Questions 87-89 (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 they "materially participated in the farm's operation."
• A small business with 100 or fewer employees. If your parents own and control a small business that has 100 or fewer full time or full-time equivalent employees, do not report the business as an asset.
• 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.
• Pensions and Whole Life Insurance. The cash value or built-up equity of a life insurance policy (often referred to as a whole-life policy) isn't reported as an asset. The income distributed to the beneficiary must be reported as income.
• Excluded Assets From Native American Students. Do not report any property received under the Per Capita Act or the Distribution of Judgment Funds Act (25 United States Code [USC] 1401, et seq.), the Alaska Native Claims Settlement Act (43 USC 1601, et seq.), or the Maine Indian Claims Settlement Act (25 USC 1721, et seq.).

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 Schedule B, the family should report the outstanding balance of the remaining mortgage on the FAFSA as an investment asset.

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.

Parent Asset Information Questions

If your parents are eligible to skip these questions, but choose to answer them on the Web or on paper, answering these questions will not affect your eligibility for Federal Student Aid, such as Federal Pell Grant.

87. Total current cash on hand, and savings and checking account balances. Include the balance of your parents' savings and checking accounts as of the date the FAFSA is completed. Do not include student financial aid.

88. 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 you own, except that you must exclude the portion of the value of a dwelling that is your parents' principal residence. Investments also include trust funds, Uniform Transfers to Minors Act (UTMA)/Uniform Gifts to Minors Act (UGMA) Custodial Accounts, money market funds, mutual funds, certificates of deposit, stocks, stock options, bonds, other securities, Coverdell savings accounts owned by your parents, 529 college savings plans, the refund value of 529 state prepaid tuition 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.).

Your parents must report in Question 88 all qualified educational benefits or education savings accounts, including Coverdell savings accounts, 529 college savings plans, and the refund value of 529 state prepaid tuition plans that they own. Your parents should not report any accounts owned by a dependent student in this question.

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 Question 88 for net worth of investments.

89. 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. Do not include the net worth of a family owned and controlled small business with not more than 100 full-time or full-time equivalent employees.

For business or investment farm value, first figure out how much the business or farm is worth today. An investment farm is a farming business where the parents do not reside on the farm, nor do they materially operate the farm.

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 in Question 89 for net worth of business and/or investment farm.

To report current market value for a business, your parents 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.