I’ve been searching the web trying to figure it out but get conflicting answers. Last calendar year I received some money that was a final distribution of a relative’s trust after expenses were paid. Nothing on the FAFSA specifically talks about inherited money but I wondered if it would need to be included in the untaxed income section. One thing I read online is that the IRS doesn’t define inheritances as income (I need to find a credible source to verify that still). It wasn’t a lot of money and it has been spent in the meantime on bills, so I don’t have it as an asset to report, so the only question is about listing it as income. Not sure how to handle that for a one-time event like this.
It is not income for taxes. If it is not in the defined income for FAFSA, it is not income for those purposes either. FAFSA tell you where to put certain items (“income shown on line 7 of form 1040”, etc). Follow the instructions, but IMO if it is no longer an asset it will not be included.
The estate tax (often erroneously called the “death tax”, as if you wouldn’t be allowed to die if you didn’t pay the tax) only applies to multi-million dollar estates, or more precisely, applies after a multi-million dollar exemption. Currently the amount of the estate over $5,430,000 is taxable.
The estate tax is paid by the estate not by the person who inherits, regardless of the size of said estate. The exception is an inherited IRA (where the original owner never paid taxes on the amount put in) where there is a formula dictating how the distributions get taxed and paid for by the heir.
OP asked if the inheritance needed to be included on FAFSA, not taxes. I just pointed out it is not income for tax purposes, and unless fAFSA specifically directs you to include it in one of the questions, it should not be included as income. If the OP answers every FAFSA question and it is not asked for, then it’s not included.
Since the OP received the money, it has to be reported. It would count as money on hand/in bank accounts, if nowhere else.
The OP stated it wasn’t a lot of money and has all been spent. Not income, not assets for FAFSA.
Sounds like OP has nothing to report KKMama. The assets came and left.
I still don’t understand why she doesn’t have to report it. I know she doens’t have to include it in her asset because she already spent it. But the fact remains that she did receive the money. So she has to report it as untaxed income, right?
I think a better way to look at it is an inherited asset. This is how we handled it last year, and we even received a favorable professional judgement on a part of the inheritance that had to be reported as income on our tax return. If it was considered income, it is a common enough occurrence that I’m sure they would spell it out in the instructions.
I am searching an answer to the same question. I actually called FAFSA and was told by the person that answered my call that anything you received, even a cash gift, had to be reported as untaxed income. I think he is wrong there. But I still don’t have an answer. I think that is true for the student but I am a parent. He didn’t sound sure when he said it.
I’m the OP. It has been interesting to read through everybody’s responses. I wonder if I should call her first-choice college’s financial aid department and ask. I’d be ready to file today or tomorrow if not for this question and one other that I asked about on here last fall but didn’t get a lot of guidance about when I emailed the FAFSA helpline trying to clear up some confusion. Not sure whether I should call FAFSA on these 2 matters or just call the college. I need to get this filed but want to do all questions the correct way. Thanks for the input! Oh, the inheritance was $5100 and is gone, mostly due to high medical bills of over $15000 out of pocket last year, so it isn’t around to count as an asset.
Either forget about it or put it down on the untaxed income line. If $5,100 makes the difference on the EFC, then so be it. I doubt it will even bump the scale.
But on your other thread didn’t you say you wanted to ask for professional judgment about the $15000 medical expenses, to get more aid?..so it seems unethical to exclude or fail to mention the $5100 windfall unless you drop the medical down to $10k.
I’m not trying to be unethical. I’m asking all the questions so I do it right. I care too much to just type in answers without any thought like I suspect a lot of others may do. I don’t want to exclude anything that is required but it’s hard to find concrete answers, thus the reason for my questions from others that I hope have had a similar dilemma in the past and know how to handle things. I don’t know that I will ask for professional judgment; I haven’t even turned it in so I don’t know how my EFC will turn out. I’m just trying to get the big picture ahead of time on how this all works.
I understand your frustration with having trouble trying to find correct information to do the right thing. Unfortunately, if you call FAFSA and talk to five different phone representatives, you shouldn’t be surprised if you get five different answers. They just aren’t that well trained, beyond providing the most basic information.
It’s been awhile since I filed FAFSA, but inheritance is a gift. If someone leaves/gives you property (eg a house), you would treat inherited property as an asset for FAFSA purposes if you still owned it when you file FAFSA. You wouldn’t also list house’s value as income. Same thing for inherited cash. It’s just a gift in a different form. It would be treated as an asset like property for FAFSA purposes, not income. And on day of filing, if cash has been spent, nothing would be reported. Of course in my example if inheritance (house, cash) had generated income (e.g. interest, rent, etc), that income would need to be reported on FAFSA. And if you had sold house but had cash in bank, cash from sale would be an asset.
I ended up calling the FAFSA hotline and here is what I learned. A one-time income event that is reported would warrant a call to the college to tell them it made your income higher than normal and it’s not your usual income level. Then he asked if it was specifically an inheritance and when I said yes he checked further and told me that inheritances are not reported at all. I’m going to document the conversation and hope it’s right.
I think you can trust that answer. An inheritance is an asset, not reported as income (unless it’s over the $5M exclusion, which you said this is not). If you already spent it when you filed, then there’s no reason to say that you previously held that asset. It is not available to spend on college, and it does not indicate any future income will be available either.