<p>My FIL has money, in his name, for my D for college. He has it set up in a CD where if he dies, my D is the direct beneficiary. Now according to a friend's interpretation of estate rules, there should be no gift tax involved since the amount would be a bit under 20K (or is it? since it's paid upon his death and can it be counted as a gift from grandpa + grandma?). But if he should die and D gets the money, will that count as income for Financial Aid for the following school year and thereby possibly reduce her financial aid award?
H recently re-did his estate planning and could possibly have placed the CD, where the money now resides, into a trust but I don't know for sure.
If anyone has some good insight, I am all ears. I do understand this is a tax issue but I'm trying to get as much information as I can. Neither my FIL, nor my H like dealing with money matters, so I want to be as informed as possible when I bring up the topic.</p>
<p>I’m not a tax expert, but I don’t believe inheritances are counted as income. HOWEVER the amount of money in a bank account in your daughter’s name would be considered an asset. Student assets are tapped at 20% while parent ones are 5.6% or so. If you can do some “planning” with regard to placement of that money if/when your father in law dies, it would be a good idea. Better to have it in the parent name than in the student.</p>
<p>There are taxes on inheritances in excess of a certain amount. I don’t know that amount. I don’t believe inheritances are subject to “gift tax”.</p>
<p>Remember too that unless there has been excellent estate planning, any monies in Grandpa’s name will need to go through Probate before they are finally distributed to the heirs.</p>
<p>Having said that…it sounds like it is your father in law’s wish that if he dies, he wants this money to be used for college expenses. That is a wonderful gift.</p>
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<p>Maybe. In Illinois, for example, small estates (< $100,000 I think) can be handled through a small estate affidavit - no probate or court orders involved.</p>
<p>Actually, my FIL lives in Illinois, but according to H, he does not have a small estate. I imagine if D does end up getting the money, we would have her spend it that school year so that it does not sit and be counted ;). I will be asking FIL for more details when I see him during Labor Day weekend. I would prefer to have H be beneficiary, which I thought would make the money a parent asset. But the change would have to be done by FIL so it’s entirely up to him.</p>
<p>I encourage you to talk to your financial adviser or find one if you don’t already have one. The amount that you would be penalized on the FAFSA may be minimal in comparison to what she would gain if well invested. A chat with an attorney would also be wise.</p>