A student who has funds in a custodial account may consider not filing the financial aid application form until after the student turns of legal age, which is 18 in most states. The student can make a legal gift of the trust funds to non-college family members and therefore, legally reduce assets.
The student reduced assets by $5,000 by gifting student assets to non-college family members. Since the parents assets were assessed at 20% the asset reduction may increase the childs financial aid eligibility by $1,000 ($5,000 x 20%). Alternative example: Student in the town where the student’s college is located. If the student uses the house as a personal residence, the residence will be treated as a non-assessable asset under the Federal Methodology EFC formula. If the student rents out part of the house, that portion of the house will be considered an assessable real estate investment asset. Upon leaving college, the student could sell the house and not be taxed on any gain on the sale, assuming the requirements of IRC Sec. 121 are met. Remember, the Institutional Methodology EFC formula does assess the personal residence.
If you are in a financial aid asset assessment rate of 20%, you could increase your financial aid eligibility up to $200 for every $1,000 of asset reduction by gifting student assets to non-college family members.