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.
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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
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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. Often the
grandparent will move in with the parent during the lookback period.
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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
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.