One of the most immediate things you can do to decrease your EFC and increase your aid package is to legally shift assets away from kids to parents, from parents to other family members, and from includable to excludable assets. Now, again, there are legal ways to do this and illegal ways to do this. The methods in this section constitute legal ways of shifting assets.

Financial assets that are considered the property of children are counted most heavily against the EFC calculation. In fact, assets that are technically the property of the child have a contribution rate of 20 percent toward the EFC, while those of the parents have a rate of only 5.64 percent.

Thankfully, very few types of assets are owned by the children that are counted in the EFC. The two most common are UTMA or UGMA custodial accounts, as well as true educational trusts. Any money in these, even though it might have received some favorable tax benefits during the years in which the balances grew, now becomes a hindrance for financial aid purposes because they’re in the child’s name. However, because these assets technically belong to the child, they cannot simply be transferred into the parent’s name without you getting into some major hot water.

So savvy parents use these accounts as much as possible to legally pay a child’s other living expenses (food, room, board, private school tuition, car purchases, and so forth) in the few years before college starts, instead of the parent paying for these things out of his own pockets. Using a custodial account or a minor’s trust for the “general care” of a child is usually well within the scope of the law and can save you big bucks when you get your financial aid.

For example, let’s say a parent of a 15-year-old has $10,000 in his personal bank account and $10,000 in a UTMA custodial account for that child. If he uses the $10,000 in his own personal account to buy the child a car and the UTMA account remains intact until college, he’ll be expected to use $2,000 of the $10,000 (20 percent) toward college costs. However, if he uses the child’s custodial account to buy the car—which is completely legal if the parent is the named custodian over the account—his own $10,000 would remain intact until college. In this case, he’d be expected to contribute only $564 (instead of the $2,000) toward his child’s college costs.

The only two parties whose assets and income count toward the EFC, and in turn against financial aid, are the parents and the student. Grandma and Grandpa, as well as other family members, are not reported on a student’s FAFSA, regardless of how much money they have or how much they intend to help pay for. So if Grandma is the owner of a Section 529 plan, the assets in this plan do not reduce financial aid at all.

If you still have more than one year until college, you could consider naming another family member as the owner of a child’s Section 529 account. As long as the amount of the account is under the annual IRS gift limit, you shouldn’t have any tax problems in doing so. This would remove the assets from your net worth in plenty of time to honestly fill out the FAFSA form and exclude those assets. Of course, you have to trust that that person will not run off with the money and will use it exclusively for your child.

In addition to who “owns” an asset affecting how much that asset reduces potential financial aid, the type of asset itself can result in it being completely excluded from the EFC calculation. Naturally, it would make sense for parents to convert includable assets to excludable assets prior to filling out the FAFSA form, as long as there is not a high cost, major loss of value, or substandard investment return for doing so.

The easiest way to do this is to simply convert cash or investments into physical property that you are going to need to buy in the next couple of years anyway. For example, if a parent or student has a large amount of cash sitting in a bank account when she completes her FAFSA, this will count against her financial aid. However, if she uses this money to buy the computer, car, and clothes she’ll need for college, these assets will all be excluded from the EFC.

More creative parents with more money than can be converted into necessary expenditures can consider using this money to pay off debts, pay down their mortgage, invest in their retirement plans, or purchase whole life insurance (although I generally advise against these expensive policies). Again, in all these situations, you need to consider the costs of getting at this money, such as interest to borrow against a home that has been paid down or penalties for removing money from an IRA, prior to trying to shelter available funds.