Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Verifying Assets

AwardYear: 1996-1997
ChapterNumber: 4
ChapterTitle: Discretionary Verification
Section: Verifying Assets
PageNumber:


If you have reason to believe the student and/or spouse and/or
parent(s) owns assets that have been incorrectly reported or were not
reported, the first appropriate step would be to examine the tax
returns of the parties involved. (See Chapter Two for a more
detailed discussion on using tax returns and related documents.)

[[The chart "A Tip for Verifying Assets" on page 50 is currently
unavailable for viewing. Please reference your paper document for
additional information.]]


Excludable Assets

You may find assets reported on the tax return that you will not find
on the FAFSA, which is appropriate, as certain assets are excluded
from consideration when determining federal student aid eligibility.
Assets reported on the FAFSA should NOT include, for example, a
principal residence, certain types of farms (see the discussion later in
this chapter), the value of retirement plans, or cash accounts to which
access is denied due to a state's declaration of a bank emergency.


Changes in Asset Value

Assets must be reported in terms of their total value as of the day the
applicant signed the FAFSA. It is inappropriate to change an asset's
value (or to eliminate an asset originally reported) because that value
has changed between the time of application and the time of
verification. Assets should be corrected only if they were reported
incorrectly at the time of application. (If assets have been depleted
since the time of application, causing the applicant undue hardship or
significantly changing his or her financial situation, you may choose
to make a professional judgment adjustment. For details on
professional judgment, see the Counselor's Handbook.)


Assets Held in Partnership

If assets are held jointly or by a group, the applicant and/or the
spouse (if applicable) and/or the dependent applicant's parent(s)
should report only the portion of assets he or she actually owns.
Debts on such assets should be reported in the same proportion.


Cash and Bank Accounts

An application should include all cash and bank accounts held by the
applicant and/or the spouse (if applicable) and/or the dependent
applicant's parents. The accounts must be reported in terms of their
value on the day of application. IRS Form 1040 Schedule B reports
account and investment information.

JOINT OR CUSTODIAL ACCOUNTS. In the case of a joint
account, each holder should report only 50 percent of the account
value. Custodial accounts parents or grandparents establish should
be reported as the applicant's assets.

TRUST FUNDS. Generally, a trust fund must be reported unless a
court order restricts the fund's assets to non-educational use. The
trust MUST be reported as an asset even if the applicant won't
receive any proceeds or distributions of the trust during the award
year. (See the Counselor's Handbook for information on reporting
the present value of a restricted trust.)

TUITION PREPAYMENT TRUST FUNDS. Several institutional
and state programs, such as the Michigan Education Trust (MET),
allow a trust fund to be designated specifically for tuition
prepayment. In keeping with the Higher Education Act of 1965,
as amended, such tuition prepayment plans must not be reported as
assets for federal student aid purposes. (The annual value of the
tuition prepayment should either be used to reduce the student's
cost of attendance or be counted as estimated financial assistance.)


Investment Value and Residental or Commercial Property

Items of investment value should include investment partnerships;
money market funds; mutual funds; certificates of deposit; stocks,
bonds and other securities; installment and land sales contracts;
commodities; and precious and strategic metals.

[["Principal residence" defined for military families]]
The value of the principal residence should not be reported on the
FAFSA. For those in the military, "principal residence" may need
clarification: If the family lives on a base and owns a home
elsewhere, WHICH IT DOES NOT RENT OUT, that home is the
principal residence and is not considered an asset. It is the home to
which the family will return when military service is completed. For
example, a family living on a base in Texas owns a home in Virginia.
The family is not renting the Virginia home, and it produces no
income by any other means. This home is considered the family's
principal residence because a military assignment is the only reason
they are living elsewhere. Even if the family lives off base in Texas
and rents a house nearby, the home in Virginia is still the principal
residence because the family plans to return and live there.

The current market value of any residential or commercial property
OTHER THAN THE PRIMARY RESIDENCE is reported on the
FAFSA. (The current market value is the amount for which the
property could be sold as of the date the application was signed.)
Property to be reported should include vacation homes and rental
property. As discussed later, the family's farm and business assets
should NOT be included.

A Tip for Verifying Real Estate Value
The following documents may be useful:

- IRS Schedule A (mortgage interest paid)
- IRS Schedule B (interest/dividend income)
- IRS Schedule D (investments sold in base year)
- IRS Schedule E (property income, trusts, and partnership
holdings)

You may be able to verify the value of certain property with
appraisals, tax assessments, mortgage statements, or an affidavit
from a real estate office or hall of record. Also, if the property was
used for collateral on a loan, its value can be documented with the
promissory note from the loan.

RECENT APPRAISALS. Appraisals are the most accurate
verifiers of value because they give a good ESTIMATE of the
current market value, but they are generally expensive and not
routinely available. If you have access to an outdated appraisal,
you may be able to use it to estimate the current value, as
discussed later.

TAX ASSESSMENT NOTICES. These notices are the most
common and readily accessible documents for verifying property
value but must be used with caution because the information will
vary greatly depending on location.

For instance, in some areas a percentage of the market value will
be assessed, while in other areas a percentage of the tax value is
assessed, usually at a lower rate than the true market value. If you
wish to use a tax assessment notice, you must know exactly what
the assessment rate is for the property's location and how you can
use the assessment notice to determine the true market value of the
property.

[[Using the Multiplier Tables]]
MORTGAGE STATEMENTS, AFFIDAVITS, AND
PROMISSORY NOTES. If you use a mortgage statement, an
affidavit from a real estate office or hall of records, a promissory
note, or an outdated appraisal, the value given for the property will
most likely be outdated. However, you can arrive at a gross
estimate*11* of the current market value by using the Housing
Index Multiplier Table or the Commercial Property Multiplier
Table found on pages 56 and 57, respectively. The housing table
should be used for residential property only (other than the
principal residence); all other property value should be assessed
using the commercial property table.

Using the tables is easy; simply multiply the property's value by
the multiplier's value for the year of the valuation. The multiplier
indexes should NOT be substituted for reported values in order to
maximize or minimize need ACROSS THE BOARD for the EFC.
(Of course, you may use your discretion to adjust reported value to
more accurately reflect an INDIVIDUAL'S financial
circumstances.)

The multiplier tables are based on national averages. Market
values vary from region to region. The value obtained is an
ESTIMATE; you should use it only as a guide for evaluating the
reasonableness of the value reported. If the applicant claims the
property value is much lower than that calculated with the tables,
the applicant should provide a reasonable explanation for the low
market value, for example, fire or other damage. Remember, the
actual value may also be much greater than the estimated value.


Residential Property, Commercial Property, or Investment Debt

The amount reported should include all unpaid mortgages as well as
unpaid property improvement loans and any other loans for which
the property is used for collateral. (An IRS lien does not reduce the
property's equity and, therefore, should not be reported as a debt
against the property.) Property and investment debt can be verified
with a monthly mortgage statement or a statement from a mortgage
company, accountant, or lawyer.


Business Value

The application should show the current market value of the business
(the amount for which the business could be sold) as of the date the
application was signed. Business value would include the value of
land, buildings, machinery, and equipment. If the applicant owns a
partial share, only the value of his or her share should be reported.

The value of land and buildings can be verified with a statement
from a real estate office, accountant, or lawyer. The total value of
the business can be verified with a statement from an accountant or
lawyer, or by a copy of a promissory note for a loan for which the
business was used as collateral. Purchase agreements and inventory
assessments may also be helpful in this verification.

The CURRENT value of land and buildings can be derived from an
outdated value by using the Commercial Property Multipliers, as
described on the previous page. Again, because the multiplier gives
an estimated value, it should be used as a guide for evaluating the
reasonableness of the reported value.

A Tip for Verifying Business Value
The following documents may be useful:

- IRS Schedule C (business profit/loss)
- IRS Form 4562 (depreciation)
- IRS Form 4797 (capital gains/losses)
- IRS Form 1065 (business partnerships)


Business Debt

The amount reported should include the unpaid mortgage and related
debts, as well as any loan for which the business assets were used as
collateral. If the applicant or parent owns only a portion of the
business, only his or her share of the debt can be reported. To verify
business debt, you can use a copy of the mortgage; a statement from
the mortgage company, from an accountant, or from a lawyer; or
copies of notes for loans against the business. (If an applicant claims
a large business debt but reports little or no interest payments, you
may want to investigate further.)


Farm Value

[[Incorporation of family farm]]
The value and debt of a family farm should not be reported on the
FAFSA. For student aid purposes, a family farm is the family's
principal residence and, in most cases, meets the criteria set forth in
IRS Schedule F (the family materially participates in farm
operation). In certain instances, however, even if the family farm is
incorporated and the family files a corporate return instead of IRS
Schedule F, the value and debt of the farm are not reported on the
FAFSA. In such cases, the applicant must show evidence that family
members own all shares of stock in the corporation AND that those
family members also reside on the farm.

A farm that does not fall into one of the categories above must be
reported at its current market value (the amount for which the farm
could be sold) as of the date the application was signed. Farm value
would include the value of land, buildings, machinery, equipment,
livestock, and inventories. If the applicant or parent owns only a
portion of the farm, only his or her share of the farm's value can
be included.

The value of land and buildings can be verified with a statement
from a real estate office, accountant, or lawyer. You can verify the
farm's total value with a statement from an accountant or lawyer or
by checking a copy of a promissory note for a loan for which the
farm was used as collateral. Purchase agreements and inventory
assessments are also useful in verifying farm value.


Farm Debt

The amount reported should include the unpaid mortgage and related
debts, as well as any loan for which the farm assets were used as
collateral. If the applicant or parent owns only a portion of the farm,
only his or her share of the debt can be reported. To verify farm
debt, you can use a copy of the mortgage; a statement from the
mortgage company, from an accountant, or from a lawyer; or copies
of notes for loans against the farm. (If the applicant reports a large
debt but paid little or no interest in 1995, you may want to
investigate further.)

[[The 1995-96 Housing Index Multiplier Table and the 1995-96
Commercial Property Multiplier Table found on pages 56 and 57,
respectively, are currently unavailable for viewing. Please
reference your paper document for additional information.]]

*11* Any amount established in this manner should not be arbitrarily
considered a "minimum" or "maximum" but should be used to
evaluate the reasonableness of the applicant's data

Last Modified: 06/09/1998