Treatment of Grandparent Assets Held by a Parent on the FAFSA

Treatment of Grandparent Assets Held by a Parent on the FAFSA

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. 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.

Source: Fastweb

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