<p>I looked at Worksheet A, B, and C of the FAFSA form and do not see a place where the inheritance would be included as income. Since the inheritance is non-taxable by IRS standards (below $2m), where does FAFSA learn about it if they do not ask me to report it? For example, if the bank were to cut a check for the settlement amount (dissolving all stock holdings, etc) on a particular date in 2008 and I parked it in a non-interest bearing checking account and later that week used it to pay for a house, where would this show up on a FAFSA as income in the year I received it? And, since it is no longer liquid, it is no longer an asset by their standards.</p>
<p>What am I missing? I've looked over Worksheets A, B, C and I just don't see a place for it.</p>
<p>Again...your situation is a complicated one and you are on the right track in speaking to someone with expertise in this area. Anything I'm writing here...well...it's just a guess.</p>
<p>Honestly I do not know where or if you would put an inheritance on the FAFSA. The only places I see for anything like that are on Worksheet B..."Other untaxed income or benefits" or "money received not reported elsewhere". BUT I'm not sure that this applies to an inheritance.</p>
<p>I believe you are correct in that an inheritance below a certain amount is NOT considered income. You would have to check with a tax person for sure...but I believe this is correct. BUT this money would show as an asset if it is in a bank account at the time of your FAFSA filing.</p>
<p>I don't think you are missing much here MattsMom. Inheritance itself is not income.</p>
<p>The only thing I can think of that you may be missing is capital gains from any asset that is sold as part of the estate settlement (difference between value on date of death and date of sale) or capital gains and dividends from any mutual fund owned by the estate (same difference in value). Those may show up either directly (the assets are retitled to your SSN this year and you get the W2's yourself) or could come indirectly through the estate (as a pass through). </p>
<p>I experienced the former when my mother passed away, not to the tune of much money (barely in 3 figures), but the tax accounting was more trouble than the money was worth. </p>
<p>As to your daughter's educational goals, are there any public institutions in FL that could give her the first couple of years of start in this field? The basics of graphical design and photography are probably not worth the cost of a private. I know where we live the local CC actually has a terrific media/graphics/communications program with state of the art facilities (compliments of a very large media conglomerate with a major production facility nearby). We had a tour (as we were in the building) and were quite impressed. My son will be attending there shortly, but his interests are not in that area.</p>
<p>"WB11. Other untaxed income not reported elsewhere on Worksheets A and B, such as workers' compensation, untaxed portions of railroad retirement benefits, Black Lung Benefits, disability, etc. "</p>
<p>Yeah, maybe there, but you'd think if they were going to specify something like "Black Lung Benefits", that inheritance might be a more likely scenario to spell out! </p>
<p>Well, I'm hopeful, but I'll wait till I get a real answer to see exactly where we stand - I think I may just call FAFSA and see what they say too, just to be doubly sure. And, definitely, IRS excludes estates less than $2m from taxes, so we're good there.</p>
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<p>"WB11. Other untaxed income not reported elsewhere on Worksheets A and B, such as workers' compensation, untaxed portions of railroad retirement benefits, Black Lung Benefits, disability, etc. ">></p>
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<p>I didn't have the directions...only a completed FAFSA...Hmmm...I think your idea of calling the FAFSA folks is a good one. I don't think the black lung question is where an inheritance would go...but I'm guessing.</p>
<p>Good luck and let us know. Someone else will surely benefit from any information you get...and then they would just have to verify it for themselves.</p>
[quote]
Receiving the inheritance will not impact previous year's FA awards. So this is only an issue going forward, after you receive the inheritance.</p>
<p>Recognize that the maximum impact of the expected inheritance, depending on your total amount of assets, will be approximately 5.6% per year.</p>
<p>Depending on the amount of the inheritance, your income level, and your employment there are a few possibilities that come immediately to mind. Max out Roth IRA's for you and your spouse. Effectively transfer the inheritance, or some of it at least, to your 401k by increasing your 401k withholding to the maximum allowed for the period necessary to transfer the inheritance to that account, "paying" yourself the difference from the inheritance.</p>
<p>Consider consulting with a good financial planner who has some knowledge of the financial aid process. He/she should be able to come up with a complete listing of your options, given your particular circumstances, for a reasonable fee.
<p>
[quote]
As to your daughter's educational goals, are there any public institutions in FL that could give her the first couple of years of start in this field? The basics of graphical design and photography are probably not worth the cost of a private. I know where we live the local CC actually has a terrific media/graphics/communications program with state of the art facilities (compliments of a very large media conglomerate with a major production facility nearby). We had a tour (as we were in the building) and were quite impressed. My son will be attending there shortly, but his interests are not in that area.
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<p>Thanks - I'll check around, and see what I can find out. She's currently in an excellent program at her high school working on both the photography and graphic design tracks, and received a scholarship to Ringling this summer for precollege, which will give her a lot information in order to judge where any particular program would stand when she gets to that stage.</p>
<p>And, thanks for clarifying that inheritance really is not included as income on the FAFSA. I think any income the estate earns between the settlement and the date of death will be insignificant to our situation, but just my luck some bond will come through...</p>
<p>
[quote]
Some schools that do not use the Profile are not "FAFSA only"; they often require their own applications as well as FAFSA.</p>
<p>Out of state public schools may be FAFSA only; however, remember that these schools do not promise to meet full need. They often have little to offer by way of financial aid for out of state students. You may not be any better off than you would be with a Profile school.
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<p>Thanks for heads-up. It's counter intuitive to think an out of state public college can easily be more expensive than a private.</p>
<p>
[quote]
Generally, "income" is salary plus untaxed fringe benefits [e.g., 401(k) contribution] plus investment income less taxes (including the Medicare tax even though the form only states "Social Security tax") as reported on the tax return filed for the year before the application is being filed. A small cost of living allowance based on the state of residence, family size, and age of the older parent is permitted to be subtracted from income. Assets generally include cash, savings, investments, rental and vacation real estate, and the net worth of any business-all as determined on the single day that the applicant happens to sign the FAFSA. Therefore, if the FAFSA is completed on February 1, 1998 and signed and filed on that date and the applicant suddenly inherits $1 million on February 2, 1998, the FAFSA as filed is true, correct, and complete and need not be amended to reflect the inheritance as an asset.
<p>The confusion stems from the fact that inheritances are excluded from the income tax, not because they are not income, but because Congress chose to tax inheritances under a different tax system, the estate tax. Gifts are similar, they are income excluded from income tax, but taxed under the gift tax system. So it is easy to fuzzify the thinking to conclude that FA forms do not include gifts and inheritances as income. The FA forms, however, make no exclusion of inheritances or gifts from income. It is oh-so-tempting to reach for the straw that seemingly allows you to ignore the inheritance for FA. </p>
<p>Note an inheritance is a form of gift, sometimes also called a bequest. The gift is executed by the administrator or executor of the estate, per the instructions of the will.</p>
<p>
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And, since it is no longer liquid, it is no longer an asset by their standards.
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Not true. Non-liquid assets are still assets. The only non-liquid assets that are not reported are the primary residence and specifically defined retirement accounts (I call these non-liquid since there are penalties to their withdrawal). </p>
<p>If you buy a second home, for example, that second home is an asset that must be reported.</p>
<p>
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The question of whether inheritance is income or asset in the first year is a critical one that I need to find an answer to as well. I guess if it's income, there's no hope for the first year. Unfortunately, I read that once they get an idea of what you can afford the first year, it's very hard to change their impression of you in subsequent years.
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<p>My understanding is that for FAFSA the inheritance should be reported as income on worksheet B (untaxed income) in the year it is received and also that any balance remaining on the date you file FAFSA is reportable as an asset. Then it is possible to ask for a special circumstances adjustment. According to finaid the usual treatment by a financial aid officer would be to exclude it from income but it is up to their discretion. </p>
<p>I am not basing this on personal experience but on what I have read on CC and also finaid.org about special circumstance adjustments</p>
<p>
[quote]
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. Most wills include clauses requiring the estate to pay all taxes. The main exceptions are for income earned by the estate after the date of death, inherited pensions and IRAs, and capital gains from selling property that was inherited.)
<p>
[quote]
Not true. Non-liquid assets are still assets. The only non-liquid assets that are not reported are the primary residence and specifically defined retirement accounts (I call these non-liquid since there are penalties to their withdrawal).</p>
<p>If you buy a second home, for example, that second home is an asset that must be reported.
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<p>Actually, I wasn't referring to a second home, but a new primary home.</p>
<p>Swimcat, it is odd though that Worksheet B refers to untaxed income such as "railroad retirement benefits" and doesn't specify inheritance. Well, I'll get to the bottom of it and report back.</p>
<p>I do think if we were to immediately convert the money to an asset (new primary home) and remain within the simplified needs test (earning minimal amounts between date of death and settlement) where assets are not considered, that it would be possible to shelter the inheritance. However, that goes back to Profile and finding school that only use 2.4 times income as a home equity figure. Is anyone familiar with any Profile schools this use this 2.4 times income as home equity figure?</p>
<p>You do have to report inheritance as income. It is then up to the FA officers at the individual colleges to back it out at their discretion. That is included in the FAFSA direction to them.</p>
<p>If you put $700,000 into a savings account at 5% interest, you would get $35,000 in interest each year. $500,000 would get you $25,000 a year interest at 5%. I'm not sure why you wouldn't want to somehow put at least part of this money into an interest bearing account and help pay for your kids to go to college with that money. Why???</p>
<p>Thumper, I'm sure the OP will be paying some of the kids' college with the windfall. The question is how much. Also without any knowledge of present situation including home condition, retirement savings, etc, it is difficult to say how much she can afford. This is what a financial consultant can suggest. Address the most important stuff (does she have decent health insurance, disability provisions, a car that is reliable and safe, a home in decent repair, recommended pension stashed) and then see where college falls. Also the financial aid system does allow exceptions for one time type windfalls, understanding that they do not accurately reflect a family's financial picture. All of these things should come into play as she decides how to parlay the inheritance into her life. Also, the assets may not be liquid immediately.</p>
<p>Well, currently we don't even have enough income (only last week I was considering taking off health insurance as it eats up 25% of husband's check, and we don't go to the dr anyway because we haven't been able to afford the $1k ded or 30% co-pays - I am still paying off pmt plans for last year's visits). We seriously need to keep this money intact for retirement - there has been no money to contribute to 401ks beyond the 2 1/2% that is matched by employer - so there is a whopping $12k in 401K now). And, there is college for daughter who will likely have to go the private school route, and then there's grad school for son to be prepared for. I would have S go to UF in a heartbeat before having to pay close to full COA for a private - there are just other priorities and UF is a great school.</p>
<p>But, if there were a way to legally work within the system, shelter the money as a growing non-liquid asset (a house that would also have the effect of eliminating mortage pmts and thereby increasing available income) - that would give me extra money now and not effect eligibility for financial aid, plus protect the inheritance in an asset that would grow in value over time, plus put a permanent roof over our heads.</p>
<p>I haven't read through all of this, so it may have been covered elsewhere.</p>
<p>If some of the money is in a retirement fund (IRA or 401k or the like) it may be possible to roll it into a "Beneficiary IRA" or "Inherited IRA". You would have to take out a certain amount each year based on your life-expectancy, but the bulk of it would be in the category of a retirement fund, and so would be out of view for FAFSA (but maybe not for Profile).</p>
<p>Your situation is very challenging. I wish you all the best, and do hope that you find a good financial advisor who can help you sort through all of your issues.</p>
<p>I'm not a fan of annuities bcos of the large broker commissions, but this is one instance where they might add value since an annuity is treated like a retirement plan by fafsa, is it not?</p>