Trust Funds and Financial Aid

I started these trust funds over a decade ago. The financial opportunities and situation has changed over the years and we are open for doing things differently if needed.

There are many ways to save for college. From the perspective of this site, I am contributing as an external party to individuals that aren’t my dependents. Thus my situation is relatively unique compared to a parent contributing to accounts for their own children, for example, because they would have more tax deductions depending on the circumstances.

10 years ago, or 20 years ago, the amount of money needed to attend college including room and board was relatively modest. Now, however, costs have ballooned enormously, and many / most students leave college with substantial amounts of debt unless their parents are wealthy or they take action (scholarship, go to community college first then enroll, etc…) to mitigate the costs.

Thus pretty much everyone is filing for financial aid now. Recently an article was written in the Chicago Tribune titled “Savvy tactics can score more financial aid for college“. The article starts with a woman who has modest income ($32k / year) who received almost no aid after filling out the FAFSA form for her son, leaving him with heavy loans. From the article:

Many people think they will get aid if they need it. But it’s not that easy. To do better on FAFSA, know its ins and outs. Kalman Chany, a New York financial aid consultant, says he’s seen people with millions in assets get Pell grants (free government money for low-income people) while teachers such as you have struggled. It’s because financial aid is calculated based on a quirky formula that’s as complex as the tax code and little understood by pros.
Yet, much as clever accountants can legally slash taxes for rich people, parents who understand the FAFSA formula can increase their aid. That’s why parents should study Chany’s book, “Paying for College Without Going Broke” by the time their child finishes his sophomore year in high school. It suggests financial alterations that can greatly enhance aid.

I haven’t read that book by Chany but here is a link to it at Amazon.com – I think I am going to pay the $13 or so and see what he has to say.

Here’s another part of the article:

Also, if there is a trust, or maybe an account set up for your child under the Uniform Gifts to Minors Act, this will poison chances for financial aid.

I know that you need to disclose UGMA accounts for financial aid, but certainly the term “poison” doesn’t make me feel good.

I am going to get the book and look into other alternatives and write about them here, and see if it still makes sense to save, all in, in this manner. Note that there ARE advantages to this method – 1) we can choose any stock in the universe for the portfolio 2) we have transparency in fees and control costs 3) we can learn about finance in a more specific manner than in the abstract, which is a valuable lesson for later in life 4) it encourages thrift in the trustee because I match their contributions 5) I don’t mind, per se, that the amounts for the trustee are used for college. The point of a trust fund is to help them, and college certainly is valuable and can be an excellent investment.

More to come.

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