Estate Planning Meets FAFSA: Let’s Talk Asset Savvy
When it comes to paying for college, it’s not just about saving—it’s about strategizing. Did you know how you own your assets can make or break your kid’s financial aid package? This article spills the tea on how estate planning and financial aid collide, with savvy tips to boost aid eligibility, protect your wealth, and set your family up for success. Because your child deserves a bright future—and you deserve peace of mind.
FAFSA & Asset Ownership: What You Need to Know
Here’s the deal: FAFSA doesn’t treat all assets equally. How your family’s assets are owned—by you, your student, or even Grandma—can make or break your kid’s financial aid package. Let’s break it down:
- Parent-owned assets: FAFSA only counts up to 5.64% when calculating your Expected Family Contribution (EFC).
- Student-owned assets: A whopping 20% of these are fair game. Yikes.
Translation? Keeping assets out of your student’s name is key to maximizing aid eligibility. For example, $10,000 in a custodial account like UGMA/UTMA means FAFSA expects $2,000 to go toward college. That’s a financial facepalm we’d rather avoid.
Pro Tips:
Future savings? Skip the custodial accounts. Go for a 529 plan or a parent’s investment account instead.
Third-party assets? If Grandma owns a 529, FAFSA won’t count it—until she makes a distribution. And then? It’s considered student income and assessed at up to 50%. (Sorry, Grandma!)
Estate planning isn’t just about protecting wealth—it’s about strategy.
When Estate Planning and FAFSA Collide
Ready to play the FAFSA game like a pro? Estate planning isn’t just about protecting your assets—it’s about using them strategically to boost your child’s financial aid eligibility. Here’s how to make FAFSA work for you:
1️⃣ Irrevocable Trusts: Handle with Care
Irrevocable trusts can shield assets for tax purposes, but FAFSA sees them differently. If you or your child is a beneficiary, the proportional share counts—and income distributions? They’re hit with up to a 50% assessment. Translation? Trusts are powerful but tricky. Proceed with caution!
2️⃣ Retirement Accounts: FAFSA’s Hidden Loophole
Good news: FAFSA doesn’t touch your 401(k), IRA, or Roth IRA. 🎉 Stash extra savings in these accounts to kill two birds with one stone—prep for your golden years and protect your kid’s financial aid. Pro tip: Got extra cash lying around? Funnel it into your retirement account. FAFSA-friendly and future-proof.
3️⃣ Pay Down Debt Like a Boss
Liquid assets weighing you down? Use them to pay off debt—think mortgages or student loans. FAFSA doesn’t count your home equity or debt balances, so it’s a win-win move for your financial aid strategy and your peace of mind.
4️⃣ Timing Is Everything
FAFSA only cares about your financial snapshot on the day you file. Planning to cash in investments or score a big bonus? Hold off until after filing FAFSA. Timing your financial moves could mean the difference between more aid or less.
Estate planning isn’t just smart—it’s essential when you’re tackling college costs. Let’s make sure your strategy is on point.
Smart Moves to Make Today
Ready to Prep Like a Pro? Here’s What to Do Now:
✅ Review Your Assets
Make a detailed list of everything your family owns and who owns it. Keep an extra-close eye on student-owned accounts and trusts—they can seriously impact financial aid.
✅ Move Money to FAFSA-Friendly Accounts
If you’re saving for college, steer clear of custodial accounts. Instead, focus on 529 plans owned by you, the parent—they’re a much smarter move for aid eligibility.
✅ Create a Life & Legacy Plan
Let’s team up to build a personalized Life & Legacy Plan. We’ll explore strategies like irrevocable trusts to protect your assets and your child’s financial aid.
✅ Max Out Retirement Contributions
Boost your 401(k) or IRA contributions. It reduces the assets FAFSA counts while securing your financial future.
✅ Plan Around Income Events
Expecting a bonus or planning to sell some stocks? Time it wisely! Filing FAFSA before these events keeps your aid profile in good shape.
Let’s turn these steps into a winning strategy for your family’s future.
The Bottom Line
Navigating estate planning while maximizing FAFSA eligibility can feel like a high-stakes balancing act. On one side, you’re focused on preserving your family’s wealth and securing your child’s future. On the other, you don’t want to miss out on financial aid opportunities.
The key? Understanding how asset ownership impacts aid and taking smart, strategic steps. Whether it’s restructuring assets, utilizing trusts, or timing financial decisions, a little thoughtful planning goes a long way.
And when that acceptance letter arrives—complete with a generous financial aid package—you’ll know the effort was worth it.
How We Support You
At 20West Legal, we’re here to make balancing education funding and wealth preservation a breeze. As your Personal Family Lawyer® Firm, we’ll craft a comprehensive strategy that ensures your assets are structured effectively and your plan evolves with life’s changes—whether it’s the law, your finances, or your family dynamics.
Our goal? To bring clarity, consistency, and peace of mind to your financial planning—from funding your child’s education to preserving your family’s legacy.
Ready to take the next step? Book a call today and let’s build the perfect plan for your family: https://go.20westlegal.com/meeting-scheduler
This article is a service of 20WestLegal LLC. We don't just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love. That's why we offer a Planning Session, during which you will get more financially organized than you've ever been before and make all the best choices for the people you love. You can begin by calling our office in Sudbury, Massachusetts today to schedule an Estate Planning Session and mention this article to find out how to get this $750 session at no charge.
The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.