Hi. My mother’s financial advisor is advising her to gift each of her adult children $16,000/year. We’d like to use this to help pay for my current college student’s tuition this coming year (and likely same with her younger brother when he starts college in 4 years). My daughter attends a CSS Profile school. My question: Would it be better for my mother to:
Pay the school directly
Put the money into my daughter’s bank account and my daughter pay the school
Put the money into our (the parents’) bank account and we pay the school
Would any of these avoid a bigger hit on the CSS Profile / EFC, or cause a bigger hit?
Perhaps another perspective is when the money is in your account - is it more important to have it still in grandma’s account on the day the financial aid forms are being filled out?
How much the student has available to them can affect how much a profile school may expect the student to contribute. So typically it’s not recommended that the money go to the student.
Thanks - here’s a more recent article. It discusses what you are saying related to FAFSA.
I’m sure @kelsmom will know about CSS so good call. Hope it works out for the family.
It does say this - still about CSS:
The CSS Profile varies for each college, but typically students will report their 529 accounts, including those funded by grandparents, as well as assets and gifts.
If you know your grandchild plans to apply to private colleges, you may want to talk to a financial planner about the best ways to help them save.
Actually @kelsmom knows a lot about the FAFSA…and I’m sure will clarify this grandparent money issue WRT the FAFSA.
Usually, the Profile follows suit with the FAFSA.
In both cases…if the parent receives a gift, they are free to use that gift as they please…get a new car…finance part of college…go on vacation. Really…no one cares what the parents use their gift money to buy. So having the grands give the money to the parent of the college student (which sounds like what the grands plan to do) is fine.
The grandparents’ contribution makes no difference for a FAFSA school, but it may make a difference for a CSS Profile school. I have not heard for a fact that grandparent contributions won’t be considered.
I know FAFSA doesn’t ask, and I don’t think CSS asks, about money gifted to a parent. If the grandparents give the money directly to the parent as a gift, I don’t believe it would be reported … but I haven’t seen the Profile form in years. You can always call a Profile school & ask. Even when FAFSA asked about gifts of money to students, they never asked about gifts to parents - this makes me think CSS doesn’t ask. As @thumper1 pointed out, the parent can use that money for anything they want (including to pay for their dependent child’s tuition) without reporting that specific use on the financial aid form.
If Profile asks about gifts to parents, you can have the grandparents gift the money toward the end of college, because the form would ask for the tax year 2022 in 2024-25. Since it runs two years prior, you should be able to get gift money with no financial aid penalty from a CSS school in the student’s last couple years.
There’s a question on the CSS profile that asks about cash gifts or other assistance to parents. But then there’s also a place where it says not to report money in two places on the form…which perhaps suggests it can be covered as long as you’re reporting any that you have on hand when you report your savings. We get a yearly cash gift from my in-laws, and I reported it on the CSS for years, and our experience was that MOST schools seemed to ignore it in FA calculations (or perhaps count it as savings, which wouldn’t have a huge impact?). But then occasionally one seemed to count it as income (of course, no one tells you their formula, so this is all guesswork; it could also have been differences in how different schools treated home equity). The school one my kids actually attends seemed to count it one year and then ignore it the next year, so I finally got tired of the uncertainty (yes, probably should have earlier) and e-mailed to ask; the school told me to count it under savings and assets and not report it elsewhere, so that’s what I’ve done since.
My recollection from 2 years ago is that the CSS asks about what gifts you expect from others, esp your parents. I’m not sure that there is a way that avoids the question: I’m pretty sure they design the question to get at the plans for grandparents to gift money in any way that would reduce need. Can you get into the CSS yet? An/or look at yours from last year to read the exact way they ask the Q? I know it changes year to year.
If your mother is doing this for estate planning reasons (to draw her estate down by maximizing gifts without triggering annual gift taxes, which contain an $18K exemption), it would make more sense to pay the school tuition directly – that does not count as a gift. So you mother could pay tuition (or some portion of it) directly and then also gift you $16K. Paying non-tuition costs directly to a school is not an exemption from the gift tax, so that would be counted in the $16K gift FWIW; but if it is paid directly, that would be a gift to the grandchild, not to you, and there is an $18K gift tax exemption for each individual to whom gifts are given.
So what about the gift exemption for the year. If you plan to give millions to someone from your estate before you die, then it matters. Otherwise, the grands would just need to complete a form which documents the excess amount. If they don’t exceed the large lifetime amount before they die, this is a non-issue.
Because this person’s financial advisor was suggesting a $16K cash gift, it sounded like they might be focused on staying under the exemption amount. But you’re right, it only matters for very large estates.
I do not know what impact this has on financial aid.
As others have stated, this only has a tax liability related to gift taxes if the estate is quite large.
One thing that we did discover: With regard to gift taxes, there is an exemption if a parent pays tuition and fees directly to the university, rather than giving the money to an adult child and having them pay. If the estate is large enough, it might be worth finding out whether the same exemption applies to a grandparent paying tuition directly to the university.
OP: Use the 529 loophole so it won’t interfere with financial aid eligibility for your children. Grandparents open the 529 account and grandparents control it. Contact Fidelity Investments or another reputable investment firm.
yes, although it sounds like the plan is for this to be an annual thing going forward, not a one time gift, which makes the timing more complicated. It also only works if the OP doesn’t actually need the money to cover tuition in the short term.
Under student resources it asks about, “Relatives other than their parents and any other sources providing funds to help pay for college expenses” ETA: the question is, “How much does [student name] expect to receive from the following sources to pay for educational expenses for the 2024-25 academic year?”
Thanks so much for the replies, all. My mother’s intention is to give this amount each year, to draw her estate down, as some have noted above. But no, she doesn’t have an especially large estate (there will never be gifts on the order of millions).
The CSS does ask about gifts from “other family members,” and I’m hoping to avoid taking a hit in my daughter’s need-based aid. It sounds like the safest option for that concern would be to put it in the 529 my mother has for each grandkid, and then pay tuition out of that starting in spring of junior year.
Otherwise, we might just go the simplest route of giving it to us (the students’ parents).