Are UGMA and UTMA Accounts Reported as Investments on the FAFSA?
May 28, 2012
The college’s change of income form is used to initiate a professional judgment review by a financial aid administrator. It is not uncommon for child support payments to end before or during enrollment. Most college financial aid administrators will make adjustments when the previous year’s income is not reflective of ability to pay during the award year. The $6,000 in child support payments received may account for as much as $3,000 of the $23,000 EFC.
But the admissions staff are wrong about the UTMA account. An UGMA or UTMA account is a custodial account, where the account is owned by a minor. As noted in the FAFSA instructions, custodial accounts must be reported as investments on the FAFSA and are reported as assets of the account owner, not the custodian. The titling of an UTMA account established by a grandparent for a grandchild will be “[Grandparent’s Name] as custodian for [Grandchild’s Name] under the [Grandchild’s State of Residence] Uniform Transfer to Minors Act” or something similar.
This is in contrast with a Totten Trust, which is typically titled as “[Grandparent’s Name], in trust for [Grandchild’s Name]”. A Totten Trust is a revocable transfer that passes to the beneficiary without probate upon death of the account owner.
The terms “primary” and “secondary” have no legal meaning when referring to the custodian and account owner of a custodial account and may be ambiguous as to which is which.
Since families sometimes get confused about the difference between custodial accounts and Totten Trusts, an experienced financial aid administrator will always try to clarify who legally owns the account. In most cases the child is the account owner, especially when the parent refers to it as an UGMA or UTMA account or custodial account. When in doubt, a good rule of thumb is to follow the taxes. If the child reports the interest and dividends on his income tax return, the child is the account owner.
A $30,000 custodial account contributes $6,000 of the $23,000 EFC.
There are a few ways to reduce the impact of a custodial account on a student’s EFC. But these strategies will not affect the student’s eligibility for need-based financial aid for the fall, since the FAFSA has already been filed. The FAFSA uses a snapshot approach with regard to reporting assets, measuring the asset value as of the date the FAFSA was filed. The FAFSA may be changed to correct errors in the information reported as of the date the FAFSA was filed, but may not be be updated for subsequent changes in the nature or value of the assets. For example, if the applicant transposed two digits in the account balance, the applicant can correct the error on the FAFSA. But the applicant cannot update the asset value because some of the money was spent after the FAFSA was filed. So any steps taken now will affect the treatment on the subsequent year’s FAFSA but not the current year’s FAFSA.