Can u help/ life insurance payout/fin. aid status

Paying for College
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<p>*Child currently a student at Duke. A few small scholarships and Duke provides a grant based on our income. </p>

<p>*Child's father passed away unexpectedly in Dec of 2010 the week before child's 1st set of finals at college. No support from him (to child or me) for several years. </p>

<p>*Left a $250,000 life insurance policy (surprise to us) for child. Current wife contested payout (later withdrew when no documentation could be provided) so payout did not take place until Aug. of 2011.</p>

<p>*Father once mentioned to my child that if anything happens to him"take care of your step sister, too". Sister is 5 years old.</p>

<p>*Child planned to set up a college account for the (step) sister. Even though that family is pestering child for "the money now". </p>

<p>*Contacted college Financial aid to report this payout and make sure that we were doing the right thing. New Financial aid worker wasn't sure said she would get back to my child. </p>

<p>Here is the response my child received:</p>

<p>Hi,</p>

<p>It was nice talking with you on Tuesday. I double checked on some information regarding how we would view the funds you are receiving this year from an insurance policy. If the money goes into a retirement vehicle then we do not view as an asset that would increase your student contribution. If you put the funds into a trust then it will be viewed as your asset thus your student contribution for next year will be 25% of the amount listed for the trust.</p>

<p>*My child (being 18 years old with no investing knowledge) replied:</p>

<p>Hi,
Okay this makes sense, thanks for your reply.</p>

<p>I'm wondering, though, if there's any way that you could elaborate more on what is considered a retirement vehicle and what is considered a trust. For example, the investing that I have spoken with a financial planner about (i.e. stocks and mutual funds) would be something that I wouldn't have any plans to touch for a long time, except for that which would go to my half-sister, like I told you about.</p>

<p>So while I see this as money to be used later in life, I feel it would be considered by others to reside within the trust category. What do you think?</p>

<p>**Final response from Duke financial aid:
Hi,</p>

<p>I would suggest that you talk with your financial planner; he/she can give you guidance regarding these subjects. As mentioned, if funds are put in a trust it would be calculated into part of your student contribution at 25% of the total trust, so if your trust is $100,000, the funds pulled from this would be $25,000 toward your student contribution.</p>

<p>**Child contacted a financial planner who they were going to work with and he wasn't sure what retirement accounts they could be referring to (for someone so young)? </p>

<p>*What does this mean? Does she have to contribute 25% of this money to the university next year? We contacted Duke to get further information haven't responded to our emails and send our calls right back to this woman (who just started in the department). Who tells us that "it is pretty black and white". NOT TO US!!</p>

<p>Can anyone break this down for us. We have no experience with investing/trusts. We appreciate all that the college has provided but this is an unusual circumstance (and huge burden for the child) and we are confused. This is not money that was won in a lottery. This was a tragic and unexpected experience and we just need to understand the process, do the right thing (if that means paying 25% to Duke, so be it) and move on. </p>

<p>Wish duke could and would provide further assistance with this matter. Can anyone break this down for us, please..</p>

<p>Thank you for reading.</p>

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<p>I’m reading what Duke is saying as they disregard investments in a tax-qualified retirement plan. Unfortunately, most of those are capped/tied to income. Perhaps they’re referring to an annuity? I think those are often exempt from FA calculations as well…just speculating, but that might be something to ask the financial planner about. I believe they are available in both the fixed investment and directed/blended investment (stocks, bonds) versions. There are generally penalties for early withdrawals, but would certainly be less than the loss of FA at $25K/year.</p>

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<p>You are certainly in a tricky situation that requires some professional help. When calculating Finaicial need, colleges look at what are called “assessed” and “non-assessed” assets. Assessed assets are the assets that the colleges look at as money that you should be using for tuition. Depending on where the asset is (cash, stocks, CDs, Bonds, ect), the asset is “assessed” at a different %. Non Assessed assets are assets that do not affect your Financial Aid eligibility. You probably do have some options available, but I would need more information to be able to tell you for certain. Feel free to send me a message.</p>

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<p>

Assets such as cash, stocks, bonds are assessed exactly the same for FA. The only things that are treated differently are things such as retirement accounts (which this student would be ineligible for at this point) and prime residence.</p>

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<p>Is the step sister really a half sister (bio child of the dad)? </p>

<p>If so, that child should now be getting social security payments, right? that could be several hundred a month (like 600 or more per money…others may know). </p>

<p>Did the dad leave nothing (no insurance at all) to his wife and second child? If so, that’s odd.</p>

<p>Can your D just give a lump sum to her little sister or would there be some kind of gift tax penalty it it’s over a certain amount? </p>

<p>On one hand, your D has to be careful that all/most of this money doesn’t go to college costs which would leave little to nothing for little sis. On the other hand… If she were to be able to put a decent amount in some kind of account/trust for little sis, then maybe Duke won’t be able to include that amount when figuring D’s aid.</p>

<p>This whole thing seems odd. It sounds like the dad wasn’t paying child support for your D, and in some ways, this money is like a lump sum of back child support payments (even tho not technically). </p>

<p>Can your D give you some of the money as sort of a payback for unpaid child support and that would keep that money from being assessed at the harsh rate kids’ accounts are assessed.</p>

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<p>Sorry your child is having to go through this. Dealing with the loss of a parent, and a conflict over money with the step family, all while trying to get through freshman year at a school as challenging as Duke is a lot to manage. </p>

<p>First, you really do need a financial planner, and the planner needs to be (or get) familiar with college financial aid. It is admirable that your child feels the desire to help the step (is it step- or half-?) sister, but since the policy was left to your child, the financial planner will have to help you through the steps to structure that help. </p>

<p>It sounds like your child is a sophomore now, and there shouldn’t be any change to aid this year just because there was an insurance payout this summer. However, for Junior and senior year, Duke will consider that the large sum of money your child has is available for tuition, room, board, etc. And it is available, right? It might feel unfair that the money would have to be used in place of the grants you were getting, but that’s life. You were getting grants because you did not have the resources to pay. Now you have the resources to pay.</p>

<p>$250K sounds like a lot, and it is. But it is only about enough to pay for 4 years full pay for a student in Duke Class of 2016. Somehow you and your child will have to figure out how much of the money your child will spend finishing the degree, and then how much help to provide the step-sister. Good luck.</p>

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<p>Yes, she is a half-sister…</p>

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<p>I’m not sure that’s quite true. If the student is over 18 and is earning any income at all, she 's eligible to open a Roth IRA and deposit up to 100% of her earned income each year. Probably not nearly enough to shelter her insurance payout, but at least it’s something.</p>

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<p><em>not a financial planner</em>
It sounds as if your child has enough money to fund the rest of her education <em>and</em> set up a trust for her little sister that might, hopefully, in twelve years, fund two or more years of her education as well. </p>

<p>I think this is good news, and as I read it, what your child’s father intended.</p>

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<p>* No support from him (to child or me) for several years. </p>

<p>*</p>

<p>This part bothers me…especially if dad stopped supporting D1. While technically the
D1’s money is hers, some of it should go to the mom for back child support. And, doing so, would reduce the D’s account because the mom’s savings is more protected. 4-5 years of back child support could easily be $50k or more.</p>

<p>Did the dad leave any life insurance for his current wife? If not, that seems odd. If there was life insurance and the D2 is now getting Social Security, I’m not sure how much D1 should have to give D2. I’m not saying that she shouldn’t give anything, but there seems to be more to this story…and I think all should be considered. </p>

<p>If the D was able to give the mom $60k+ in back child support (technically to use life insurance to clear a past debt of the dad’s), and put $60k (or whatever) into S2’s college fund, then wouldn’t that make somewhat of a difference?</p>

<p>I don’t know how the laws work, but if I got a life insurance pay out from a parents death and the parent had a “debt” (unpaid child support), can’t I pay it without someone getting a penalty?</p>

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<p>Did the dad leave any life insurance for his current wife? If not, that seems odd. </p>

<p>People do weird things. My brother died 2 years ago, and his life insurance beneficiary was his ex-fiancee. His 22 year old daughter didn’t get a penny. He put the ex-fiancee on the policy after they broke up, and after his daughter turned 21. We have no idea what on earth he was thinking. The ex said that God meant for her to have that money, and she didn’t offer to even pay the costs associated with my brother’s death. I have learned not to be surprised by who people do and do not list as beneficiaries.</p>

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<p>Insurance policy was purchased as part of our divorce agreement (12 years ago) we never expected the policy to be current since he hadn’t paid anything for my child in so long. There are quite a few reasons he would not add new wife to this policy. For those same reasons, my child wants to make sure the half-sister is the only one with access to this money (when that child is old enough).</p>

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<p>Insurance policy was purchased as part of our divorce agreement (12 years ago) we never expected the policy to be current since he hadn’t paid anything for my child in so long.</p>

<p>Was your ex ordered to pay child support but never paid? If so, can I ask how much back support that is?</p>

<p>If it is a substantial amount, then it would seem to me that your D could “pay that debt” to you and that would reduce the amount that Duke would be expecting to be used for college. Also, any money put into an acct for younger sis, would also reduce the amount.</p>

<p>If there was a way to legally reduce the $250…say $100k to you for back child support and $50k - 75k in a safe acct for little sister…then that leaves only $100k for Duke to be looking at…which means that $25k plus $25k would go to Duke. This would preserve a good amount of money. Certainly your D would rather have the money going to you and sis than to Duke…if there is a legal way to do that.</p>

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<p>But it’s not that simple. If the D pays the mom for “back support” in order to look more needy to the school … the school would expect to see untaxed income from the mom. After all, if that money came from the dad for child support, as the family would be claiming this money was intended to replace, it would have to be reported as untaxed income.</p>

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<p>*After all, if that money came from the dad for child support, as the family would be claiming this money was intended to replace, it would have to be reported as untaxed income. *</p>

<p>this is true…but wouldn’t it still would be assessed at a lower rate than as student savings…and it would only be for one year…not both.</p>

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<p>teachernomo, I hate to say it, but in addition to consulting a financial pro, you might want to talk to an attorney. I’m disturbed by the fact that Duke isn’t giving you an unequivocal answer except “We’ll have 25%, thank you very much.” Something just seems off about that, and you want a pro in your corner if they continue to insist that’s their policy.</p>

<p>BTW, you’ll need to move quickly on structuring this; whatever you decide to do needs to be done by the time you file FAFSA for next year (or maybe even by Dec. 31).</p>

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<p>Of course Duke isn’t going to just give a definite arbitrary answer. It would be arbitrary because Duke would have to make some major assumptions on where the money was placed. I agree consulting with a financial pro is the best thing to do.</p>