However, as we have discovered, filling the forms out can be more difficult than it seemed at first glance. First, we applied in the last week of September for a FSA ID which linked to our account at the IRS to allow us to link the FAFSA form (but not as we were later to discover the CSS PROFILE) to our 2015 income tax date as filed. Second, there was the frantic gathering of current information: bank statements, mortgage and car loan information, retirement account values, investment account values, including the 529 accounts and UGMA accounts set up for both the child applying for college and his/her siblings. Third, we set up the FAFSA form and imported the information from the IRS – so far so good.
The trouble arose when, after reading the instructions for the forms multiple times, we discovered we had “special” circumstances that we needed to address. When my mother passed away, she created a testamentary trust primarily for the benefit of my father. However, my brother and I were included as permissible principal beneficiaries. Knowing my mother, it was meant to be “just in case” of a catastrophic emergency. Nonetheless, because I am a permissible beneficiary currently, we have to report one-third of the value of the trust on these forms even though I have no ability to compel a distribution from the trust. Thankfully, my children only have interests in the trust contingent on my prior death, so the trust is considered my asset and not the asset of my child for financial aid. Interestingly, we do not need to report the trust created by my grandfather because my interests in that trust are contingent upon my surviving various family members.
Discerning exactly what had to be reported on the various forms in connection with trust funds was not easy. Ultimately, I gave up and called a financial aid officer at the University of Virginia, because I am an alumna and because my child intends to apply there. I did get the answer I needed. Finally. However, here are a few pointers in regards to eligibility for financial aid:
- Keep in mind that parents’ resources are assessed at a much lower level than assets owned by a student when determining how much the family should contribute towards college. 529 accounts owned by a parent are assessed as an asset of the parent, not as an asset of the student, even if the student is the named beneficiary of the account. Account balances of 529 accounts owned by a grandparent do not get reported on the financial aid form; however, distributions from the account used for the grandchild’s educational expenses are counted as the grandchild’s income for the year of distribution.
- Eligibility for financial aid is heavily based on your income. Although you do get credit for certain obligations, such as a mortgage or a home equity loan secured by your home and on which you are paying, you do not get credit for consumer loans or unsecured debt (such as credit cards). In addition, the contribution that you make towards your retirement account is added back into your adjusted gross income for these purposes.
- The balance of your retirement account is not assessed for these purposes.
- Interests held in trust are assessed as an asset of the beneficiary, even if the restrictions on the trust fund are such that the beneficiary cannot access the funds. However, contingent beneficiaries are ignored.
If you are interested in creating a trust that is meant to be used for your children’s or grandchildren’s college education, the nuances of how the trust is worded may be unimportant. After all, if you are providing a fund from which college expenses are to be paid, then the funds should be so used. On the other hand, if you are creating a trust that is not necessarily meant to fund a college education, as in the case of a trust primarily for the benefit of a surviving spouse, it may be important to assess and think through the ramifications of giving the descendants of your primary beneficiary current access to trust assets. Your decision will be influenced by the specifics of your family situation. Please feel free to make an appointment to discuss these important issues with the attorneys at the Hook Law Center so we can help guide your estate planning decisions.
Ask Kit Kat – Fish Smarts
Hook Law Center: Kit Kat, what can you tell us about how fish think and feel?
Kit Kat: Well, there is a lot to tell, actually. Even very tiny fish have some amazing capabilities. Jonathan Balcombe, director of animal sentience with the Humane Society Institute for Science and Policy has written a new book, entitled What a Fish Knows: The Inner Lives of our Underwater Cousins. It turns out that fish have many things in common with other animals, including us humans. That is why they are such a fascinating subject for research. For example, let’s examine the frillfin goby, which is a fish that lives in intertidal areas. They have the capability of jumping from one tidal pool to another when they sense danger. How do they do that so successfully without being stranded on rocks or caught up in vegetation? Scientists tell us that they can memorize the geography of a particular tidal pool and remember it 40 days later. That knowledge serves them well when they sense they can no longer stay in a specific location.
Another example is the case of groupers and moray eels. These two look nothing alike, but they use their differing physical attributes to work together to hunt for food. The grouper elicits the attention of the eel through the use of a head shake or body shimmy. Then they work as a team. The eel chases their prey into a nook or crevice of a rock. Sometimes, the eel gets to the prey first, and has a delicious meal. However, if unsuccessful, the prey swims out, and is captured by the large-bodied grouper. Another capability which grouper have is a pointing ability. They can actually point with their body position to the eel that prey is nearby. Thus the hunt starts, and they begin their cooperative arrangement to capture food.
For more examples, you might want to read the book. It really is fascinating. As more and more people become aware that fish can think and feel, they will treat them with more respect. That is not to say we shouldn’t continue to enjoy them as a source of our own nourishment, but perhaps we can become a little more careful about how they are harvested. Commercial fishing tends to use large nets over many miles which scoop up whatever is in a particular area, including dolphins, when what they are really after that day might be tuna. Hopefully, we can develop more strategic ways to fish without the collateral damage to others, which are not the intended objects of the fishing operation. The author says another thing anyone can do is, if you see a stranded fish washed up on a beach, pick it up and get it back into the water. We all need a little help once in a while. (“Kinder School of Thought,” All Animals, September/October 2016, p.34-35)
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More and more people are getting life insurance these days, and that’s a good thing. Yet there are very few people who understand the intricacies of this in connection with divorce.
Here is a list of a few “life insurance” considerations before you get into a divorce proceeding and what you need to consider if life insurance coverage is needed in the divorce agreement.
· The Insured Spouse Should Go Through Any Underwriting Process Before They Sign the Settlement Agreement if Possible
If there is chance of the coverage not being available to the spouse as a result of health issues or if the premium is prohibitively expensive, the settlement needs to have other provisions included that ensure protection against a premature death. Some of these measures that can be used in an Orange County divorce settlement are trusts and other planning tools for estate. If you and your spouse don’t have coverage as of now, it is best that any coverage you apply for is based on a rate and policy comparison for your situation.
· You Shouldn’t Name Your Minor Children AsBeneficiaries, Even Via a Custodian
This is one of the most common errors made by parents going through an Orange county divorce. The reason for this mistake can either be a lack of knowledge or contemplation. Any payments made with such a designation of beneficiary will go straight into the UGMA account if the child has not yet reached an age of maturity. Even if you don’t list a beneficiary the court will be quick to appoint one. While this may not be problem per se, it can be when the child will have complete control to the account once they mature, which will usually happen once they are 18.
· The Beneficiary Can Receive Notices for Premiums
The ownership of the insurance or who makes the payment does not matter. Irrespective of these intricacies, the beneficiary needs to be notified of about the status of the policy, which is also known as the proof of insurance. The insurance company is obliged to provide the beneficiary with a prior notice before the policy can lapse on non-payment giving them enough time to take appropriate action.
Gerald A. Maggio is an experienced Orange County divorce attorney and family law attorney located in Irvine, California, serving the Orange County and Riverside areas. Mr. Maggio assists clients with legal issues including divorce, legal separation, divorce mediation, child custody, prenuptial agreements, stepparent adoptions, and other family law issues. Mr. Maggio has practiced law in California since 1999, and founded The Maggio Law Firm in 2005, focusing exclusively on divorce and family law matters.
The Gifts to Minors Act is typically limited to investments towards certificates of deposit, life insurance and cash, while the Uniform Transfers to Minors Act allows you to invest in stocks, bonds, real estate and mutual finds. Both types of accounts should be managed by someone other than a parent; a parent would incur taxes on the account income.
The potential downside: When the child reaches the age of majority (18 in California), the child owns the account funds. This could jeopardize the child’s eligibility for college financial aid, and may not be the age at which you want them to have access to the funds. An 18 year old is not likely to be the wisest money manager, as well.
If you are considering establishing a fund, or would like to explore your estate options, please speak with the estate planning attorneys at Gilfix And La Poll.
Pioneers of Elder Law – For over 30 years, Gilfix & La Poll Associates LLP has innovated creative legal solutions to help you manage and plan the future of your estate.
To contact an estate planning attorney visit http://www.gilfix.com/ or call 800.244.9424.