I’ve had a few prospects meet with me lamenting that elder care planning for a parent and applying for financial aid has put them in a sticky situation. They want to do right by both their aging parent and child, but given the collision of events they may have to make a hard choice.

 

To set the scene – the prospect and their aging parent visits an elder law attorney who recommends their aging parent fund an asset protection trust to help the senior qualify for various types of assistance. Let’s assume, for the sake of the example, this strategy checks all the boxes on being sound and reasonable given their finances and care preference.

 

When creating this type of trust, the grantor (the aging parent) can not also be the trustee. Legally, the senior is giving their money away to trust in order to make the case that it’s no longer their asset. And just to reiterate, if it’s no longer their asset, then it can’t be considered a disqualifying resource when they apply for assistance. So since the parent can’t control the trust, who gets nominated? Typically their most savvy or only child (aka – my prospect). 

 

Meanwhile, they also have a child with college aspirations. Yes, some money has been saved in a 529, but not enough to cover everything. To bridge the gap the family decides to apply for financial aid. While filing out the form they get to the section about assets.

 

 

Yes! 

 

But it’s not… accessible?! Too bad.  And potentially it is, that’s just not how you intended to spend the funds. Want further specifics? Read more at SavingsforCollege.com.

 

And provided that asset protection trusts only really make sense a good 3-5 years out before care may even be needed (look-back rules on gifts when applying for benefits)… the full value of the trust may be inflating the family’s available resources on the FAFSA every year. 

 

So please be aware that when you find yourself squarely in the middle of planning for an aging parent and college-bound child, bring up your own finances with the elder care attorney. Potentially the solution is as simple as naming a sibling as trustee. 

 

In addition, it’s very commonplace for me to see the sandwich generation jointly own accounts with single or widowed aging parents. I get it. Co-owning accounts can make life a bit easier to manage cashflow and investments on behalf of an aging parent. However, on the FAFSA and CSS, that money is now also considered your money even if you haven’t deposited a penny of it. With that said, it is true that you’ll have an opportunity to better state your case if circumstances not fully captured on the form negatively impacts your application.

 

But let’s be honest, that sounds like a hassle. The easier option may be to simply re-register the accounts back to the parent and file a Power of Attorney and beneficiary form with the institution instead. Functionally you’ll still be able to manage the accounts on behalf of your parent and inherit them without probate upon their passing.