Parent Asset Information Instructions

An asset is defined as property that has an exchange value. The purpose of collecting asset information is to determine whether your family's assets are substantial enough to support a contribution toward your cost of attendance (COA). Only the net asset value is counted in the need analysis. To determine the net value of any asset, you first determine the market value of the asset and reduce the value by the amount of debt against that asset. The result is the net value of the asset.

Ownership of an Asset

Ownership of an asset may be divided or contested in several situations:

• Part ownership of asset. If your parents own an asset with others and therefore only own a portion or percentage of the asset, they should report the net asset value that represents only their share of the asset owned. They would determine the current market value of the asset, reduce the value by any outstanding debt, and then multiply the net asset value by their ownership percentage. This result is then reported on the FAFSA.
• Contested ownership. An asset should not be reported if its ownership is being legally contested. For instance, if your parents are separated and they may not sell or borrow against jointly owned property that is being contested, the FAFSA information they report would not list any value for the property or any debts against it. If ownership of the asset is resolved after the initial application is filed, they may not update this information. However, if ownership of the property is not being contested, they would report the property as an asset.
• Lien against asset. If there is a lien or imminent foreclosure against an asset, the asset would still be reported on the FAFSA until the party holding the lien or making the foreclosure completes legal action to take possession of the asset. If the status of the property changes after the application is filed, you may not update the asset information.

Assets That Are Not Reported

Below are examples of assets that are not reported:

• Principal place of residence/family farm. Your parents' principal place of residence is not reported as an asset. Neither is their family farm if the farm is their principal place of residence and your family claimed on Schedule F of the tax return that it "materially participated in the farm's operation."
• Personal possessions. Do not report possessions such as a car, a stereo, clothes, or furniture. By the same token, personal debts such as credit card debt cannot be reported.

Investments

Rental properties. Generally, rental properties must be reported as investment assets rather than as business assets. To be reported as a business, a rental property would have to be part of a formally recognized business. (Usually such a business would provide additional services, such as regular cleaning, linen, or maid service.)

"Take-back" mortgages. In a "take-back" mortgage, the seller takes back a portion of the mortgage from the buyer and arranges for the buyer to repay that portion of the mortgage to the seller. For IRS purposes, the seller must report the interest portion of any payments received from the buyer on Schedule B of IRS Form 1040. If an amount is reported on this line of the tax return, the family probably has an asset that should be reported on the FAFSA.

Trust funds. If trust funds are in your parents' names, they should be reported as their asset on the application. In the case of divorce or separation, where the trust is owned jointly and ownership is not being contested, the property and the debt are equally divided between the owners for reporting purposes, unless the terms of the trust specify some other method of division.

How the trust must be reported varies according to whether your parents receive or will receive the interest income, the trust principal, or both. If your parents receive only interest from the trust, any interest received in the base year must be reported as income. Even if interest accumulates in the trust and is not paid out during the year, if your parents will receive the interest, they must report an asset value for the interest they will receive in the future. The trust officer can usually calculate the present value of interest they will receive while the trust exists. This value represents the amount a third person would be willing to pay to receive the interest income your parents will receive from the trust in the future.

The present value of the principal is the amount a third person would pay at present for the right to receive the principal when the trust ends (basically, the amount that one would have to deposit now to receive the amount of the principal when the trust ends, including the accumulated interest). Again, the trust officer can calculate present value.

As a general rule, your parents must report the present value of the trust as an asset, even if their access to the trust is restricted as beneficiary/beneficiaries. If the creator of a trust has voluntarily placed restrictions on the use of the trust, then they should report the trust in the same manner as if there were no restrictions. However, if a trust has been restricted by court order, they should not report it as an asset. An example of such a restricted trust is one set up by court order to pay for future surgery for the victim of a car accident.

Pre-paid Tuition Plans

Note that the value of a pre-paid tuition plan is excluded from being reported as an asset. (The value of the annual tuition prepayment will be taken into account when the school packages your aid and will reduce your financial need.)

Parent Asset Information Questions

81. Total current cash, savings, and checking account balance. Include the balance of your parents' checking or savings accounts as of the date the FAFSA is signed. Do not include student financial aid.

82. Net worth of investments. Net worth means current value minus debt. Investments include real estate such as rental property, land, and second or summer homes. Do not include your parents' primary home. Include the value of portions of multifamily dwellings that are not your parents' principal residence. Investments also include trust funds, money market funds, mutual funds, certificates of deposit, stocks, stock options, bonds, other securities, Coverdell Education Savings Accounts (formerly Education IRAs) in your parents' names, college savings plans, installment and land sale contracts (including mortgages held), commodities, etc. Do not include the value of life insurance and retirement plans (pension funds, annuities, non-Education IRAs, Keogh plans, etc.).

The money in a Coverdell Education Savings Account or a college savings plan is an asset of the account owner. A Coverdell Education Savings Account is not a retirement account. It is essentially a savings account to be used for a student's educational expenses. Therefore, if your parents own a Coverdell account or a college savings plan, they should report them here.

If your parents own real estate or investments other than their principal residence, the value equals the amount they are worth today.

Investment debt equals how much your parents owe on real estate and investments other than their principal place of residence. Investment debt means only those debts that are related to the investments.

Subtract the amount of debt on these assets from their value. Indicate this amount in for net worth of investments.

83. Net worth of business and/or investment farm. Business or farm value includes the current market value of land, buildings, machinery, equipment, inventory, etc. Do not include your parents' primary home.

For business or investment farm value, first figure out how much the business or farm is worth today.

Business or investment farm debts are what your parents owe on the business or farm. Include only debts for which the business or farm was used as collateral.

Subtract the amount of debt from the value. Indicate this amount for net worth of business and/or investment farm.

To report current market value for a business, you must use the amount for which the business could sell as of the date of the application. Also, if your parents are not the sole owners of the business, they should report only their share of its value and debt.