<p>Whoa, there. Inheritances have to be reported as income, taxable or not on FAFSA. The problem with the inheritance is that it also has to be counted as assets if it is sitting as such on the date you file FAFSA. So you get a double hit that year if you are not careful. If it is used to pay off debts, then it is gone and will not be counted as assets at the end of the year. </p>
<p>As to hiding money from FAFSA, that is really not the point. FAFSA is the government so it is illegal to hide it from them. It is a matter of putting the money where it is not counted for college. If you grandmother has an account for you or your sister, if it is in either of your names, such accounts need to be reported as such. So if your account was in your name and in existance at the time you filled out FAFSA, it needed to be reported as one of your assets. If the account was in your Grandmother's name with just designation made that it was to go to you, then it is not yours until it is transferred into your name. The same goes for your sister. For FAFSA, assets not in your name or your custodial parents' are not included as assets. However, bear in mind that for PROFILE, ALL siblings' accounts need to be included as family assets. They do ask for the information.</p>
<p>Many kids who have assets will use them to pay for a share of household expenses as well as any possible thing attributable to them to bring that number down so they are not double hit that year for income and assets. Then parents can pick up the cost of some more things than originally planned since their assets are only hit at a 5% rate. You may consider doing something like that where Your parents open up an account in their names for your college expenses.</p>
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The funds say Mom, Custodian, for (kid's name). They are Vanguard Value Index Fund, UTMA.
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<p>Since the funds are in the kids' names, they can't legally be moved to a parent account (at least in the US...Puerto Rico might have different tax laws). The funds can, however, be spent for the benefit of the kids, so if Mom was planning on buying you a car or a computer, that would be legitimate. </p>
<p>The best thing from an investment standpoint would be to open custodial 529s, which are 529 accounts in the kids' names, and transfer the cash to the 529s. That way you're not running afoul of tax laws, you're still saving the money (assuming the stock market turns around) and you're minimizing the FAFSA hit since 529s are only assessed at the 5.6% rate rather than at the student asset rate, which is 20%.</p>
<p>If the money has to stay in the student's name, use the entire amount toward the first year's educational expenses so it will not count against oyu in subsequent years.</p>
<p>Reread post #32 about ways to legally & ethically shelter the funds from being a part of the EFC formula</p>
<p>Thanks for the input. To clarify, of course I mean shelter the $, not hide it; I used a poor word choice but our actions were ethical. We reported the $ on Profile and FAFSA as requested. So, I'm gathering from all the input that to best shelter the money, my sister's $ (about $7,700) should best be in my grandmother's name, and my $ should best go in my mom's name in an account clearly stipulated for my educational use. I don't want to spend it all in one fell swoop because then I'll be stuck with no travel $ for the next three years (Anyone checked out airfare to Puerto Rico for Christmas break? HA!)
Thanks to all; the average Joe sure doesn't know about all this until getting whacked. Any further insights will be welcome...</p>
<p>It is unfortunate as I have seen families who have saved kids money in a college fund for the student. When the time came, their financial aid eligibility was affected by the larger hit on the kids assets. Any funds that are in the name of the kids should be spent down before the fin aid process if a family is borderline or eligible for aid as it can make a difference. Inheritances can get a double hit, as income when inherited and then as assets if sitting there at the time of filling out fin aid forms.Smart planning can mitagate some of that.</p>
<p>The thing that I did not understand clearly about financial aid, and what many parents, familiies don't get, is that most aid met will come from the college. I was surprised at how low the numbers have to be before you get governmet money. The less than $5k provided to those eligible for the full Pell is no where adequate to meet many tuitions, much less COA at private schools. And that thresh hold is very low, income wise. It seems to me in my area, more parents have the mistaken idea that they may be eligible for more aid than they will be from all of the encouraging articles and talk they get. That it is usually a 2 app process (FAFSA and PROFILE) to get any money, and how they differ, and what the thresh holds of finances are, comes as an unpleasant surprise to many. Also the amount of loans that are given even in a full aid package is surprising to many. Several kids I know got heavy loan packages from schools that one would have thought could do better than that.</p>
<p>Thanks Token, for that reference. I just barely skimmed it, but will give it a thorough read this weekend.</p>