Inheritance, Settlements, and Fafsa - The questions still linger

Paying for College
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<p>After researching and reading several old threads on both subjects it looks like I am about to run into both inheritance and personal injury settlement issues in the same year. While there has been a lot of banter, especially on the inheritance issue, it doesn't seem like anyone ever posts the final resolution of these questions. Here's mine.</p>

<p>My mother passed away in late 2006 intestate, and I have been appointed Adminstrator. There is not much to the estate, certainly not by CC standards. In the end, I am going to wind up with somewhere in the neighborhood of $8,000-$10,000 cash and half ownership of a vacant piece of land with a value of $9100 (my half $4550).</p>

<p>In 2005 my stepdaughter was a passenger in a vehicle crash that is likely to have the resulting suit settled later this year as well. I believe that after all fees, etc, she will net somewhere around $50,000, possibly a little more. She will be 18 in April. She will also have permanent nerve damage as a result of the accident, but was lucky to survive.</p>

<p>Like some previous posters, we originally thought the untouchable trust was a good idea, only to find out that is really the worst. We were hoping she’d have some money to live on and to help with possible future medical expenses that might pop up.</p>

<p>My questions are will either of these be considered untaxed income or are they assets only? I know there have been a couple of differing opinions regarding professional judgment, etc. I also see that some of the threads are 2 or 3 years old. Has anyone resolved any of these issues directly with either the feds or their school with respect to FAFSA reporting?</p>

<p>If they would both be considered as assets only, then from my perspective on the inheritance I am fine because I have less than $1000 in other reportable assets at any one time. Hers would be more complicated, because as an asset at $50,000 per year, she would be looking at using up quite a bit of it through the 20% assessment on EFC. While she could buy a car, etc, I don’t want her to just blow it all just for the sake of avoiding EFC. That said, other than these 2 issues we will be PELL eligible. D is considering a public school with a COA of about $20K. </p>

<p>I have seen some suggest a student IRA, but from what I can tell she can only put $5,000 a year in there (although before the 2010-2011 FAFSA she could put $10,000 in there. I think that’s a good idea, but I don’t want her to have all her money tied up where she can only get to it with a penalty. Any other suggestions besides paintings and other collectibles? Can she make pay rent, make payments on our mortgage or gifts to my wife and I without impacting our FAFSA. Again, our assets for FAFSA purposes are essentially zero, so we could protect a large amount of the settlement. Lastly, her settlement be dispersed to us instead of her? Does it make a difference if she’s turned 18? Some of those might be off the wall, but Just wondering what's been done.</p>

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<p>Have you looked into Healthcare Trusts? If the purpose of the settlement was to have $$'s available for future medical expenses (vs punitive damamges) then that could be the answer. You may want to phone a finacial advisor and see if what they suggest. They should give you the information at no cost in hope that you will invest the $50k with them. I would advise against putting the money is an asset such as a car. And as shocking as it may seem have you thought of actually using it for her education?</p>

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<p>It would seem that if the settlement is for medical reasons, there should be a way to set things up to protect your DDs money from outside sources so you can use it for future medical needs.</p>

<p>FinAid</a> | Professional Judgment | Trust Funds and Custodial Accounts</p>

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<p>Collegeshopping, please refer to the 8 page thread of Patch for all negative comments. As original as your last sentence might have seemed when you typed it, every one of the threads I researched has similar comments which have been hashed and re-hashed.</p>

<p>Obviously some will be used for her college expenses. Like anyone who is not a full pay at the most expensive schools in the nation, we are hoping to maximize our financial aid in whatever legal way we can. If the final judgment is that it is income, then fine. I want to know definitively if someone here has actually crossed that bridge yet. It's no different than any other financial planning suggesting to spend down the child's assets, save in the parent's name etc. I already have one in school being gapped right now at a instate public, and I assume she's going to be gapped too. That said, my personal circumstances in this case are not the topic. The topic is has anyone actually resolved either of the above issues and said yes, assets only or no, untaxed income and then assets if still held.</p>

<p>somemom, there is pain and suffering in the original suit, and the attorney is seeking something for medical allowances because at 17 we still don't know how bad this will be 20, 30 years from now. So it would be a combination of both.</p>

<p>Much like the aforementioned thread, it's the timing that we can't control that is the issue.</p>

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<p>father05 - I don't honestly know how the settlements would be handled for FAFSA. But if your daughter qualifies for Pell then your income is presumably close to the cut off for the simplified needs test ( AGI of <$50k). It might be worth checking to see if you can file a 1040A or 1040EZ if possible. If you can qualify for the simplified needs test then no assets are considered (including your daughter's assets) in the EFC formula. Worth running the numbers anyway.</p>

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<p>Unfortunately as stated, I will have 2 in college meaning their EFC are basically half of normal. AGI is a little over 60K. I also have 3 smaller kids, hence the big help with EFC and taxes.</p>

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<p>Got my answer from D's potential fin aid dept, it would count as both assets and income for both. Somemom, showed them the link from the finaid website, they said that's how the rest of the country might do it, but not here.</p>