financial aid with parents and grandparents buying a house together

Paying for College
1

I’m a parent of a HS senior. We have put 2 through college already and this child is our third. We have annual income of about 220K. Our child is competitive for the very generous schools where the NPCs have said we might qualify for a bit of aid (max 10K/year). Our only non-retirement asset is our home, with a little over 200K of equity in it.

My parents are unable to live independently anymore and we are planning to purchase a home together with them, in a more expensive area than our current home to get them closer to the healthcare providers they need access to. They are putting 100K into the down payment and will be making payments toward the expenses (utilities, etc.). The mortgage will be in our names which prevents us from putting them on the deed. From the mortgage company’s point of view, they have to gift us the $100K. But from our point of view they are “purchasing” the right to live in the home with us (and we will be writing up a contract that protects their right to live in the home they hare helping us purchase).

Is there any way to avoid that $100K being both income in the year we close the loan and an asset thereafter? What about the funds they pay to cover their share of the monthly expenses?

(Yes, our kid has financial safeties where admission and merit have already been awarded. And yes, we’ve had the chat about how much we are willing/able to spend per year. This won’t impact our child’s first year award but we know that we need to go in with our eyes open about what changes are likely in subsequent years due to this situation.)

2

The $100k is a GIFT, not income. The tax reporting on the GIFT are you parents’ issue, not yours. They each can give you and your husband $14k per year, so if they did it in Dec and Jan, they wouldn’t even have to report any of the $100k ( $14k to you from mother in 2018, $14k from father, then the same to husband, then the same to each in 2019) If you put the $100k into the house before filing the FAFSA or the CSS, it is part of the equity of the house, your primary residence, so you’d report it as needed (not on the FAFSA, as the equity on the CSS).

3

Is there no reporting on CSS or FAFSA for gifts? That makes a huge difference obviously since income is way different than assets (hurts you more for financial aid). The gift tax reporting is not really an issue since their estates are nowhere near the lifetime maximum.

4

I believe that gifts to parents are considered income on the CSS Profile. Via Nerdwallet (2016 article https://www.nerdwallet.com/blog/loans/learn-the-css-profile-the-other-financial-aid-application/ ) “Gifts made to parents (such as by grandparents who want to help with college costs) are not considered “income” under the FAFSA but they are under the CSS Profile and given weight of up to 46%.”

5

Are you sure that they cannot be put on the deed? We move a lot and sometimes we have gone through the process of including me on the mortgage and sometimes we haven’t (I don’t earn any income, so I am not making an impact on approval for the mortgage). But, I am most definitely always on the deed. For example, we closed on this house a yr ago and I had had my credit locked when everything was going on with the leaks last yr. I had trouble unlocking my credit from all 3 of the credit reporting agencies within the time allotted on our contract. Only 2 unlocked in time for the mortgage approval, so the mortgage company refused to include me on the mortgage. But, I am most definitely on the deed.

Whether or not that is what you actually want to do is a different question, but I would investigate further if you want their name on the deed without being on the mortgage. A financial planner would probably have better insight as to what is the best way to approach this scenario for the long-term.

6

As an aside, if there is a possiblity your parents may need to go to a nursing home within the next 5 years, I suggest you consult an elder/estate attorney. When my Dad ended up in a nursing home a couple of years ago, I had to provided bank records going back 1 year and because he had “gifted” my brother 9K, I then had to provide all 5 years. Any monies paid out that were not used for my Father’s personal living expenses could be pulled back to help pay for the nursing home. My Father died before Medicaid kicked in so it was a non issue. Every payment was scrutinized. We are going through this with my MIL now. She is paying utillity bills instead of rent to my SIL, our advisor has told us that Medicaid may try to pull that money back and it would be better if she pays rent and had a lease. If your parents/you can afford to pay for a nursing home OOP, then this is not something you need to consider.

7

@BelknapPoint would you lease explain the whole gift thing again. My understanding is these parents can give this $100,000 GIFT to this family…and all they need to do is complete a form because it is over the annual limit.

Regarding financial aid…

This $100,000 in equity will be included in the formula IF the schools use home equity in the calculation equation. It doesn’t matter what YOU view this as. Fact is…you alone (house is not co-owned by others) own this home…it’s your equity.

For Profile purposes…this might need to be listed someplace…but if the gift is happening in 2019, that won’t be until the 2021-2022 forms are submitted.

@Mom2aphysicsgeek its very possible this family does not WANT to put the grands on the deed. Maybe they are trying to spend down their assets. Maybe they don’t want to have to deal with Probate or have any other issues if the grands die. Maybe the grands don’t want this asset in their name.

@tapiocaspider you also want to check how primary home equity is handled at these generous schools. Some don’t count it…at all. Most cap the amount in some way if they do count it. You could see if the net price calculators have primary home equity on them. If so…run the NPC with and without the home equity. See IF there is a difference and how much.

And lastly…consider this gift as an investment in your future. This larger home in a more expensive area will likely have a better resale value over time. Consider it as a fabulous way for these grandparents to help YOU for the future.

8

I’d see a lawyer before moving ahead.

Are there other children, grandchildren/heirs? Are they onboard with the grandparents kicking in 100K for a home in which they have no equity interest? Are they onboard with the grandparents kicking in for monthly expenses? What happens if the housing market takes a tumble and the value of the house declines- but you need to sell for some reason- wage earners lost their job, need to move for a new job- are they going to claim that you “owe” the grandparents “estate” the 100K (which may have evaporated if housing prices decline)?

Get some professional advice here (not a mortgage broker) before moving ahead. From what I’ve seen with some of these senior living/family arrangement situations, financial aid is the LEAST of your potential problems!!! Your parents need up to date wills; you need up to date wills; you may want to put the house into a trust; there are a lot of considerations here.

And the current limit on annual gifts is 15K btw, went up from 14K in the “new and improved tax plan”.

9

as @twoinanddone described above, 100k can be given without any gift forms if it is done cleverly, before and after December 31. Each parent can give 15k to each of husband and wife. So that’s 60k right there. So if done in late December and early January that can be 120k.

10

@thumper1 Which is why I stated that I wasn’t sure if they actually wanted to have them on the deed and that they should seek financial advising. I was only pointing out that the information she posted as being given is not completely accurate.

11

@donnaleighg yes…this gift cannbe done partially in 2018 and partially in 2019.

The gift for 2018 will probably be reportable on the Profile for the 2020-2021 financial aid forms.

I agree with the folks upstream. Figure out the best plan.

Just one caveat…having the grandparents pay rent to this family will make that portion of their home a rental, and this IS counted as an asset on the financial aid forms. Plus, the rent would be income.

12

It takes ten minutes to fill out the gift form, maybe 12. So you don’t need to contort yourself in a hurry. Avoiding the form is NOT a good reason to forfeit sound financial and estate planning here!

Life Insurance- enough for the wage earners to cover paying off the mortgage, supporting the families? Disability?

Do a comprehensive plan first. Rushing to gift to avoid the hassle of a simple form seems foolish to me.

13

It’s confusing to me as to whether OP is talking about buying an additional property and keeping their current home and continuing to use it as their primary residence, or if they are selling their current home and buying a new property to use as their primary residence. The difference between these two scenarios is critical in need-based financial aid considerations.

Any person can give any amount to any other person at any time. The IRS reporting requirements kick in if the annual gift exclusion amount (currently $15k) is exceeded, and tax is only owed if the lifetime estate/gift exemption is exceeded (that amount is currently $11,180,000). For wealthy taxpayers who have an estate that may exceed the lifetime exemption amount at the time of death, planning is required so that gifts given during lifetime are not a complicating factor.

Hmmm… that’s not my experience with form 709. It can be fairly straightforward, but it can also get pretty tricky in short time. Of course, this depends on the particular situation.

14

http://talk.qa.collegeconfidential.com/financial-aid-scholarships/2098199-grandparents-moving-in.html

Wonder what THIS family ended up doing?

@BelknapPoint sounds to me like they are all planning to live together…as the parents can no longer live independently.

15

OP has already stated that the grandparents are nowhere near the lifetime estate limit. So I hold to my suggestion that for this family, sitting down for a comprehensive financial plan, estate plan, taking into account other heirs, cousins, interested parties, etc. is essential. And that filling out form 709 is likely not complicated enough to precipitate an urgent “OMG, grandma has to do her gifting in the next 10 days” without that sit-down.

Lots and lots of variables in the scenario that the OP has presented. Nobody wants to have their parents homeless. Nobody wants a fight with their siblings or a nephew over assets once those parents are gone. Nobody wants to lose their house in a foreclosure, AND have their parents homeless AND a fight with a nephew.

And yet it happens all the time. To really nice people who only wanted to do the right thing, but didn’t get sound advice on the 20 things that could go wrong. And if nothing goes wrong, the OP has structured the asset/living situation in a way that gives everyone piece of mind, is tax efficient, AND protects everyone going forward.

16

Thanks for all the responses!

And yes, we absolutely need to speak to a lawyer and estate planner to structure this all correctly, and the small amount of financial aid that is on the line here is the last priority. Just wondering if there are any legal and ethical but creative arrangements that might help us avoid losing the financial aid while we are right in the middle of taking on additional elder care expenses.

Can anyone advise what we need to be looking for in seeking a financial/estate advisor? We’ve done all our own financial advising thus far, learning about the issues ourselves, but we know we’re in over our heads here, and don’t want to get this wrong.

Gift tax will not be an issue – the grandparents’ total assets are under 1 million. Avoiding the gift tax FORM is not worth rushing to make a sensible plan, and is almost certainly not a good trade for having gift “income” in 2 years of our kid’s CSS profiles. (Some schools may not count the additional primary home equity given their caps, in which case we’d only get screwed on financial aid in the one year when the gift is given.)

If it’s not obvious, the generous schools I am talking about are CSS Profile schools.

To answer some questions:

@BelknapPoint We will all be living together in the new home. We are selling our current home, and will move that equity into our new home. We may be buying before we sell, but should not own both by the next time we have to fill out financial aid forms. When we next fill out financial aid forms all the equity will be in our (shared) primary residence.

@mathmomvt that was my understanding too about the gift, and my concern about the “income” for financial aid purposes.

@Mom2aphysicsgeek the mortgage broker says that anyone who will be on the deed needs to be on the mortgage. Basically we can’t take a mortgage in our names against our and our parents’ combined equity. If we want them on the deed, they need to be on the mortgage with an equal responsibility for it, and that doesn’t make sense in this case. (If I understand correctly, even though you are not contributing to approval for the mortgage, you are signing it and thus jointly responsible for paying it.) From other research though, it looks like we might be able to add them to the deed after 30 days if we wanted to. Whether or not that makes sense is another question, as others have alluded to with the Medicaid questions. (This is part of why we absolutely need an estate planner and lawyer to help us figure out how to structure this.)

@twoinanddone it looks like CSS Profile considers a GIFT to the parents to be income that is largely available for the student’s college expenses. Do i have that wrong? This is the crux of my question. Can we make this gift of funds for a down payment be “not a gift” from a financial aid point of view.

@mamom Part of moving them in with us is to avoid them needing to move into a nursing home. They have long-term care insurance that covers them for expenses to keep them in the home for up to 3 years. So there’s a possibility that they will need nursing home care within 5 years, but we hope it is fairly small. But that also impacts whether they should be on the deed (and I think the answer there is probably no).

@thumper1 we are looking into the treatment of home equity at the different schools. Some cap it at a level where the additional equity does not matter, but others do not. What I’m much more worried about is the 100K “income” in 2019. If the grandparents are paying a reasonable share of the utilities and upkeep on the home, do we have to treat that as rent/income? They could directly pay billers if that makes a difference.

@blossom yes I have 2 siblings – they are comfortable with our parents gifting us money for our shared home in exchange for us caring for them. We have sufficient life insurance on the wage earners but thanks for raising that.

One possible option we are looking into is whether we can sell them a life estate in the property in exchange for their investment in the down payment. But the mortgage broker believes he needs a letter saying the money is a gift in order to proceed with the loan. We could of course talk to another mortgage broker, but it does look like mortgages and life estates are a tricky business. If anyone happens to be experienced with giving parents a life estate in a shared home, I would love to hear more about this issue (not in lieu of seeking professional advice, I promise!)

17

there is no legal restriction to having someone on the deed who isn’t on the mortgage, but many lenders have it as a policy that the deed much match the mortgage. There used to be a ‘due on sale’ clause that if you transferred the property in any way after the mortgage was filed, then the mortgage would be due, in full, immediately. There are now some federal laws that limit that, and parents/children/spouses, etc can take over the mortgage without penalty.

There are some state laws that make it tricky for married people to own property individually. My mother and brother own her house. My father’s name was NOT on the deed or deed of trust, but he had to sign off on it when they first bought it. My father died recently and it was nice not to have to extract him from the ownership.

You, @tapiocaspider , do need to be aware of the medicaid claw back rules. They can be tricky.

18

OP- I found a very good eldercare/advisor lawyer by calling the most successful person I knew who had parents in a similar situation to mine. I figured if he had dealt with the nursing home/long term care/sandwich generation issues he’d know the right person to talk to.

And he did. I don’t know if this works for you- but it was an excellent referral, and it was someone used to dealing with families and issues MUCH more complicated than mine which was pretty reassuring. And he helped with things like the advanced care directives (for everyone, POA, etc.) that we had all been procrastinating on; and made sure that every single asset (life insurance, IRA from a job 15 years ago, etc.) was titled correctly with the appropriate beneficiaries listed (we were surprised how messed up things got over time). He knew nothing about financial aid though.

Even so, there were some mistakes (ours, not his) like a long term care policy which did not cover what the parent who had bought it thought it would cover AND the company was sort of impossible to deal with, but the mistakes were of the “pain in the neck and more expensive than it should have been” level, and not the “OMG, we messed up big time” level.

Just a quick note on long term care policies- read the fine print and then read it again. Know upfront what you might get; the companies have an AMAZING amount of latitude in terms of what they will and won’t pay for regardless of what the policy states- your idea of “needs assistance with bathing and dressing” and their idea of “needs assistance” can differ dramatically. The medical stuff is reasonably standard, but the in-home care has very loosy-goosey definitions. You will need to jump through hoops-- (our policy required getting the parent “recertified” for care every 90 days, which meant if the parent wasn’t sitting in the lobby of the assisted care facility when the insurance company’s nurse showed up to do the evaluation, the next months bill got denied and it took forever to get it paid retroactively. Their money, their rules.

Glad you’re taking the time to do this correctly- and kudos to you guys for being such great kids. Your children are watching and noticing; taking care of your parents is a gift which keeps on giving once the next generation grows up.

19

Thanks for all the great advice @blossom. I’ve already read their long-term care insurance policy and I’m not looking forward to dealing with them, but it is what it is.

I don’t think we know anyone who has been through this kind of stuff before to ask for a referral. I asked an attorney friend in a neighboring state as a starting point – hopefully he knows someone who knows someone good in our state (I’m assuming we need an attorney in our state).

20

@tapiocaspider, you could try looking for a lawyer using this organization’s website: https://www.naela.org/findlawyer

Being a member of NAELA or one of its state affiliates doesn’t guarantee a lawyer will be good, but I know that most of the ones who come up as members when I do a search in my geographic area are very well qualified. (I know a lot about the elder law attorneys in my state through other means also.)