It’s that time of year again—the time to start thinking about how to finance your child’s college dreams without sacrificing your financial security. If you’re like most parents, you want to maximize your child’s chances of receiving financial aid while also protecting your hard-earned assets. The good news? Smart estate planning can help you do both.

Let’s dive into how structuring your assets wisely can optimize FAFSA eligibility and keep more money in your family’s pocket.

How FAFSA Looks at Your Assets

The Free Application for Federal Student Aid (FAFSA) determines how much financial aid your child qualifies for based on factors like income and assets. But not all assets are treated equally—who owns them matters.

Here’s the deal: FAFSA assesses up to 5.64% of parent-owned assets when calculating the Expected Family Contribution (EFC), while student-owned assets are hit much harder—up to 20%! That means keeping savings and investments in your child’s name could cost you thousands in lost financial aid.

For example, a $10,000 custodial account in your child’s name (such as a UGMA/UTMA account) could reduce financial aid eligibility by $2,000. On the other hand, the same $10,000 in a parent-owned 529 college savings plan would only count for about $564 in the FAFSA formula. That’s a huge difference!

What about money from grandparents? If Grandma or Grandpa owns a 529 plan for your child, FAFSA won’t count the asset itself, but once withdrawals are made, that money is considered student income—and student income can be assessed at a staggering 50%. That generous gift could end up slashing your child’s aid eligibility more than you’d expect.

Estate Planning Strategies to Protect Financial Aid Eligibility

Now that you understand how FAFSA views your assets, let’s talk about ways to legally and strategically structure them for the best outcome.

1. Use Irrevocable Trusts Carefully

Irrevocable trusts can be a great tool for estate planning, but when it comes to FAFSA, they can be tricky. If you or your child are beneficiaries of an irrevocable trust, a portion of that trust may need to be reported on FAFSA, and any distributions to your child could be assessed at up to 50%. That’s why it’s important to be strategic when setting up trusts—our team at The Holmes Law Firm can help you do it right.

2. Max Out Retirement Accounts

Here’s a FAFSA-friendly tip: Retirement accounts like 401(k)s, IRAs, and Roth IRAs are completely off the table when FAFSA calculates your financial picture. That means contributing extra to these accounts not only secures your future but also keeps those assets from reducing financial aid eligibility. Double win!

3. Pay Down Debt Instead of Holding Cash

If you’re sitting on a pile of cash that FAFSA will count against you, consider using it to pay down your mortgage or student loans. FAFSA doesn’t consider home equity or personal debt in its calculations, so this is an easy way to lower your reportable assets without losing money in the process.

4. Be Strategic About Income Timing

FAFSA is a snapshot of your financial situation at the time you file, so timing is everything. Planning to sell stock, receive a bonus, or take a big withdrawal from an investment account? If possible, wait until after you file FAFSA to avoid artificially inflating your income and reducing aid eligibility.

Steps to Take Right Now

Want to set yourself up for FAFSA success? Here’s what you should do today:

• Review your assets: Look at everything you own and figure out how much is in your name versus your child’s.
• Move savings to FAFSA-friendly accounts: If you’re saving for college, use a 529 plan owned by the parent rather than a custodial account.
• Get an estate plan in place: We can help you create a plan that protects both your wealth and your child’s financial aid eligibility.
• Max out retirement contributions: If you have extra cash, put it in a 401(k) or IRA instead of leaving it in an account FAFSA will count.
• Time big financial moves wisely: Avoid taking large distributions or making big financial changes right before filing FAFSA.

Let’s Get Your Plan in Place

Navigating FAFSA and estate planning at the same time can feel overwhelming, but that’s why we’re here. At The Holmes Law Firm, we specialize in helping families in Bluffton and Beaufort make smart financial and legal choices that protect both their wealth and their children’s future.

Want to make sure you’re setting your child up for maximum financial aid while safeguarding your legacy?

Let’s talk. Book a consultation today, and let’s build a plan that works for your family.