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My husband killed himself because of extreme financial

stress. There was some life...
My husband killed himself because of extreme financial stress. There was some life insurance which I invested in stocks and bonds. This year I'll get $27,000 in dividends from bonds (on the next tax return). Our house is in foreclosure and the amount owed is more than the amount of the life insurance. My question is: my daughter got into a great college and received almost full need met aid because I had a 0 tax return last year. I don't have much income - I earned $18000 this year and the $27000 in dividends - but I am wondering if the fact that is dividends will effect the financial aid in the future years - and whether the life insurance is assets though I actually have more debt than it is worth.
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Answered in 18 minutes by:
3/26/2018
Lev
Lev, Tax Preparer
Category: Finance
Satisfied Customers: 33,117
Experience: Personal Investment, Tax Preparation
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but I am wondering if the fact that is dividends will effect the financial aid in the future years - and whether the life insurance is assets though I actually have more debt than it is worth.

We have two elements here which might affect your daughter's student aid - income and assets.

Dividends that you received will be reported as your income (and actually will be added to your other income) and stocks and other investments will be considered as your assets.

Parent's income and assets are generally reported on your daughter's FAFSA application for student aid until she reach age 25.

.

The life insurance proceeds paid to you because of the death of the insured person are NOT taxable income and is not reported on your tax return.

However for FAFSA purposes - proceeds count as income in the year received - and the part which was not spent - will be included into assets.

Because life insurance proceeds are a one-time event that is not reflective of income during the award year - most colleges will adjust the FAFSA from being counted as untaxed income - you may want to discuss that with the financial aid department.

But you may not prevent it to be counted as an asset.

So - if you have some debts - if may be better to use use at least some proceeds to pay off the debt and reduce your countable assets.

Assets are reported as of the date your daughter submits the FAFSA - so you may have some time to be prepared.

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Customer reply replied 3 months ago
I can't use the life insurance to pay off the debt because the debt is double the life insurance and I need the life insurance to last me for a long time because I don't have a set income. One more question - if you have 27,000 income from dividends on the tax return is it immediately assumed that comes from stocks and bonds (and are therefore assets) or could it come from something else - retirement or something that aren't necessarily assets.

I can't use the life insurance to pay off the debt because the debt is double the life insurance and I need the life insurance to last me for a long time because I don't have a set income

You may keep some assets - that is not an issue - and not necessary will disqualify your daughter.

But there will be some asset level when her financial aid could be affected.

FAFSA4caster gives you a free early estimate of your eligibility for federal student aid. This information helps families plan ahead for college.

https://fafsa.gov/FAFSA/app/f4cForm?locale=en_EN

You may use this estimate before you apply - and verify what asset level you may have and how her financial aid could be affceted

if you have 27,000 income from dividends on the tax return is it immediately assumed that comes from stocks and bonds (and are therefore assets) or could it come from something else - retirement or something that aren't necessarily assets.

That makes NO difference for FAFSA application - that is ONLY counted as income - no matter from which sources.

So you will report separately - income and separately assets.

Income is counted for the tax year - and you will list separately taxable and not taxable income.

Assets are counted on the day the application is filed.

So assets you had before that date which were disposed prior filing FAFSA application are not included.

Similarly - assets coming to you after filing FAFSA application are not reportable.

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Customer reply replied 3 months ago
But they see a copy of your taxes - and can see that part of the income is from dividends - so then basically you would have to have assets in order for you to have dividends reported on your taxes - I think that's the main question. And what level of assets would disqualify you from financial aid.

The financial aid department will not contact forensic investigation of your tax return.

But if you will ask the officer to review your FAFSA application - they may point you into some presidencies - for instance - as you pointed - when assets are reported as zero but income from assets are reported.

That is possible when assets are disposed before the dale of application - but income is considered from the prior year.

But the question potentially may be asked.
.

There is no specific asset level to disqualify as all depends on all your circumstances.

I suggest to use FAFSA4caster tool to estimate of your eligibility and possible effect.

https://fafsa.gov/FAFSA/app/f4cForm?locale=en_EN

That is not an application! - but you may use your situation and change the asset value to see how that potentially will affect FAFSA.

Lev
Lev, Tax Preparer
Category: Finance
Satisfied Customers: 33,117
Experience: Personal Investment, Tax Preparation
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Customer reply replied 3 months ago
I think I understand it all now. Thank you.
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