firstname.lastname@example.org | 301.575.0313.
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates. You can also connect with Offit Kurman via Facebook, Twitter, Google+, YouTube, and LinkedIn.
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