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How Trusts Impact Financial Aid Eligibility For College?

Trusts can prominently impact financial aid eligibility, serving as an essential factor in identifying the resources and materials openly available to students who are seeking assistance for their education. When they or their parents can’t afford to cover the academic expenses, they look to the trust to help them cover their educational expenses. 

The effect of trusts on financial aid is directly connected to the type of trust, its foundation, and the authority retained and managed by the grantor. The following blog will shed some light into the effects of trusts on financial aid eligibility through the assistance of various examples that will clear up your concepts and doubts, if any. 

What Are The Common Types Of Trusts? 

The common types of trusts are as follows: 

Revocable Living Trust 

The first on the list of common kinds of trust is the Revocable Living Trust. What happens here is that the grantor (usually the parent) acts as the trustee, meaning maintains control over the trust and can accordingly alter or reverse it. Despite the flexibility for the grantor, the assets under the supervision of a revocable living trust are mainly considered part of the student's assets for financial aid purposes. 

For example, suppose a student's parents have started a revocable living trust. In that case, the assets that the trust holds within it may be taken into account for the family's financial need for educational assistance. This is because the likely intention of the trust is to help shape cover expenses for their child’s future and career and avoid any unforeseen situations. So, while this is a great tool for parents and families, it will still show the assets available to the family and student for education expenses, potentially limiting financial aid for the student.   

Irrevocable Trust 

The second type is Irrevocable Trusts. These require the grantor/parent to put the assets in the trust but to appoint someone other than the grantor to manage them. The assets that are held in such trusts may still be calculated for financial aid, especially if the trust generates income. 

For example: In the situation where a grandparent establishes an irrevocable trust for their grandchild and the trust generates income (such as rental income from tenants), that income (not the total assets) may be taken into consideration for determining the student's eligibility for financial aid. 

529 College Savings Plan  

Next in line linked with education planning is the 529 College Savings Plan. It is not exactly a trust but more of an investment account created to collect and save for educational expenses. These saving plans are treated as parental assets, and transactions for qualified education expenses generally don’t fall under the income category on the Free Application for Federal Student Aid (FAFSA). Thus, if parents have a 529 plan for their child, it may positively impact financial aid eligibility by magnifying the available and existing resources for education expenses.

Special Needs Trust 

A Special Needs Trust is specifically designed to provide for individuals with disabilities without posing a threat to their eligibility for government assistance programs. Assets held in special needs trusts may NOT be counted in the financial aid calculation. 

For instance, a family opening a special needs trust for a child with a disability will be happy to learn that the assets in the trust do not negatively affect the child's eligibility for financial aid, providing pivotal support for their education.

Despite these examples, it is important to recognize the complications of financial aid regulations. The impact of trusts on eligibility can vary based on the specific details of the trust and the prominent rules at the time of application. Furthermore, financial aid considerations extend beyond the FAFSA, with different programs and institutions adopting varying criteria.


In navigating the complex landscape of financial aid, families are encouraged to seek guidance from financial aid advisors and estate planning attorneys. These experts can offer personalized insights into how specific trust arrangements may influence eligibility, ensuring that families are able to make informed decisions regarding estate planning and education funding. As the regulatory environment evolves, staying well-informed becomes the top priority for families aiming to optimize their financial aid strategies and support their children’s educational goals.

About the Author

Leslie has been practicing law since 2009 and is the host of the estate planning podcast 'Legacy Purse'. She has a long history of representing family members struggling to inherit property and/or wealth from deceased family members through the Probate Courts. Knowing how time-consuming and expensive the probate process is, Leslie takes great pride in helping her clients learn how to plan and protect their families during their lives so they can avoid the probate court process and save their loved ones that additional grief (and expense).


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