<p>We are in the process of working with my mom's attorney to set up paperwork for my mom's things. She is in long term care and will use all of her funds (and may be there for years, one never knows....She will be able to leave the house which she wants to divide between me and a couple others in the family. The idea is that we would probably then sell the house...that will have to be decided when the time comes, but I think selling it will be most likely. Another family member lives there now, but maintenance is becoming a bit much for them to handle.</p>
<p>We can set it up in one of 2 ways; jointly so that each of us actually owns the house equally...like a joint checking account, or in a way they specifies that a certain percentage belongs to each person. We'd maybe be talking about around 50K value per person. </p>
<p>My question is about how this might affect financial aid and how it would be best to set it up.</p>
<p>If we do inherit a part of her house, will it matter which way we have it set up, and what affect will selling vs not selling it have? We have our own house (not paid for), so I guess it would be considered a 2nd home.</p>
<p>I’m confused. Is your mom giving this to you NOW? If so, your share of the value would be viewed as an asset. It is real estate that is not your primary residence.</p>
<p>Assets are assessed at 5.6% or so of value…so $50,000 would add $2500 or so to your family contribution. Parents do have an asset protection allowance, and of you don’t have other significant assets, the value of this house could well be below the asset protection amount…and would add nothing to your FAFSA EFC.</p>
<p>How a Profile School would treat this is anyone’s guess.</p>
<p>She is not giving it to us now, but setting up her paperwork (like a will, but done as a deed something-or-other that transfers the house automatically upon her death…since there won’t be any other assets). </p>
<p>So this would be on her passing, the timing of which we can’t predict, of course, but her health is not good and she is in long term care, so it seems a good possibility that it would come up in the next 4-5 years (college years for us). </p>
<p>Since we are in the planning and setting it up stages, I just want to be sure we set things up in the most beneficial way. </p>
<p>So, if having the house would be an asset (How would IRS know that we are only a part owner, so not assess for the value of the whole house?)</p>
<p>Would the money from the sale of the house be assessed in the same way? Would the money from that sale be income? </p>
<p>Our regular income seems to put us at a point where we may or may not qualify for financial aid, and I am afraid that adding any (one time) income to that might knock us out of qualifying at all.</p>
<p>The proceeds from the sale of an inherited asset are not income. Depending on how long you hold the property, you may have a capital gain (or loss.) The only effect this should have on your financial aid is the value of the property or proceeds as an asset, which are assessed at 5.6% after your protection allowance as Thumper1 said. I have recently done a ton of research due to having inherited a number of different types of assets.</p>
<p>The money from the sale of a house isn’t usually income. It can be capital gains. That would depend on other factors.</p>
<p>The proceeds from the sale, say you got $50,000, would be treated like any other asset if it is in your regular bank account the day you file your FAFSA.</p>
<p>Again…if you don’t have significant other assets, this could come in under the asset protection amount.</p>
<p>And again…for FAFSA purposes, it would add $2500 or so to your family contribution. If you netted $50k in a sale, couldn’t you just ADD that $2500 to what you are paying for college from the house proceeds?</p>
<p>FAFSA calculations are very heavily weighted towards income. You might be doing these financial “gymnastics” in your head for NO real reason.</p>
<p>Sounds like it may be a gift deed with a retained life estate. I surmise this is being done for Medicaid (welfare) qualification purposes. This might be effective in some states to avoid a lien and payback to the state for the benefits received by mom during life. If that’s what it is, mom is making a gift to the children of the remainder interest in her home. This is not a future asset. It is a present asset. In other words, you would own your share of the home now, but it’s value is reduced because it is subject to your mom’s life estate. Imagine ownership of real estate on a timeline. Owning the “fee” means you own the whole timeline, now and forever, i.e., 100% ownership. What your lawyer is doing is dividing the timeline into two parts, the part that your mother owns which is her “life estate” (the piece of the timeline up until the point where she dies) and the “remainder interest” (the piece of the timeline from the point after she dies). Each of the parts of the timeline has a present value that can be determined by an actuarial calculation that takes into effect mom’s life expectancy.</p>
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<p>What do you mean, “assess the value” of the house. The IRS doesn’t care about the house unless it is producing rental income or deductions, such as depreciation, that you are reporting on your income tax return. If you are only a part owner, you would report your percentage of these tax attributes.</p>
<p>Thank you. That makes sense that the proceeds would be a capital gain rather than income…that helps. That’s one of the things I am trying to be sure of; that things can be done in a way that they won’t be income that might negatively affect our chances of financial aid. </p>
<p>DGDzdad, Thank you…I am working on understanding. I am not certain if that is the what the attorney is referring to. I will double check with her to clarify.
I misspoke when I said the IRS, when asking how ‘they’d’ know I only had partial interest in the house. What I am wondering is how I’d report that on FAFSA, or to a college; that we own a 2nd home, but not the whole house. I guess that might be covered when we report the value. That may be where there is a difference in the way ownership is set up on the house…either specifically divided so that each person owns a piece of the house, or set up as joint tenants so that everyone owns all of it.</p>
<p>Sho…I’m not sure it matters how it is set up. Regardless YOU have to declare YOU share of the value as an asset. If you are joint owners and you own a third…you declare a third of the value. If you only own a third, you declare that value. The value would be the same.</p>
<p>Again…INCOME is the primary driver for need based financial aid. If you are ONLY talking $50,000, I believe this is within the asset protection allowance. If you have significant assets other than this house,you may already have too much in assets to qualify for significant aid.</p>
<p>If you are looking at colleges that give a certain generous amount to earners below a certain income amount, you need to also know that these say “with typical assets”…whatever that means to them. If you have high assets, they may NOT be viewed as “typical”. Typical families don’t have secondary real estate. I’m not saying the college will view it that way…but MOST people do not have secondary real estate.</p>
<p>Regardless whether the title is tenants in common or joint tenancy, you still only own a percentage. It’s not the case that “everyone owns all of it.” If four people own a property as “joint tenants with right of survivorship,” they still each own 25%. If one of them dies, the surviving three own the property 1/3 each.</p>
<p>Lots of misinformation in these responses, and the OP needs to get advice from a lawyer and a CPA on these issues, not from random CC users. (Including me!)</p>
<p>No, an inheritance is not income, nor are the proceeds from the sale of an inherited asset income. The proceeds are capital gain (or loss) in all cases, the length of time held determines whether the proceeds are long term or short term capital gain, which are taxed at different rates, but neither is income. It sounds to me like the mother may be considering setting up a living trust, with the sole asset being the house and having it pass to the heirs outside of probate. If that’s the case it would not be an asset to the OP until after the mother’s death, at which point the value of the OP’s share becomes an asset. The form of title that the mother is leaving the house to the heirs does potentially make a difference.</p>
<p>OP, your mother’s attorney who is setting this up can explain these issues to you, but the attorney is your mother’s, not yours. You should go buy 2 hours of a good CPA’s time, one who has experience in college financial aid issues, and have him or her advise you on the FA consequences of the transfer and make suggestions to your mother’s attorney on the form of title. It makes absolutely no difference to your mother how the title to the property is held after her death, but it could matter to you and your siblings and you should do this planning BEFORE your mother signs the papers.</p>
<p>I agree with the above poster. But I’m not sure there is misinformation from all. I believe a few of us said this was NOT income, and also that it would not impact the OP until the mom dies (if set up that way).</p>
<p>We declined being part of a family trust which was also real estate. If we had been part of this irrevocable trust (a vacation home…not the same as the OPs situation because the property was not going to be used by the person setting this up), we would have had to list our share in the trust, as well as our college wannabe kid’s share…and both were large. </p>
<p>It caused a bit of ill feelings when we declined this “gift” but now a number of years later, we are still glad we did so. It was a family cottage in a location we could not easily frequent. And it is a money pit too…But that’s another whole thread!</p>
<p>It didn’t really matter for us financial aid wise, but in our case, this trust was to be handed down in perpetuity to the bloodline, and we didn’t want to saddle our kids and their kids with the issues of common trust property with a large number of other relatives…or the potential financial aid issues in the future.</p>
<p>As an FYI, we begged to speak to the trust lawyer who was setting up the trust in our family. We were politely told that we could not do so…even at our own expense. Thank goodness that the family contacted us, and allowed us to beg off. Really, this kind of thing can be set up without your permission or knowledge.</p>
<p>Thank you Requin. I will definitely know more about what to ask now. The CPA seems like a good idea. We don’t have one, but I will see if I can find one who is familiar with college FA. I don’t think I realized a CPA might be able to help with these questions.</p>
<p>Thumper, It can get so complicated, and it’s not as if we, or my mother are wealthy and have huge estates to deal with. It’s a bit overwhelming these issues are coming up right when we are trying to figure out college financial aid.</p>
<p>Beyond the great advice above, think long and hard before going into shared real estate (or any other financial obligation) with your family. One person disagreeing with another can mess it up for everyone. And by saying another family member lives there now, you already might be showing a possible problem. Imagine if your mother dies sooner rather than later, this other family member refuses to move out, and you all have to start paying taxes and insurance on the property.</p>
<p>Interesting. I’m involved in a family trust that sounds very similar, although it involves a “vacation” property that we use frequently, that’s been in the family for over 70 years. In order to become a trust beneficiary, family members must make an affirmative act of signing a document; with our trust there is no way that someone could become a part owner of the property without their knowledge and consent.</p>
<p>We went through a similar situation. My husband and his sister own an inherited property that they rent out, and barely break even. It was assessed as part of the CSS profile as an asset. We had to list the value of our share of the property. I attached a note, however, indicating how we are taking a loss on this home, and how we are unable to sell it, given the real estate market where it is located. Several fin. aid. officers “threw out” the value of the home in assessing our income, but only after we discussed the situation with them.</p>
<p>MiddKid. Your trust is already set up. To add beneficiaries you have a means.</p>
<p>When an irrevocable trust is SET UP, there is no requirement to ASK the beneficiaries of the trust if they want to actually BE beneficiaries. The person setting up the irrevocable trust can choose the beneficiaries as part of setting up the irrevocable trust. Our family member could have done so…but thank goodness she didn’t. We were given the option of being included…just ONE time…when the trust was set up. We opted out. The way this trust was set up, there is no provision for being added later.</p>
<p>A trust beneficiary should be able to disclaim title to any trust assets that he or she does not want. Certainly not the ideal situation (as opposed to not being named a beneficiary in the first place), but a disclaimer will prevent a situation where an unwilling beneficiary is asked to pay taxes or upkeep on a property or otherwise hold assets that are not wanted.</p>
<p>As far as no provision for being added later… what happens to the property when all the current beneficiaries are deceased?</p>
<p>In the case of our family trust…the provision of the trust states that the the trust beneficiaries will be any members of the blood line once they reach age 21. So…for the siblings who chose to be part…their kids will be next in line, and then their kids. There are FIVE siblings with kids. I don’t think they will run out of heirs.</p>
<p>The devil is in the details in trusts. I would advise the OP to find out exactly what is being done. That is the ONLY way for him/her to know the specifics of their situation.</p>
<p>If I were a guessing person, I’d have guessed a transfer-on-death deed, which my state has recently begun permitting, and which would give the OP no present interest in the land. The devil is in the details in title work, too.</p>