Financial aid and children's account.

kaismomJanuary 31, 2007

Here is a very good article about money in children's name when they apply for financial aid. The summary is that if the money is in the kids name, the kids are expected to contribute from that money a significant portion toward the college tuition. If the money is in the parent's name, then the percentage requried for contribution is much less.

This subject has come up couple of times and I thought people may find it useful.

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A number of years ago I set up a trust account for my daughter's education, naively thinking how responsible this was. Several months later I was doing some investigation of financial aid and how it all works. It became very evident to me that one of the worst things a middle class person can do is establish such a fund in your child's name. Any money your child has counts much more heavily against him/her than if the same amount is part of your assets. Realizing this, I liquidated the trust and did the investing in my name. That decision made the difference between my daughter getting some financial aid and none.

I'm all for saving for the expenses of college, but if you have any expectation of your child getting financial aid, don't mess it up like I almost did by putting the account in the child's name. While there are some modest tax advantages to having the money in the child's name, I actually had a financial aid officer tell me that the only people who should be doing that are those who are so wealthy that their children could never expect to qualify for aid under any circumstances.

    Bookmark   February 1, 2007 at 12:19AM
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my kids have money from my in-laws, UGTM or something (uniform gift to minors). It's in their names, w/ DH as custodian.

Is it even possible to put that money in anyone else's name? I didn't think so, but am I wrong?

    Bookmark   February 1, 2007 at 11:19AM
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UTGM keeps the $$ in the kid's names, they don't have to pay taxes, but if the donoree dies before the kids spend it, it's included in the donoree's estate.

Why would you want to put it in someone else's name? Unless the kid became a rock star and won't use it for education.

    Bookmark   February 10, 2007 at 6:15PM
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Yes, UTGM keeps the investment income in the kid's name. But they have to pay taxes if their investment income exceeds $850. If a child under the age of 18 has investment income in excess of $1800, their investment income is taxed at the parents' rate.

When applying for financial aid, a child who has money in his own name is expected to conribute a greater percentage of that money to pay his post high school education costs than would be required if the money remained in his parent's name.

    Bookmark   February 10, 2007 at 8:03PM
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