My father passed away a two years ago and I am the executor. I finished selling his home and paying the debtors and am about to sign the final documents to disburse the inheritance to myself and my sister. The money is in my father’s estate account.
I have a large parent plus loans of 120k that I was going to directly pay off with my portion of the inheritance. This was for sending my two older children to college. My question is will the schools see that inheritance money as income when it hits my checking account? Even if it goes right out to parent plus?
I believe in paying my fair share for my daughter going to college but I am hoping that I can pay off this significant debt without immediately screwing up any aid she could have received. I was a first generation college student and my dad helped with whatever he could to support me and then my boys in college. Knowing this is his final gift to me for their education helps me with my grieving.
I get conflicting information online and in financial aid books. Also, should I do this NOW or in 2023 if she is a senior in high school this year? Thanks for any info you can provide.
The FAFSA and CSS only ask for “current balances” of checking accounts, not “highest annual balance”.
So I’m unclear, how any amount just “transitioning” your checking account would ever be known to colleges?
Now, “income” is a different story: when filling out the FAFSA for 2023/24, you’ll be using your 2021 tax return (I know - it’s mind-boggling). So any 2022 income will not play a role until 24/25. If you defer it until January, it will be part of the 25/26 FAFSA.
I have been told that estates either pay capital gains or estate tax. So if we inherit from a trust that includes stocks, we pay one of those but not both. I believe if estate tax is paid, the distribution is a gift. If the distribution is stocks, then we pay capital gains and the income is ours. I don’t know if this is relevant! I am learning too after the dath of a parent.
With respect to financial aid, it’s more question of assets instead - which typically would increase.
But in the scenario originally presented, the inheritance would be used immediately to pay off loans. So the transient balance in the checking account would not even show up as an “asset” - but would manifest themselves only in the person’s net worth as lower loan balances.
AFAIK - no.
I don’t know if I’ll find time tonight to work on current FAFSA to explicitly look for it…
Just also checked last year’s CSS profile (which was my bigger concern, because it’s significantly more “forensic”.) But there too was no place to report loan balances (other than home mortgage) either.
And since an inheritance is neither income, nor a benefit payment, I would not enter it under “Untaxed income and benefits” of the CSS profile either.
That’s just me! I am NOT qualified to give tax or financial advice.
Compmom…you need a good lawyer if the estate is large enough to require estate taxes. Your post is a jumble…some of which may or may not be accurate in your case.
All inheritance assets will come to you tax free. If the estate was large enough to be taxable, the executor will pay the taxes (and settle any debts) before distributing to the heirs.
Once you inherit…if you get income from the assets, that is taxable. But you won’t have a tax bill when the assets become yours. Hopefully your lawyer is good at breaking all of this down…
I had to pay taxes on an inheritance from my brother. Instead of having the estate pay taxes, each heir paid taxes at our own (lower than estate would be taxed) tax rate. The inheritance was a 401k, which was cashed out & split between heirs. In this case, my income for that year was higher as a result. Had I been applying for aid & if it would make a difference, I could have requested a professional judgment review to remove that one-time income from my AGI. The school could then request information regarding what I did with the money, because they might have a policy that says if they remove it from income, they will add it to assets (because the case could be made that it should have been retained to pay for tuition). If I had used it to pay off Parent loans, I would provide that documentation & request that the money not be counted as being available because I had used it to pay off prior education loans. Schools have their own policies regarding this sort of thing, but when I made those decisions, I would have been inclined to remove the money from AGI and, if it was documented that it was already spent to pay down prior education loans, I would not add the amount to assets.
It was an employer sponsored retirement account, through Fidelity. One of my brothers handled it. We weren’t beneficiaries - my deceased mother was, and my father was also deceased. He died intestate. The brother who settled the estate researched everything, and he did what was best for our situation. It wasn’t a huge amount (maybe $11,000 each). The brother also had to file back taxes for the deceased brother. He did a huge amount of work to settle a big mess. If we lost a few bucks to taxes due to the way it was done, oh, well.
Thanks for all of your responses. The only asset was my dad’s home and a truck. It is a long story but it appears he cashed everything out as far as IBM and life insurance before he passed to pay off all of his debts except the house. He took his life immediately after hearing he had metastatic lung cancer so I guess he knew the life insurance would be void. He lived in Nevada. After the home was sold and mortgage paid, along with fixes in home and lawyer fees, the estate was approximately 240k, divided between my sister and I. My portion will completely wipe out a 120k parent plus loan and it will be a weight off of me. Nevada does not have tax on estates. Where I live in Massachusetts, there is no inheritance tax at my income level. The estate lawyer in Nevada somehow had the return come in with a refund of 350 dollars to the estate.
My condolences to you. What a difficult, sad situation. But it sounds like your dad left a gift that will allow you to take some stress off yourself. It doesn’t sound like the inheritance will be reported on FAFSA, other than perhaps what is left in your bank account, if any, after paying off loans. Even then, there is an asset protection amount, so it may not be an issue for you.