"Gifting" assets to family members

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nicdmx
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"Gifting" assets to family members

Postby nicdmx » Tue Jan 12, 2010 8:10 pm

In order to minimize my assets pre financial aid applications I am considering gifting some cash to family members who would then be able to provide support to me later while in school. I obviously don't want to do this, however, if it would be considered fraudulent.

Does anyone have any experience with this? Would this raise some sort of red flag? Do FAFSA and/or institutional financial aid forms typically ask for enough bank statements that they would tip this off?

I can't see how it would be fraudulent for me to provide gift dollars to family member, however its not worth it if it leads to some sort of stressful audit.

lewis louis
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Re: "Gifting" assets to family members

Postby lewis louis » Tue Jan 12, 2010 8:23 pm

Well you can only gift so much before the recipient would have to to claim that as taxable income (not sure if they would want that). Moving money around is always tricky. I'm assuming we're talking about a large sum of money, money that has probably be accruing lots of interest even if the principle isn't this past years income. If you claim a large amount of interest income, they may wonder where all that money went that accrued said interest. I'd suggest moving the money into some sort of educational IRA; like a 529, which wouldn't penalize you with regards to fafsa as much. I wouldn't say gifting the money is fradulent, but it isn't exactly honest to try to dupe anyone in this process. Gifting that money may raise red flags, and isn't the right thing to do, imo.

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straxen
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Re: "Gifting" assets to family members

Postby straxen » Tue Jan 12, 2010 8:28 pm

lewis louis wrote:Well you can only gift so much before the recipient would have to to claim that as taxable income (not sure if they would want that). Moving money around is always tricky. I'm assuming we're talking about a large sum of money, money that has probably be accruing lots of interest even if the principle isn't this past years income. If you claim a large amount of interest income, they may wonder where all that money went that accrued said interest. I'd suggest moving the money into some sort of educational IRA; like a 529, which wouldn't penalize you with regards to fafsa as much.


Re: taxable income, that's not entirely true, gift tax reporting might apply but tax wouldn't actually apply until the lifetime limit is reached, and even then its on the gifter (the preceding is not advice and should not be acted upon, for discussion only, only a lawyer/cpa, as applicable can give such advice)

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YCrevolution
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Re: "Gifting" assets to family members

Postby YCrevolution » Tue Jan 12, 2010 8:46 pm

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lewis louis
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Re: "Gifting" assets to family members

Postby lewis louis » Tue Jan 12, 2010 8:53 pm

straxen wrote:
lewis louis wrote:Well you can only gift so much before the recipient would have to to claim that as taxable income (not sure if they would want that). Moving money around is always tricky. I'm assuming we're talking about a large sum of money, money that has probably be accruing lots of interest even if the principle isn't this past years income. If you claim a large amount of interest income, they may wonder where all that money went that accrued said interest. I'd suggest moving the money into some sort of educational IRA; like a 529, which wouldn't penalize you with regards to fafsa as much.


Re: taxable income, that's not entirely true, gift tax reporting might apply but tax wouldn't actually apply until the lifetime limit is reached, and even then its on the gifter (the preceding is not advice and should not be acted upon, for discussion only, only a lawyer/cpa, as applicable can give such advice)


I was just saying income tax for ease, I meant gift tax. Ultimately it wont make a difference. After 12000 i believe it has to be reported and whatever come with claiming that would be on the gifter, i would assume

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kn6542
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Re: "Gifting" assets to family members

Postby kn6542 » Tue Jan 12, 2010 8:56 pm

lewis louis wrote:. After 12000 i believe it has to be reported and whatever come with claiming that would be on the gifter, i would assume



Yes, that is basically correct. The recipient needn't worry about it. (Although the FAFSA wants the recipient to report it. Not sure why anyone would, though, unless the gifter is reporting it to the IRS).

nicdmx
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Re: "Gifting" assets to family members

Postby nicdmx » Tue Jan 12, 2010 8:59 pm

lewis louis wrote:
straxen wrote:
lewis louis wrote:Well you can only gift so much before the recipient would have to to claim that as taxable income (not sure if they would want that). Moving money around is always tricky. I'm assuming we're talking about a large sum of money, money that has probably be accruing lots of interest even if the principle isn't this past years income. If you claim a large amount of interest income, they may wonder where all that money went that accrued said interest. I'd suggest moving the money into some sort of educational IRA; like a 529, which wouldn't penalize you with regards to fafsa as much.


Re: taxable income, that's not entirely true, gift tax reporting might apply but tax wouldn't actually apply until the lifetime limit is reached, and even then its on the gifter (the preceding is not advice and should not be acted upon, for discussion only, only a lawyer/cpa, as applicable can give such advice)


I was just saying income tax for ease, I meant gift tax. Ultimately it wont make a difference. After 12000 i believe it has to be reported and whatever come with claiming that would be on the gifter, i would assume



Yeah I was only interested in making a couple gifts just up to the tax free gift limit (I believe $13,000 per gift per year).

I'm not too sure if a 529 plan will work too well. From what I can tell from the documentation for the school I will probably be attending (private school), they consider ALL student assets in the calculation, and 50% of 401k assets, which is unfortunate. I wouldn't be so worried about it if I didn't have a mortgage to worry about while in school. I'm sure they won't consider my mortgage payment in their calculations...hopefully they consider the negative equity I currently have in the house.

Anonymous Loser
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Re: "Gifting" assets to family members

Postby Anonymous Loser » Tue Jan 12, 2010 9:10 pm

lewis louis wrote:Well you can only gift so much before the recipient would have to to claim that as taxable income (not sure if they would want that). Moving money around is always tricky. I'm assuming we're talking about a large sum of money, money that has probably be accruing lots of interest even if the principle isn't this past years income. If you claim a large amount of interest income, they may wonder where all that money went that accrued said interest. I'd suggest moving the money into some sort of educational IRA; like a 529, which wouldn't penalize you with regards to fafsa as much. I wouldn't say gifting the money is fradulent, but it isn't exactly honest to try to dupe anyone in this process. Gifting that money may raise red flags, and isn't the right thing to do, imo.


This is terrible advice: not only are 529 plans required to be reported as assets for FAFSA purposes, but the full amount invested in such a plan will factor into the EFC calculation. Were the funds left as they were* the EFC formula* takes into account roughly 35% of those assets. In other words, if you are trying to minimize your EFC, the worst possible thing to do would be to move these funds into an educational savings plan.

If you don't understand educational lending, don't try to advise people.


*Assuming that by "cash" the OP means the funds are not in some sort of account (IRA/401k/Med Savings Plan) that is not required to be reported or included in the FAFSA calculation.

*Setting aside differences under Federal methodology and Institutional methodology, since even the most basic principles seem woefully misunderstood in this thread.

nicdmx
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Re: "Gifting" assets to family members

Postby nicdmx » Tue Jan 12, 2010 9:13 pm

Anonymous Loser wrote:
lewis louis wrote:Well you can only gift so much before the recipient would have to to claim that as taxable income (not sure if they would want that). Moving money around is always tricky. I'm assuming we're talking about a large sum of money, money that has probably be accruing lots of interest even if the principle isn't this past years income. If you claim a large amount of interest income, they may wonder where all that money went that accrued said interest. I'd suggest moving the money into some sort of educational IRA; like a 529, which wouldn't penalize you with regards to fafsa as much. I wouldn't say gifting the money is fradulent, but it isn't exactly honest to try to dupe anyone in this process. Gifting that money may raise red flags, and isn't the right thing to do, imo.


This is terrible advice: not only are 529 plans required to be reported as assets for FAFSA purposes, but the full amount invested in such a plan will factor into the EFC calculation. Were the funds left as they were* the EFC formula* takes into account roughly 35% of those assets. In other words, if you are trying to minimize your EFC, the worst possible thing to do would be to move these funds into an educational savings plan.

If you don't understand educational lending, don't try to advise people.


*Assuming that by "cash" the OP means the funds are not in some sort of account (IRA/401k/Med Savings Plan) that is not required to be reported or included in the FAFSA calculation.

*Setting aside differences under Federal methodology and Institutional methodology, since even the most basic principles seem woefully misunderstood in this thread.


Well its not cash in terms of bills under my mattress, just money in a plain old bank account....any thoughts?

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Kohinoor
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Re: "Gifting" assets to family members

Postby Kohinoor » Tue Jan 12, 2010 9:13 pm

Oh lawyers.

toaster2
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Re: "Gifting" assets to family members

Postby toaster2 » Tue Jan 12, 2010 9:18 pm

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Last edited by toaster2 on Tue May 25, 2010 1:39 am, edited 1 time in total.

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YCrevolution
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Re: "Gifting" assets to family members

Postby YCrevolution » Tue Jan 12, 2010 9:20 pm

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leron
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Re: "Gifting" assets to family members

Postby leron » Tue Jan 12, 2010 9:24 pm

fwiw, i believe you can make an election to split a gift over 5 years. e.g., if you gift $50,000, you can elect to treat it as a gift of $10,000 in each of 5 years, thus, coming under the limit and not being subject to gift tax. you may or may not still have to file the gift tax return to indicate the election

nicdmx
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Re: "Gifting" assets to family members

Postby nicdmx » Tue Jan 12, 2010 9:27 pm

toaster2 wrote:not worth the effort because you are not getting financial aid. it's much less about what you have, than what your parents have. think about it: nearly everyone starting law school has nowhere close to enough assets to make a dent in the $200,000 cost. financial aid is really only meant to promote a diversity of financial backgrounds. furthermore, why should anyone attending law school really need financial aid? most nearly everyone will be eligible for loans up to the entire cost of attendance, and those not seeking private sector employment should weigh LRAPs carefully.


luckily I'm above the age limit above which parents income needs to be considered. From what I can tell from this:
http://www.law.harvard.edu/current/sfs/ ... ssets.html,
it would not be uncommon for an institutional application to consider savings and checking accounts...

Anonymous Loser
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Re: "Gifting" assets to family members

Postby Anonymous Loser » Tue Jan 12, 2010 9:35 pm

YCrevolution wrote:
Anonymous Loser wrote:
lewis louis wrote:Well you can only gift so much before the recipient would have to to claim that as taxable income (not sure if they would want that). Moving money around is always tricky. I'm assuming we're talking about a large sum of money, money that has probably be accruing lots of interest even if the principle isn't this past years income. If you claim a large amount of interest income, they may wonder where all that money went that accrued said interest. I'd suggest moving the money into some sort of educational IRA; like a 529, which wouldn't penalize you with regards to fafsa as much. I wouldn't say gifting the money is fradulent, but it isn't exactly honest to try to dupe anyone in this process. Gifting that money may raise red flags, and isn't the right thing to do, imo.


This is terrible advice: not only are 529 plans required to be reported as assets for FAFSA purposes, but the full amount invested in such a plan will factor into the EFC calculation. Were the funds left as they were* the EFC formula* takes into account roughly 35% of those assets. In other words, if you are trying to minimize your EFC, the worst possible thing to do would be to move these funds into an educational savings plan.

If you don't understand educational lending, don't try to advise people.


*Assuming that by "cash" the OP means the funds are not in some sort of account (IRA/401k/Med Savings Plan) that is not required to be reported or included in the FAFSA calculation.

*Setting aside differences under Federal methodology and Institutional methodology, since even the most basic principles seem woefully misunderstood in this thread.

It's going to be an asset either way (it's currently liquid cash). At least with the 529, gains will be tax-free if spent on qualified educational expenses. The only 100% legitimate way to get rid of the cash is to spend it or give it away*.

*By that, I mean give away with NSA. I'd have concerns about the legality of "gifting it" with the expectation that he'll get the money back. Even if that wasn't a concern, you'd have to trust whoever you're giving the money to to give it back to you.
If the OP is able to realize such significant capital gains between now and the start of school in August that tax liability becomes burdensome, I'm gonna want the number of his broker. Hell, even if he sits on it for three years and then uses it to fund an LLM or something, I'll be impressed if capital gains taxes offset any debt savings garnered by leaving the funds as they were.

Moreover, for federal educational lending purposes, there is a 100% legitimate way to get rid of cash: put it into a qualified retirement account, and it's gone. Institutional lending/grants are a different matter, and varies from school to school, but it's uncommon for more than 50% of qualified retirement assets to be factored into the EFC calculation.


OP, before getting to carried away, have you run the numbers through an EFC calculator online? A lot of people overestimate the impact cash assets have on their financial aid package. Additionally, people often don't understand how limited the impact of your EFC is outside of (very uncommon and limited) institutional grants. Dig around for old posts by a poster named "sockpuppet," he has some great posts that break down the overall cost of loans assuming you qualify for the best-case scenario federal educational package and the worst-case. If I recall correctly, the difference amounts to somewhat less than $10k over the life of the loans (although it's been awhile since I looked that over). In other words, this might not be as big a deal as you think, and almost certainly doesn't warrant sketchy actions like gifting funds to family members. I'd maximize retirement account contributions* before taking any other action, assuming you'll take no losses in withdrawing the funds.

*After consulting a qualified financial advisor.

edit: fixed a few typos, multi-tasking and not paying enough attention.
Last edited by Anonymous Loser on Tue Jan 12, 2010 9:48 pm, edited 1 time in total.

toaster2
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Re: "Gifting" assets to family members

Postby toaster2 » Tue Jan 12, 2010 9:40 pm

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Last edited by toaster2 on Tue May 25, 2010 1:39 am, edited 1 time in total.

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YCrevolution
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Re: "Gifting" assets to family members

Postby YCrevolution » Tue Jan 12, 2010 9:58 pm

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bahama
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Re: "Gifting" assets to family members

Postby bahama » Tue Jan 12, 2010 11:53 pm

nicdmx wrote:Yeah I was only interested in making a couple gifts just up to the tax free gift limit (I believe $13,000 per gift per year).

I'm not too sure if a 529 plan will work too well. From what I can tell from the documentation for the school I will probably be attending (private school), they consider ALL student assets in the calculation, and 50% of 401k assets, which is unfortunate. I wouldn't be so worried about it if I didn't have a mortgage to worry about while in school. I'm sure they won't consider my mortgage payment in their calculations...hopefully they consider the negative equity I currently have in the house.

Why don't you use the cash to pay down the mortgage and/or refinance.

It's 100% legitimate and could solve other issues like reducing the mortgage payment you will have while you are in school with no income.

hayansekki724
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Re: "Gifting" assets to family members

Postby hayansekki724 » Sun Jan 02, 2011 1:08 am

I had the same idea, although apparently it's not original. As above users mentioned, the expectation that the "gift" recipients support you would probably make this a non-gift investment of some time.

I would really like to know though, if I do give money away to a few people this year, and they happen to give me money down the road if I end up short on cash, is everything kosher? If only I had already gone to law school so I could figure this out. It certainly doesn't look like fraud or money laundering to me, but that's not likely to be what counts.

Has anyone ever tried giving away money before filing FAFSA? Any repercussions?

Having lived in absolute poverty in order to save up a few thousand dollars, I would be really peeved if I was determined less eligible for aid than someone who bought a new car. I'd rather give the money away to people I care about.

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YCrevolution
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Re: "Gifting" assets to family members

Postby YCrevolution » Sun Jan 02, 2011 1:15 am

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hayansekki724
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Re: "Gifting" assets to family members

Postby hayansekki724 » Sun Jan 02, 2011 1:24 am

YCrevolution wrote:If your only savings is a few thousand dollars, you'll likely be fully eligible for subsidized Staffords.


Thank you, but that doesn't quite answer the question. The FAFSA forms take personal savings into account at a rate of between 20% and 50% after the first couple thousand dollar exception, depending on what level of dependency they infer upon the applicant. Seeing as how awards appear to be quite need based at the institutions I've checked up on, this could cost me many thousands (note that they're "few" when I have them, but "many" if I have to lose them. Things are all relative). :lol:

It looks like FAFSA will ignore my savings due to my low income, but I doubt the schools will...

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YCrevolution
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Re: "Gifting" assets to family members

Postby YCrevolution » Sun Jan 02, 2011 1:28 am

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hayansekki724
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Re: "Gifting" assets to family members

Postby hayansekki724 » Sun Jan 02, 2011 1:38 am

YCrevolution wrote:Schools probably won't, but many/most use institutional forms... something other than FAFSA.


Every one I've looked at requires FAFSA though, in addition to their institutional forms. I have no doubt they give a high weight to student savings, which brings us back the the question at hand: is it okay to make those tax-free gifts prior to filling out FAFSA and those institutional forms? Are there no over-achieving pre-lawyers here who have found precedent?

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YCrevolution
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Re: "Gifting" assets to family members

Postby YCrevolution » Sun Jan 02, 2011 1:58 am

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09042014
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Re: "Gifting" assets to family members

Postby 09042014 » Sun Jan 02, 2011 2:02 am

Very few schools give significant need based financial aid. It's probably not even worth it.




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