Articles Tagged with minors

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college quad
As the season turns and it starts to feel like Fall, many parents are either paying college tuition bills or worrying about paying them. Many of my clients have asked me how 529 college savings plans or custodial accounts are counted when colleges consider financial aid.

Here are the basic rules and a few strategic ways to use them.

Student’s assets are counted more heavily than parents’ assets by colleges. When a school analyzes family finances using the Free Application for Federal Student Aid (FAFSA), which most schools do, they count parental assets differently than those owned by students when they calculate how much a family should contribute towards college costs. When the schools calculate the Expected Family Contribution (EFC), they expect parents to contribute no more than 5.64% of their assets. But a student is expected to contribute 20% of their assets. That means that if a student is considered the owner of an asset, a school will expect that student to use more of it to pay for school than they would expect from a parent that owns the same amount of assets. So, any asset a student owns will reduce available financial aid more than any asset a parent owns.

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Young kidOne of the things that I love about my job is helping people with real-world, actual, legal issues. And one that comes up often is parents, or grandparents, asking me how to name their young children, or grandchildren, as beneficiaries for their retirement accounts, life insurance, or payable on death accounts.

Here’s the short answer: Don’t. At least don’t name your minor child/grandchild directly. If you name a minor child directly as the beneficiary for an asset that’s worth more than $5,000, that child will not be able to inherit it without some form of adult supervision because minors are not allowed to own property in their own name that exceeds that limit.

Instead, unless you name an adult as custodian or a trust to manage that property, you will have to get court approval to release those assets to the child. Unless the total amount of the property is $20,000 or less, a Property Guardian will have to be appointed by the court. This Property Guardian will be responsible for managing those assets for the child until that child becomes a legal adult.  If the total falls below that $20,000 limit, the court has discretion to order you to hold the money in the way most beneficial for that child.