Treatment of Grandparent Assets Held by a Parent on the FAFSA
April 05, 2010
I am completing the FAFSA for my son and daughter. My Mom is elderly and has put my name as secondary on her accounts. Do I have to report the money in those accounts as my assets on the FAFSA? It doesn’t seem fair if I do, because the money is not mine to use. — Chris S.
Grandparents sometimes transfer their assets to their children in order to qualify for Medicaid coverage of nursing home care or to facilitate estate planning.
Medicaid rules require the grandparent to spend down their own assets for the nursing home care before Medicaid will assume financial responsibility. Transferring the assets to a son or daughter is one way to shelter them. But Medicaid will review the grandparent’s financial records for the past five years to look for such asset transfers. Coverage is delayed according to the value of the assets that were transferred. (A three-year lookback was used prior to the enactment of the Deficit Reduction Act on February 8, 2006.) Often the grandparent will move in with the parent during the lookback period.
The money might “technically” be the grandparent’s, but legally the money belongs to you. You can’t have it both ways. In order to qualify for Medicaid coverage of nursing home care, the assets must be legally owned by you, not the grandparent. But if the assets are legally yours, they must be reported on the FAFSA and as such will affect eligibility for need-based financial aid. You may think of the assets as “really” being owned by the grandparent, but legally the assets are owned by you and you may spend them for any purpose including your child’s tuition.
When assets are retitled for estate planning purposes, it is important to verify who legally owns the assets. For example, a Totten Trust (“In Trust For”) account is still an asset of the grandparent. Similarly, a power of attorney does not affect account ownership, but rather gives you the authority to manage the grandparent’s financial affairs. The easiest way to determine asset ownership is to follow the taxes. If the income from the account is reported to the IRS on your Social Security Number and you pay the taxes on the income, you are the owner of the account.
My ex-husband passed away in December. He left me as the beneficiary on his life insurance and my children as beneficiaries on his 401(k). At this point we are still knee deep in paperwork and have not seen any money from his estate. How do these factors affect our FAFSA? Do we have to report any of this money? Any suggestions as to handle this situation? I am single and make less than $30,000 per year. With two children attending college this fall I am going to need all the financial aid I can get. — Donna C.
Until the estate is settled, the money is not reported as an asset on the FAFSA. Likewise, the proceeds from the life insurance policy are not reported as an asset until you receive them.
If ownership of the assets is contested and the ownership has not yet been resolved (say, his children by another marriage are challenging the will), the assets are not reported on the FAFSA.
Thus it matters when the FAFSA is filed. If you file the FAFSA before the paperwork is finished and you are given control over the funds, then the pending or contested assets are not reported on the FAFSA. The FAFSA uses a snapshot of the assets and is not updated for changes in assets that occur after the FAFSA is filed. If you file the FAFSA after everything is resolved, you must report the assets.
Note, however, that if your income is under $30,000 and you were eligible to file an IRS Form 1040A or 1040EZ (or if you satisfy certain other criteria such as qualifying for certain federal means-tested benefit programs), you will qualify for automatic zero EFC and for a full Pell Grant regardless of your assets. If your income is over $30,000 but less than $50,000 and you satisfy the tax form or other requirements, you will qualify for the simplified needs test and your assets will be disregarded.
Need money to pay for college?
Every semester, Fastweb helps thousands of students pay for school by matching them to scholarships, grants and awards for which they actually qualify. Sign up today to get started. You'll find scholarships like the Course Hero's $5,000 Scholarship, and easy to enter scholarships like Niche $2,000 No Essay Scholarship.