<p>My dad passed away a few weeks ago. I just found out I am the beneficiary of his $40,000 life insurance policy. If I wait until after I file my FAFSA application on January 1, 2013 to claim the benefit, must I declare the benefit as an asset on my application?</p>
<p>I am sorry for the loss of your father. I lost my dad two weeks ago. It sucks.</p>
<p>Unfortunately, you do have to claim the $40,000.</p>
<p>Wildboy and Kelsmom…</p>
<p>So sorry to hear about the recent losses of your fathers.</p>
<p>Yeah, it sucks. Not only did I lose my dad, I’ll lose my merit+need based scholarships, and need based grants. I’m only a freshman. Someone said I should take next year off, pay off my current student loans, buy a car and blow the rest on travel. Otherwise it will all get eaten up by tuition in the next three years.</p>
<p>I’m so sorry wildboy and kelsmom.</p>
<p>wildboy…if this inheritance comes before you file FAFSA I would indeed pay off your loans from this year and any other debt you might have. And prepay anything you can for next year (will you need a laptop or an apartment deposit or…?),.</p>
<p>I’d look into putting some of this inheritance in a retirement account of your own, or maybe even a 529 college savings account, if that’s possible (not sure if it is).</p>
<p>Why would you lose your merit scholarships? They are usually based on merit, not need.</p>
<p>The scholarships are based on need and merit.</p>
<p>Please accept my condolences for your loss.
Sounds like you need a shelter for this money. Something that won’t count against your FAFSA. Its not quite enough to buy a house (unless you live someplace where 40K could get a small condo.) A retirement account perhaps? If you do decide to spend it, don’t just fritter it away, at least buy something that will hold its value or be resalable somewhere down the line. If you wait til after Jan.1 to receive the money, you will have a few months to invest it before your taxes are due. If you accept it now, it will be reported on this year’s taxes.</p>
<p>Life insurance proceeds paid to you upon the death of an insured person are generally not subject to income tax thus aren’t reportable on “…this year’s taxes.”</p>
<p>kelsmom,</p>
<p>I’m surprised at your answer as everything I’ve read says FAFSA is a snapshot of assets at the time it’s first filed for a year. If FAFSA is filed before he receives the money does it really have to be reported that year?</p>
<p>Thanks annoyingdad. That’s what my mom thought, too. But I don’t want to get into trouble. Mom talked to a guy who is a financial planner yesterday and he seems to agree with you that if I haven’t received the money by the time I file the FAFSA, I don’t have to report it. That would give me almost a year to pay off student loans and pre-pay other college expenses, before the (reduced) balance would count as an asset for my junior year.</p>
<p>Kelsmom is the FAFSA expert on this forum so I’m hoping she will see this and clarify.</p>
<p>
You should not lose your merit based scholarship.</p>
<p>Sorry, I didn’t come back to this until this morning. It is a bit of a gray area if you know you are getting the money but simply put off taking possession until after you file the FAFSA. You don’t “have” the money, but you really do have it … you just chose to put off receiving it. The Ask Kantor response is in reference to a question about an estate … which is a bit different from an insurance policy in that the true worth of the estate is not known until it is actually settled; an insurance policy is a “for sure” amount & is already available (does not require settlement). </p>
<p>To be honest, this particular situation is not directly addressed in the guidance FA professionals use. This IS part of the guidance: " … the cash value or equity of a whole life insurance policy isn’t reported as an asset, but an insurance settlement does count as income. The full amount of the distribution is reported, whether it was a lump sum or annual distribution, and it will count as taxable or untaxed income, as appropriate." This means that you will have to report it as untaxed income when you get it, anyway. You will spend down the asset, but you will have the reportable income. If I look at it this way, I would say that you wouldn’t report it when you don’t have it yet, because you WILL have to report it when you do get it. You can make the case not to report it until you get the distribution … then you will have to report the distribution as untaxed income (and the corresponding asset, unless you spend it down).</p>
<p>Thank you kelsmom. I showed your post to my mom and she agreed it’s really helpful. At least if we don’t have to report it right away, we can plan for the following year. Also, the previous post about having it reviewed in the year it’s reported is really good to know. I feel better now that I can continue at college without losing the merit+need scholarships and grants (like the CalGrant) next year and we have time to figure out what to do my junior & senior years. Thanks again for sharing your knowledge.</p>