Family LLC and FAFSA question

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Topic Author
nigel_ht
Posts: 4742
Joined: Tue Jan 01, 2019 9:14 am

Family LLC and FAFSA question

Post by nigel_ht »

So, my kids have partial ownership of the Family LLC...my reading is that I don't need to list that on the FAFSA application. The family LLC itself is some stocks and ownership of a rental property.

I asked my CPA and got a shrug of the shoulders. It's not a tax thing and he's never done one in decades. My lawyer isn't a tax lawyer.

It's not like we're going to ask for any needs based assistance but I want to keep the door open for merit scholarships with the minimum amount of poking around of our assets.
welldone
Posts: 127
Joined: Sun Aug 17, 2014 2:53 pm

Re: Family LLC and FAFSA question

Post by welldone »

With our oldest child's college search, we looked exclusively for merit aid which didn't require filing the FAFSA or any other financial disclosures. Unlike a common claim on this site, there are plenty of schools that offer merit aid without requiring the filing the FAFSA or CSS forms.

It is pretty easy to find out which schools don't require financial disclosures. Go to the financial aid section on the school websites and look for merit scholarship information. Schools are pretty transparent on whether they require FAFSA filing or not for merit aid.

The other place to look is on the CDS (Common Data Set) of each school your child is interested in. You can find out how many students (and how much on average) is given in non-need aid in Section H. That tells you if a school offers merit aid, and how much is offered.
Topic Author
nigel_ht
Posts: 4742
Joined: Tue Jan 01, 2019 9:14 am

Re: Family LLC and FAFSA question

Post by nigel_ht »

Great! Thanks!
viruz
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Joined: Wed Sep 08, 2021 7:35 am

Re: Family LLC and FAFSA question

Post by viruz »

Can I ask a trivial question? What is the family LLC?

My eldest is going to college in 2 yrs. working on some planning. I did hear that you don’t disclose your business on Fafsa. So I jumped on and created an llc

Full disclosure I do have an s Corp already in place and after finding out of series llc I created one with the plan to merge the s Corp into the llc as a child. Plan is also to open another child llc for rental investment.

I kept on reading on this forum that you cannot have stocks/ investment under llc. I understand that you have one in llc currently open. How long have u had it? Any concerns while filing your regular business taxes?

Looking to increase my knowledge so anything you can share would really be appreciated.
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Lee_WSP
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Location: Arizona

Re: Family LLC and FAFSA question

Post by Lee_WSP »

viruz wrote: Mon Sep 20, 2021 8:54 pm Can I ask a trivial question? What is the family LLC?
https://www.thetaxadviser.com/issues/20 ... nning.html

It's not what it sounds like. It's an estate planning tool. See the link above. There's other articles, but this one was the first from a source that's usually okay.

Another from a law firm:
https://wernerlawca.com/using-family-ll ... nning/?amp
Topic Author
nigel_ht
Posts: 4742
Joined: Tue Jan 01, 2019 9:14 am

Re: Family LLC and FAFSA question

Post by nigel_ht »

Yes, family LLCs are generally an estate planning tool.

A tad grandiose for the level of assets we currently have perhaps, but unlike the examples provided by the websites the initial capitalization was fairly even and consists of the inheritance from my parents.

It’s a pass thru entity and all of the income counts against the kids for FAFSA which is fine. Counting the assets would be fine too since my back of the envelope calculations pretty much mean we have to pay full freight wherever they go anyway.

For us the intent isn’t primarily for our own estate planning but asset protection for the kids in the event of divorce or any other adverse outcome.

It also attempts to mitigate dilution of my parents estate to keep it as one moderate block of money instead of individual tiny ones. It’s not a huge amount to start and dividing it up makes it even smaller. The same applies to our own estate when the time comes…if the markets are good maybe we’ll have a decent amount left but who knows what the future brings.

To the extent that the LLC operating agreement has my units not take part in distributions it provides incentive for the kids to keep their money in as well as provides some estate asset transfer as these units will get some tax advantage when I pass.

It also gives control of the assets to the kids when they come of age without providing direct access to the funds. They have to sell their units back to the LLC to get at the principal and it’s limited to X percent a year unless the members vote to exceed that amount and there is a discount to book value. That way they can get the money out to use on something or just go their separate ways if that’s what they want to do but it takes some deliberation to do so.

The final incentive to stay in is that they’ll know that our own estate is largely going into the LLC…if they cash out then it reduces or eliminates what they get.

With luck they will do the same for their own estates.

If not, oh well. I certainly won’t care at that point, lol.
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