Tricky financial situation - need advice

Paying for College
1

<p>Hi,</p>

<p>My son is a senior and has applied ED to a need-blind school that meets 100% of demonstrated need. Before applying, we ran our numbers through the fin aid calc and came up with a reasonable EFC for us (with a portion being his work study, about 2,000 expected from him from summer work, and a 5K student loan). Hubby's job had been stable for years and this was all pretty simple. However, hubby was laid off last week. He received severance for 8 months of work as a lump sum (taxed as income) and it all ended up in our 2012 income. We had to fill out the CSS Profile and it looked like our salary was huge for the year. For the year 2013, we estimated income that is about 1/4 of the artificially large 2012 amount, as hubby will likely be either starting up his own business, or switching careers and starting out at a lower salary than his engineering job. We took into account uneployment for a while, as well as me working some. We included a note in the special circumstances about our upcoming situation. </p>

<p>There is another financial consideration to take into account. My elderly father recently became extremely ill and my sister is now the POA (well, I am too, but she seems to want to make all the money decisions). They (she - as he is not mentally competent anymore) want to do some tax free gifting to my husband and me, yet we do not want a ton of added money in our assets right now. The assets appear large enough as it is with the severance, but yet that is something we have to live on while hubby is re-starting. They do not want to gift in my sons name, which is a good thing, but I think we would prefer to just not get the gift right now. My sister seems very anxious to give it to us. I don't want to be "able to afford" the full price of school because they wanted to give us money right now, right when we have a senior heading off to school. Or should we be thankful and take it and just use the whole thing to pay the first year of school in full? But they are not giving it to us "to pay for college". They are giving it to us because 2012 might be the last year my dad can be part of the giving equation, and they DO want to reduce their estate (at least I think that is why they are anxious to do it now - I can't be sure, as I'm not sure my sister is really sure either) It just happens that we are in a base year (well, past it actually, but we have a Junior, too, and this is his base year) and it feels awkward to get this extra right now. </p>

<p>My question is this - if my son gets accepted, might the aid package say we will need to pay in full (even without gifts from my parents), as that is what the 2012 numbers suggest? Or might the school make a consideration, since there is now no job? Being a binding ED school, we are in somewhat of a "bind" ;) Might they say, "Let's keep the package as is and see how the job hunt goes during the year?" </p>

<p>I'll know more at the end of the week, and it could be a moot point if he doesn't get in, but my sister is coming up from out of town this weekend, and already wrote the checks and I need to know what we should do. I will call my dad's accountant on Monday. I'm also not really up on ways to legally shelter the money if we had to take it. 5.86% of 50k is a lot of lost financial aid for money we don't need to get right now... </p>

<p>Does all this make sense? It feels like there are so many pieces of the puzzle. Do we talk to lawyers, accountants, or financial advisers? </p>

<p>I know there are some financial experts out there... Any advice? Thanks so much in advance.</p>

2

<p>I thnk the reason your sister is so anxious to gift you is that the current estate tax laws will be expiring at the end of 2012. IIUC, there will be new, substantially lower tax ceilings for estates and on gift transfers starting in 2013. </p>

<p>I’m not an expert, but what about gifting into parent-owned 529 plan for your son? Of course then you’re locked into using the monies for only your son’s educational expenses. </p>

<p>And yes, the college may not want to review the FA package until your husband has been out of work for a significant amount of time–6 months or more.</p>

3

<p>Thanks, WOWmom. I knew about the lower tax ceilings, but not about lower gift transfers? Their estate will still be less than the 1,000,000 which will be the new number, but we are in a state that has its own tax, and that is based on 675k. Now, mom is still alive and kicking and has many more years left, but I guess you never know. Gotta look into the 529’s. Not familiar enough with them. Thanks for input!</p>

4

<p>If both your parents are still alive, shouldn’t the money be used for their care, especially since your mother may need it?</p>

5

<p>Well, yes, but all their lives they have wanted to give us some while they were still alive and while it would be beneficial for us. It’s a little tricky since mom always did what dad wanted. She was never the money person. And now with her dementia, she really doesn’t fully understand. So sister is in charge, but is doing what our parents always would’ve wanted. Granted, they didn’t always think long term, so this would be a good opportunity for her to hold onto the money for the unknown future.</p>

6

<p>Well, yes, but all their lives they have wanted to give us some while they were still alive and while it would be beneficial for us.</p>

<p>Did something prevent them from doing so themselves?
I dont understand the rush to distribute the parents money especially when they are both living.</p>

7

<p>Where is your mother currently living? Won’t the fact that they gave away money affect any help she might require with assisted living if it comes to that point fairly soon?</p>

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<p>If either parent ends up in a nursing home, that money gifted to you could be claimed for their care. Medicare/medicaid has a 5-year look back period. Any money given to you will be considered an attempt to avoid paying for their own medical care, and you can be required to give it back.</p>

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<p>I know… I know… these are things I tried to get my sister to understand before doing any gifting. What prevented them from doing it themselves was that my dad was starting to experience dementia, but we didn’t really know, as he hid it and kept thinking he could just “pull himself together” more. He was always the one in charge of all money things and mom just went along with it. He was in the process of planning to do things for years. His lawyer sent him a letter in 2010 about updating the beneficiaries to his life insurance policies (updates that were about 10 years overdue…) and he put “needs to be addressed” on it, then it sat in a pile… I find my parents and how they did things very hard to explain.</p>

<p>They are both currently living, but dad has very little time left. He is on hospice and pretty much stopped eating and drinking last week. The stroke jump-kicked the dementia into high gear…</p>

<p>I have been meaning to meet with an elder attorney, but have had so much going on here with my parents, 3 teenagers, job loss… I guess my sister should’ve done that part since she doesn’t live here. </p>

<p>I don’t really understand the rush… need to figure that out. I thought it had something to do with 2012 ending…</p>

<p>Mom lives at the house (which they own in full) with dad and a full time Home Health aide. </p>

<p>Dad will not end up in nursing home because of hospice and his advance directive. I’ve read about the assisted living/nursing home care and the 5 year lookback, and the penalty would only arise if mom got to the point that the assets were low enough for her to be on medicaid. As far as I know, you are not required to “give it back” per se, but rather you are penalized a certain amount which is calculated by using an average cost of a day of care in a nursing home and multiplying that out for as many days as it takes to get to the value of the gift. </p>

<p>So my mistake in all this was not communicating all the ramifications to my sister and being clear myself on all the details. My husband is picking her up from the train right now and I’m not really looking forward to all this money talk…</p>

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<p>Oh, and EmeraldKity, they have gifted us at other times, so they did do it themselves. The last time was a few years ago, prob about 4 or 5 years ago.</p>

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<p>Something does not sound right. I am assuming that if your father dies, his assets are left to his wife. If that is the case, I believe that estate taxes should not be an issue. If he dies (and the POA allows it) then your mother can still gift in the future just at a lower rate.</p>

<p>This is a case where what is good for estate might not be good for the heirs. I would advise getting legal and financial advice from a professional especially if there are other heirs involved. They can help create a plan that balances the needs of everybody involved. You do not want the legal hassles if a will is contested. </p>

<p>Since you also have POA, this just be a joint decision. Does the POA allow gifts to be made?</p>

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<p>I didn’t see you last post before I posted.</p>

<p>You need legal help now. I would not be making gifts without legal advice. Yes it can make sense and I did for my parents but you seem to need advice if it is the right move for your mother at this time.</p>

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<p>Hi noname87 - You are totally correct with first two paragraphs. Time for more professional advice!</p>

<p>Our POA is ‘separately’ so we don’t need to make decisions together. Didn’t foresee this as a problem before, and hopefully can resolve this with sister. </p>

<p>Your last question was an exact question I had - if we are POA, is it even possible for us to gift to ourselves?? </p>

<p>I wanted to leave the money to sister and not get too involved, now it feels more complicated, stepping on toes, etc. ugh. Don’t want to sound too negetive. Thanks for your input! :)</p>

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<p>Since your parent have a lawyer, he should be open to a phone consultation or a last minute appointment to discuss this. Contacting their accountant would also be advisable.</p>

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<p>I have been through this both as an executor of my parents wills and as the POA. Inheritances can cause many issues and hard feelings in a family. It can be a rough ride.</p>

<p>If you are the future executor or co-executor then you need to be involved initially. Dividing the labor is fine if you have trust and also if you can let go. Realize that you might not agree with all the choices and might have to just agree to disagree. If you can’t then you need to define your role carefully if you are a co-executor. Doing this as a committee can be difficult.</p>

<p>FYI, no matter what you do, you will not likely make everyone happy. Just do your best.</p>

<p>As for gifting, a well written POA should have covered it. If there is doubt, ask the lawyer. And unless the POA prevents it, you can gift yourself. Some POA are broad and let the person do anything they want. Others can be very limited.</p>

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<p>POA is to act in parents best interests. They are allowed to gift, if that is the way it is written, but large amounts of money given as gifts when the parents arent competent to do so, would look a little odd.</p>

<p>Thirty states have filial responsibilty laws requiring children to pay for their parents care, including food, clothing, housing & medical care - so keep that in mind when deciding how much money to transfer.</p>

<p>Since elderly care is so expensive and since youve mentioned your mother is expected to live for many more years, it just doesnt seem prudent to use her funds before you know what her needs will be.</p>

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<p>Yep. Their lawyer was the one who recommended eldercare lawyer, as they know more specifics about the monies at this time of life. Sister has been in touch with their accountant, but sis still didn’t understand when I mentioned the 5 year look back stuff, so I’m not sure if she’s just not asking the right questions, or if accountant is not that good… can’t wait til tomorrow when I can call for myself…</p>

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<p>Thank you everyone, for all the input! I got a few answers today after speaking with my sister. Apparently, the impetus for this whole gifting thing was my husband’s job loss! My mom was worried about us. But, I DID tell her he had severance pay (she must have forgotten) and my sister should have told me this was the reason and i could have eased minds. My parents ALWAYS do everything exactly equal, so that when one of us receives a gift, the other does, too. Doesn’t always make sense to me… </p>

<p>So we are having her destroy the checks to us, and ironically, she and HER husband now have the extra 50k!! Sounds so backwards… Some simple communication would have helped all around. Not sure why my DH and I wouldn’t be included in the conversations or decision making when it was us mom was worried about, but things are better now and sis actually apologized. I’m also not sure why, if mom needs a POA, my sister would just listen to mom saying she wants to give us $ and then just go and do it? it was a decision mom was making #1 - without all the facts, and #2 - without a true ability to understand all the facts if she did have them. THAT is our role as POAs! </p>

<p>Emeraldkity - I see what you mean about how a POA gifting large amounts to themselves could look odd. and interesting about the filial laws. Did not know that one.</p>

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<p>Well, I’ve been “lurking” and reading on CC for a few months now - absolutely great site for all things college! Anyhow, I hadn’t registered until now because I wasn’t really looking to ask or answer questions - but this thread is one I wanted to weigh in on.</p>

<p>The OP asked some questions with regard to college financial aid, specificcally to an ED meet need college. I really didn’t see any answers to that but more a discussion of the ins and outs of gifting from a logistical and moral point of view. On this note, elderly parents gift all the time for many reasons - estate planning, medicaid planning, have pensions and don’t need income from assets, prefer to see money used for kids.G-kids now - whatever. Sometimes it’s done by greedy adult children when they get the POA. Either way, how on earth can anyone here know this family well enough to have any idea which it is in this case? (except the OP, of course).</p>

<p>Anyways, to address the questions… I’d guess you will be paying a lot for college in 2013 if your child gets into the ED college. I doubt any financial aid dept. is going to pay much attention to the “if come” financial troubles you may have NEXT year. That would be reflected on your FAFSA/CSS for 2014 school year. The “he’s starting a business or getting a lower paying job” is just not concrete enough for them to base CURRENT aid on, I wouldn’t think. Maybe you could have them prorate the severance over 8 mths or something like that but you still have the rest of your husband’s income from 2012 to report. Hopefully, IF your family income is drastically reduced in 2013 you’d get much more aid for 2014.</p>

<p>Getting a $50k gift to add to your bank account for the end of 2012 wouldn’t help either, of course - again, not knowing your other finances it’s tough to say how much. It sounds like this isn’t happeneing now anyhow though and maybe you’ll need the $50k more next year anyhow.</p>

<p>Good luck to your husband on getting work or starting a business!</p>

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<p>Id agree that schools are going to look at available monies as * available*.
Even if you say used $50,000 to pay down your mortgage, they are going to expect that it is available for college, in the first year.
If you have put it in a dedicated retirement account, after the first year, you shouldnt have to worry about it.</p>