13 Mar How will this money be counted for financial aid for college?

Q. My daughter was an early victim of COVID My grandson was the beneficiary on a $200,000 life Insurance policy that she had purchased. I was named as his legal guardian but there was a stipulation that any funds payable to him as a minor must be deposited in an account overseen by the surrogate. This past October, I gained access to these funds and used most of the money to purchase CDs on his behalf yielding 5% or higher. He will be a senior in high school with plans for college when he turns 18 in December 2024. Until last month, I hadn’t considered the impact these funds might have on possible financial aid. What should I do now to maximize the aid he would get?
— Trying to help

A. We are sorry to hear about your daughter’s passing.

Your grandson will likely qualify to complete the FAFSA as an independent student.

More about the qualifications to be considered an independent student can be found at www.studentaid.gov in the help center.

When completing the FAFSA application he will need to report any accounts in his name or income that he may have earned in 2022, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.

She said income is based on the tax return from two years prior to the year of application.

“In terms of the funds you have gained access to, whether they need to be reported will depend on how they are titled,” she said.

If you opened accounts in your grandson’s name, he will need to list them on the application, Mott said. This would include Uniform Gifts/Transfers to Minors (UGMA/UTMA) accounts as he is the beneficiary.

Assets in a custodial account could be moved into a 529 college savings plan that you open in your name for the benefit of your grandson as he is still a minor, she said. This asset would not be reported on the FAFSA, she said.

“If the funds you gained access to were put in an account that was opened in your name, with the idea that the money will be transferred to him at some point in the future, they will not need to be included on the FAFSA form,” she said. “The FAFSA application process does not have a lookback period for asset values or account titling.”

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This story was originally published in March 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.