<p>I am sure this has been asked here many times before, but for the sake of getting exactly the info I need, I will post again.</p>
<p>Finishing our FAFSFA for this year. In 2010, we received an inheritence from an aunt of mine who died (approx. $25,000) and my husband's father died leaving him close to 4x that much $$$$. The intent of having this $$$$ (husband's fathers $$) is to rebuild the family cottage. </p>
<p>Is there any way to report or not report this without penalty? One child graduates from college this year, but S is at a private school and I fear that he will receive no aid due to these $$ showing up, when a year from now, the intent is for the cash to be gone. </p>
<p>Not asking/wanting to do anything illegal, but just need to be aware of any/all options if it's possible before I click the "submit" button on our FAFSFA.</p>
<p>Any advice (that is helpful) appreciated. Again, I promise there is no intent to jilt the system.</p>
<p>You could always make a giant prepayment on your mortgage before you file the FAFSA, that would remove it as an asset. You might not have to use all of it depending on whether your assets are already over the allowance or not. Then take the money back out via a home equity loan or line of credit. </p>
<p>And it obviously too late now, but could you have had the estate delay disbursing the money until after the FAFSA is filed? That might be a strategy other people could keep in mind.</p>
<p>FAFSA will only ding you for 5.6% of it, so that is not a huge amount.</p>
<p>Another strategy that probably crosses the line would be to open up an IRA and put all the money in there, which would remove it from FASFA. However, since you can’t contribute that much in a year, you have to pull out the excess contributions before you file your taxes the next year (can be any time you want), and pay taxes on the earnings of the withdrawn amount.</p>
<p>OP, does your younger son go to a private college which uses the CSS Profile? Assets are treated differently there than on the FAFSA, so while the extra assets may not hurt much on the FAFSA, they may make a big difference on the Profile…</p>
<p>If the OP inherited the money in 2010, it is income for the 2011-12 year. It does have to be reported regardless of the intent for the use of the money. It is hit again if it is sitting anywhere as an asset when the PROFILE/FAFSA are filed. I have known families whose kids took a gap year because of a large one time distribution of assets that were designated for some directed purpose that would distort the family financial picture. Because, yes, it does count, and, yes, you are supposed to include it and it is not legal not to do so. College don’t care about family cottage renovations. And putting it into a qualified plan still make it income, just not as a reported asset once it is there.</p>
<p>I wasn’t aware of the 5.6% - thought it might be higher than that. I suppose you could say that $7000 isn’t alot, but in our world it is ALOT. The fact is that most of that $$ will be drained by the rebuild (not far enough along to pay anything on yet) and school tuition for younger children in the family. </p>
<p>Where on FAFSA or CSS Profile would you report it as income? The IRS doesn’t consider it income, don’t think these forms do either. It’s just an asset. Is the family cottage now also an asset?</p>
<p>There have been several threads on this topic. And, frankly, theres always disagreement as to whether inheritances are to be reported as income in the year they are received. Clearly, inheritances are not federally taxed as personal income. So it certainly doesnt get reported under the line items related to your tax returns. The debate arises as to whether it is to be reported as other income. Honestly, I know of no other context under which an inheritance would be considered income. </p>
<p>So if you havent guessed by now, I fall into the camp who says it doesnt get reported as income. It just feels wrong to me that an inheritance would be considered income in the context of financial aid because someone in your family had the misfortune of passing in a year youre filing for financial aid. Of course, as others have pointed out, if you invest it or put it in non-retirement savings, it would be reportable as an asset.</p>
<p>Cpt, I disagree. Inheritances are NOT untaxed income, they are not income, they are transfers. They should be reported anywhere Gifts or TRansfers are asked for. That is it. They then become assets.</p>
<p>How about we pose a hypothetical. Suppose when junior graduates high school, grandparents give parents $100,000 as a gift toward juniors education. Does that gift get counted as family income for FAFSA/CSS? Or just an asset? </p>
<p>Like I said in previous post. I can’t think of another context under which an inheritance is considered income. IMO, it far more like a gift than it is income.</p>
<p>I thought I would just be listing it as “cash” in our savings cause that’s where it currently is sitting. I will have to look at the FAFSA form when I get home and see where Worksheet “B” is …is that within the regular form???</p>
<p>Step Two Question 44 (Student’s untaxed income) line j says “Money received, or paid on your behalf (e.g., bills), not reported elsewhere on this form”. You could possibly stretch this to cover an inheritance to the student.</p>
<p>But I wouldn’t interpret it that way. I would parse it as two questions:</p>
<p>Money received on your behalf.
Bills paid on your behalf.</p>
<p>To me this clearly indicates money someone else gave your parents to benefit the student (like if grandma paid for some of your tuition).</p>
<p>An inheritance to the student would not be “on your behalf”.</p>
<p>There is no similar line for the corresponding parent’s question (Step 4 question 92).</p>
<p>So are assets subject to the 5.6% or just income??? So confusing…(and to think this is our 6th FAFSA - just the first with different circumstances!!!)</p>
<p>It would not be reported as income. It would be reported under cash assets and impact your EFC by that 5.6%, which is $7000. One thing you could do is spend some of the money now - before having to report it. Prepay in 2010 expenses that you will have in 2011. I’m not saying go out and spend it frivolously, but if you were planning to buy a car in 2011 - do it in 2010 to use up some of the cash. If you are renovating this cottage - can you get it underway now and use the money for it’s intended purpose now - rather than waiting until 2011?</p>
<p>Another poster asked about the ownership of this family cottage - does your husband own 1/2 or 1/3 of it? That would be another complication.</p>
<p>No worries about the cottage ownership thing - we have had that taken care of and know how to report in other years of FAFSA. Rockvillemom, nothing we can do now for the 2010 year now that it is already 2011. </p>
<p>The cottage renovation cannot happen any sooner. I’m not worried about NEXT year’s FAFSA cause most of this $$ will be gone by then. It was just our luck to have received it all later in 2010. :(</p>