Maintained for Historical Purposes

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

Verifying Assets

AwardYear: 1995-1996
ChapterNumber: 4
ChapterTitle: Discretionary Verification
Section: Verifying Assets
PageNumber:


If you have reason to believe the student and/or spouse and/or
parent(s) own assets that have been incorrectly reported or were not
reported, the first appropriate step would be to carefully 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 52 is currently
unavailable for viewing. Please reference your paper document
for additional information.]**


Excludable Assets

Assets reported on the FAFSA should NOT include a principal
residence, certain types of farms (see the discussion later in this
chapter), the value of retirement plans, or cash account to which
access is denied due to a state's declaration of a bank emergency.


Changes in Asset Value

On the FAFSA, assets should be reported at their total value or
worth as of the day the FAFSA was signed. It is not appropriate to
change the value reported for an asset (or to eliminate an asset that
was originally reported) because that value has changed between the
time of application and the time of verification. Assets reported
should only be corrected if they were incorrectly reported at the time
of the application. (If assets have 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 the assets which he or she actually
owns. Debts on such assets should be reported similarly.


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 should 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 only report 50 percent of the account
value. Custodial accounts established by parents or grandparents
should be reported as the applicant's assets.

TRUST FUNDS. Generally, a trust fund must be reported unless
its assets are restricted by court order for purposes other than
education. 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), now allow for an arrangement under which a trust fund
may be specifically designated for tuition prepayment. In keeping
with the Higher Education Act of 1965, as amended, such tuition
prepayment plans are not to 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.)


Residential Property, Commercial Property, or Investment Value

The value of the principle residence should not be reported on the
FAFSA. Only the current market value of any residential or
commercial property OTHER THAN THE PRIMARY RESIDENCE
is reported. (The current market value is the amount for which the
property could be sold as of the date the application was signed.)
This should include real estate and investments such as vacation
homes, rental property, 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. As discussed later, the family's farm
and business assets should not be included in this figure.

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 such value 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 below.

TAX ASSESSMENT NOTICES. The most common and readily
accessible documents for verifying property value, these notices
must be used with caution because the information will vary
greatly depending upon 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.

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*12* of the current market value by using the Housing
Index Multiplier Table or the Commercial Property Multiplier
Table found on pp. 57 and 58, 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 value given by the
multiplier 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, for the EFC you may use your discretion to adjust
reported value to more accurately reflect an individual's financial
circumstances.)

The tables are based on national averages. Market values vary
from region to region. The value obtained is an estimate and you
should use it only as a guide for evaluating the reasonableness of
the value reported. If the applicant claims that the property value
is much lower than that calculated with the tables, the applicant
should provide a reasonable explanation for the low market value,
e.g., 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. This amount 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 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 facing 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 is not the sole owner,
only his or her share of the debt can be reported. To verify business
debt, you can use a copy of the mortgage or a statement from the
mortgage company, accountant, 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

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 meets the criteria set forth in IRS Schedule
F (the family materially participates in farm operation).

Any farm that does not meet the above definition must be reported
as at its current market value (the amount for which the farm could
be sold) as of the date the application was signed. This amount
would include the value of land, buildings, machinery, equipment,
livestock, and inventories. If the applicant or parent is not the sole
owner, only his or her share of the farm's value must be included.

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 farm can be verified with a statement from an accountant or
lawyer or 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 is not the sole owner,
only his or her share of the debt must be reported. To verify this
item, you may use a copy of the mortgage, a statement from the
mortgage company, accountant, lawyer, or copies of notes for loans
against the farm. (If the applicant reports a large debt but paid little
or no interest in 1994, you may want to investigate further.)

**[The 1994-95 Housing Index Multiplier Table on page 57 and the
1993-94 Commercial Property Multiplier Table are currently
unavailable for viewing. Please reference your paper document for
additional information.]**

*12* Any amount established in this manner should not arbitrarily
be considered a “minimum” or “maximum,” but rather should be
used to evaluate the reasonableness of the applicant’s data.

Last Modified: 06/11/1998