<p>We received great need based aid from S'scollege this year based on our income. I will be getting about $70.000 from an inheritance soon. Although this is great -this money doesn't really change our status-we have debt to be paid off and empty retirement funds to fill.Does anyone know if this will effect his aid for next year?</p>
<p>Looks to me like you have an extra $70,000 for college.</p>
<p>I'm sad to say I had to research the same issue this year. This is what I came up with, though someone might jump in with something more authoritative.</p>
<p>For next year's FAFSA, the inheritance is reported as "other untaxed income" this year on Worksheet B.</p>
<p>If any of it is left in a reportable form by the time the FAFSA is filed next year, it is of course an asset.</p>
<p>Interestingly, Profile treats the inheritance differently depending on the form in which it was received. If in the form of "money," then it is reported as income in response to Question 55m. The instructions specifically state don't report gifts "other than money." I would consider money as cash or check. Shares of a mutual fund, stock, real estate, etc. are not money. Ironically, a rare coin collection would be "money" but a rare stamp collection not.</p>
<p>Then like FAFSA, report the inheritance as an asset if it is still around when Profile is submitted.</p>
<p>Now I have seen others on CC in denial about whether an inheritance is reportable on FAFSA, but it is clear that colleges from Alaska to Florida consider it so. This position is evidenced by the procedures by which you can request that an inheritance, assumed reported as a matter of course, be disregarded. See, for example <a href="http://www6.miami.edu/financial-assistance/PJappeal.pdf%5B/url%5D">http://www6.miami.edu/financial-assistance/PJappeal.pdf</a> (page 1, next to last Special Circumstance)
and
<a href="http://www.uaa.alaska.edu/financialaid/upload/Income%20Override-3.pdf%5B/url%5D">http://www.uaa.alaska.edu/financialaid/upload/Income%20Override-3.pdf</a> (item 2.C.)</p>
<p>The final consideration is, what if the inheritance is received in the middle of a school year, i.e. long after the forms have been submitted and FA awarded? Do you have to fess up to the inheritance even between FAFSA's? Most schools seem to require this, though I am not sure what they would do about aid already awarded, or even already paid if in the middle of a spring semester. For example, here is one university's fess-up rule:
[quote]
1. I agree to inform the Financial Aid Office of any changes in my financial, housing, enrollment, marital or academic status, and/or any additional earnings or support that I receive from any source. I agree to submit a copy of the scholarship or award notification letter to the Financial Aid Office for any additional awards I will or have received (including but not limited to, scholarships from outside agencies). I understand that any change may result in a reduction of my Financial Aid.
[/quote]
</p>
<p>dt123:
Do you think an inheritance doesn't count as money? How do you know that they are not referring to gifts of stuff versus "money"? If you receive, say, stocks for a gift, do they not have some cash value? I'm confused about this! Thanks.</p>
<p>I think an inheritance of stock is not money. It is property. Doesn't matter that it can be converted to cash by selling it. That is true of all gifts, except the gift of gab I suppose. The instructions say do not report gifts other than money, which means, report only money.</p>
<p>Hmmm...that's interesting. I guess I wouldn't have thought of reporting it that way. But I see your point.</p>
<p>
[quote]
I will be getting about $70.000 from an inheritance soon. Although this is great -this money doesn't really change our status-we have debt to be paid off and empty retirement funds to fill.Does anyone know if this will effect his aid for next year?
[/quote]
</p>
<p>Since OP already states that s/he is getting money will will be considered income/asset in the next year and is going to affect their EFC and most likely reduce the amount of need based aid they receive in the 2007-2008 school year. (CSS profile does not consider consumer debt).</p>
<p>I am not sure of the legalities of this, but you might want to talk with the administrator of the estate and see whether it is possible to have the administrator directly pay off your debts (with your written authorization) and only pay you the remaining amount. So let's say you have $50K in debt -- you end up with your debt paid off and only a check for $20K. </p>
<p>I think in such a circumstance that you would be able to report only the amount you actually received, because the debt is legitimate -- its not like you are hiding the money in an offshore account or something. You don't run into any tax issues because the inheritence is not taxable income. </p>
<p>So assuming this can be arranged, the only real question is how the college would treat the money -- and there are arguments that can be made either way. </p>
<p>Also, it is possible to refuse an inheritence. I know that sounds like an odd thing to do, but depending on who in the family would get the money you refused it might make some sense -- though given the fact that you have a lot of debt, it probably isn't the best solution for you. I'm just mentioning it because it could make sense in some situations.</p>
<p>Could someone please direct me to any website where it states the 70K inheritance will be considered income for financial aid purposes? </p>
<p>The IRS will not treat the 70K as income. I agree that this money will be treated as an asset for financial aid purposes, and if the 70K generates income between the time received and the end of 2006, this income will show up on a 2006 tax return. I agree that receiving the money will increase the EFC because there will be more assets on the table. I dont see why having the administrator pay off any debts is advantageous, again it seems that the conclusion is that the 70K is income. (Im not sure if an administrator can legally do this- his/her duty is to follow the wishes of the deceased) Why not just take the money and pay off the debt yourself? </p>
<p>Im not trying to attack anybody, but Im confused. Anybody?</p>
<p>You mean besides the two I mentioned in #3?</p>
<p>Here's another one, more specific (though I am not sure I am allowed to link to another college info site): <a href="http://www.finaid.org/educators/pj/principles.phtml%5B/url%5D">http://www.finaid.org/educators/pj/principles.phtml</a></p>
<p>It says:
[quote]
The typical treatment of such one-time events is to make an adjustment to income while still counting the money as an asset. ... The usual income adjustment for an inheritance is to eliminate it from income. (Inheritances usually show up as untaxed income on Worksheet B, since usually the estate and not the beneficiary pays the taxes.)
[/quote]
</p>
<p>Bottom line is you report it, then ask that it be disregarded. Hopefully that will work unless you are one of Sam Walton's heirs.</p>
<p>Dt123 with all due respect, I think your wrong in your interpretation of these links.</p>
<p>In the first link (Miami), in the special circumstance section, it asks, in part, for documentation to determine the exceptions to normal income. By completing this form, someone is asking the school to recalculate an EFC. In the examples Miami uses, I believe the document(s) submitted to Miami would help determine whether an exception to normal income should be granted (treating lottery winnings as income or in the case of an inheritance, treating it as an asset). If the 70K was listed as income and the school determined the 70K to be an asset, it would result in a significant decrease in an EFC, and hence more aid.</p>
<p>The same thing would be true in the Alaska link. This link is a request to recalculate an EFC. If you had erroneously listed the 70K as income with Alaska (FAFSA schedule B), you would have probably received a high EFC. By documenting the 70K is an inheritance (and hence not income) should cause Alaska to recalculate ones EFC to a much lower number, and hence more aid.</p>
<p>The finaid link talks about professional judgment. If theres a question in determining an EFC, professional judgment comes into play. The above finaid link states in part, financial aid administrators should avoiding rendering professional judgment decisions that are inconsistent with the spirit of existing law, regulations and guidance. Existing law does not treat the inherited 70K as income and neither should an aid officer. IRS publication 950 p. 2 states, in part, the person who receives your gift or your estate will not have to pay any federal gift tax or estate tax because of it. Also, that person will not have to pay income tax on the value of the gift or inheritance received. </p>
<p>The above finaid quote validates what I'm saying. The quote is basically saying that someone has probably erroneously listed an inheritance on FAFSA schedule B and an aid officer should make an adjustment to income. In other words, an aid officer should treat the inheritance as an asset, adjust the reported income downward and recalculate the EFC.</p>
<p>I also respectfully disagree with bottom line you just report it. Why would you want to have this discussion (recalculation) with an aid officer? List whatever is left of the inheritance on the day you file as an asset and let FAFSA do its calculation based on the money being an asset.</p>
<br>
<blockquote> <p>Could someone please direct me to any website where it states the 70K inheritance will be considered income for financial aid purposes? >></p> </blockquote>
<br>
<p>There is no such place. The 70K will not be treated as income. BUT it WILL show up as an asset if you have it in a savings, checking, CD or something like that. We received a similar inheritance when my mother died. To be honest, much of that money was used to pay debts immediately upon receipt and did not show up as an asset at all on our FAFSA (because it was long gone). However, the remainder in our savings did affect the amount of our subsidized stafford loan (it became unsubsidized).</p>
<p>Well, what about if we received inheritance money and bought a second house with it?</p>
<p>My parents together make less than 40k a year, and the estimater on collegeboard estimated a family contribution of 16k! And we cannot afford that at all. We can barely afford 10k total for high school for me and my sister, who is a freshman in high school.</p>
<p>The second house is an asset. Your parents can sell one of their houses, or rent one out, or borrow against one or both to raise funds.</p>
<p>However, your family may qualify for simple needs analysis, which means all assets will be disregarded -- it depends on the source of the family income.</p>
<p>Lovelykittycat:</p>
<p>Im only talking about FAFSA and federal financial aid (Pell grants, Stafford loans, work study, etc). As calculated by FAFSA, an EFC is a sum of a percentage of four factors-parents income, students income, parents assets, and students assets minus the standardized deductions FAFSA allows. When determining federal financial aid, aid officers rely on the EFC as calculated by FAFSA. There are two exceptions to the FAFSA calculation (the automatic zero EFC, and the simplified needs test). </p>
<p>Under the simplified needs test, if the parents AGI (as reported an a federal tax return) is under 50K and the parents use a short form (1040A or 1040EZ), then two of the factors (parents assets and student assets) will not be used when your EFC is calculated by FAFSA. FAFSA will automatically exclude all family assets if you meet the simplified needs test. </p>
<p>The good news for financial aid purposes is that your parent's AGI is under 50K; the bad news is potentially the second house. If your parents have been getting rental income, I think they have to file a long federal tax form which means the simplified needs test will not be used. They should ask their accountant if they can file a short form. It could mean a lot as to federal financial aid. However, if you are going to a school that uses the Profile, there is no simplified needs test and the equity in both houses would be on the table. Calmom is right that your parents may have to borrow against one or both houses. Good luck.</p>
<p>Well, I don't think so. What if you were on welfare one year and received a five million dollar inheritance the next? Shouldn't FA officers have a chance to decide if you still deserved a Pell Grant? As a taxpayer, wouldn't you want to prevent Pell Grants and subsidized loans from being wasted on the obscenely wealthy? Well the only way that can happen is if the inheritance is listed as income, and professional judgment is brought to bear. If on the other hand you were bumping along in life in Pell Grant territory and you get a one time $30,000 inheritance, then professional judgment might prevent that from keeping your kid from finishing his last year at Harvard because now you wouldn't be able to afford it.</p>
<p>Also what is ambiguous about "other untaxed income not reported elsewhere" (Worksheet B) that anyone can rationalize not including an inheritance? Follow the bouncing ball, I-N C-O-M-E. You guys are asking for a web site that says an inheritance that comes in to your family income, and is specifically excluded from income on the income tax form, because it is obviously income otherwise, is income.</p>
<p>Thanks for the replies :)</p>
<p>Our second house is a cabin in the mountains. We dont rent it out or anything.</p>
<p>I interpret your most recent response as a response to different posts of mine. So thats how Im responding.</p>
<p>As to your second paragraph, if someones uncle Joe stopped by tomorrow and said that youre his favorite nephew/ niece and said heres 10K cash, would you or anyone (including IRS) consider the 10K income? To me, the IRS, to anyone I know, its a gift, not income. If uncle Joe dies and leaves you 10K in cash, its still a gift. Does the fact that uncle Joe died convert the 10K from a gift to income? No. What if the 10K was not cash, but the fair market value of a piece of jewelry, or a used car? Would you still include the fair market value of what uncle Joe gave you on FAFSA schedule B? If you would, okay. But in my mind, it wouldnt matter to me what the form of what uncle Joe (dead or alive) gave me (cash, jewelry, car, etc), Id treat it as a gift and not income. If you think Im doing something wrong, so be it. And its not that its not reported elsewhere, if its cash, the money is properly reported along with any other cash you have on the day you file FAFSA.</p>
<p>Your first paragraph seems to refer to the simplified needs test (SNT). First of all, I didnt create the computer program, so dont get mad at me, Im only a messenger. FAFSA is a computer program that takes the data you provided and calculates an EFC. FAFSA is programmed to ignore all family assets if the parents AGI is less than 50K and the parents file a short form, or dont file (SNT). Im only talking about federal aid programs (Pell grant, subsidized Stafford loans, etc). </p>
<p>Using your hypothetical about 5 million in inheritance: lets say the estimated cost of attendance is 20K and you met the SNT, better yet, say you meet the other FAFSA exception, the automatic zero. An aid officer will look at what FAFSA says is the need and with a need of 0 (automatic zero), the officer now has to come up with a package. And if an aid officer (whose boss is the university) can get his hands on a federal Pell grant of 4K and a federally subsidized Stafford loan of say 5K, then he, assuming the school fully meets the family need, only has to come up with 11K out of the schools own pocket. So yes, I think a person can a low AGI, a lot of assets (5 million in inheritance) and get a lot of federal aid. You can argue about whether its fair or not, and how the taxpayers get screwed, but thats the way the feds have set it up.</p>
<p>I'm sorry i responding to dt123</p>
<p>Jugulator20, </p>
<p>is this what your talking about? </p>
<p>"Simplified Calculation</p>
<p>If you (your spouse or your parents), received benefits in 2005 from certain federal benefit programs and have an income of $50,000 or less (your AGI in Q35 or Q73 or your earned income in Q38-39 or Q76-77 if not filing a tax return), you may qualify for an Expected Family Contribution (EFC) that does not count all of your income and assets. </p>
<p>The benefit programs that qualify you for this exemption are the: </p>
<p>Supplemental Security Income Program (SSI)
Food Stamp Program
Free or Reduced Price School Lunch Program
Temporary Assistance for Needy Families (TANF)
Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). </p>
<p>If you were a recipient of any of these benefit programs at any time during 2005 and have already completed your FAFSA, check with your financial aid office to find out if your information should be adjusted." -FAFSA </p>
<p>My parents make less than 50k a year, but we dont use benefit programs... How does that work? Would we still qualify for a simplified needs test? Maybe Im looking in the wrong plage? thanks!</p>