My 50 y/o husband died earlier this year and left me with a life insurance payout amounting to roughly 8 times his salary. I know I won’t pay federal income taxes on the payout, however, I appear to be cash “rich” on paper when in actuality I need this money to survive for the next 25+ years. My Junior is applying to a very expensive $70,000/year school next year however I can’t justify spending almost 1/3 of my husband’s life insurance on college. Other than appealing the FA office, do I have any other avenues. The school is tough to get in and if she does get in, I’m not confident there will be a lot of merit aid since she’s not at the very top of her class. Any suggestions to try to lower my EFC?
Is there any type of trust I can create to protect the proceeds?
You should plan for schools that are affordable.
Whatever school he wants to attend - lay out his stats and we’ll find you an affordable one.
If you received $800K in a payout, you might consider investing in individual municipal bonds. You might get $36000 a year, retain your principal and have them to add with your earnings.
College is a huge expense - and if it doesn’t make sense financially for you, then you need to have that discussion with your student now.
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I am sorry for the loss of your husband for you and your family. I would advise speaking to a qualified financial professional - there may be a way to put some of the money into retirement assets for you, pay down your mortgage etc and a professional that reviews all your assets would be the best person to review.
You may find that the colleges your child is interesting in attending are not affordable and you still have time to plan and work together to find a list of right fit schools.
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I’m so sorry for your loss. I would suggest you and your kids look at colleges where they would qualify for merit aid and/or are affordable COA. Neither of these things will consider your assets.
Also, most colleges do not assess 100% of parent assets to pay for college costs…
To get some estimated idea…pick a college of interest and run the net price calculator on that site. It will only be an estimate…but might be worth seeing.
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My condolences for your loss. It’s tough to have to deal with the financial aid implications on top of your grief.
I agree with what everyone has said. I will add this, though … call the school she really wants to attend & have a discussion with a financial aid officer. You won’t know if the school will do anything that could be helpful for you unless you talk to them. If you find out for certain that the asset makes this school unaffordable, at least you will have this important information. You will be able to prepare your child for the fact that this particular school is not going to work out.
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I sent you a question via a PM (which you can ignore as I cannot give specific advice in your state).
I asked whether or not you have received the death benefit payout yet.
My initial reaction might be to advise one to consider the ramifications of accepting the death benefit payout in annuitized form rather than to accept a lump sum. However, the better suggestion is to contact an attorney, CPA, or experienced (CLU, ChFC, and/or CFP) life insurance agent properly licensed in the State of South Carolina–if that is where you live–prior to electing a payout option.
I am NOT licensed in South Carolina so I cannot offer specific advice (South Carolina is the toughest state in the nation regarding unauthorized practice of such professions).
My suggestion: Contact a professional (legal, tax, financial planner, and/or insurance) properly licensed in and by the State of South Carolina to receive advice specific to your situation.
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Your Juniors’ application will use tax information from the prior-prior year - so when you fill out the FAFSA in 2024, it will be the tax return for 2022 - not this year.
This year’s tax return will be relevant when filling out the FAFSA for the second year of college.
Also, anything that is not represented on the tax return, such as account balances, will be based on the “as of” date. So, as suggested here, I would make it a priority to speak to a CFA, who is well-informed about college financing, in case there are ways for you to still shelter these funds before they become “year-end balances”.
The next consideration is, whether the college in question requires the CSS profile - which might further limit your options. Per example, non-qualified annuities will have to be reported on the CSS profile.
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Interesting point that you shared that CFAs are “well-informed about college financing”.
My understanding is that CFAs focus on “investing in large scale corporate situations” including “investment tools and valuing assets”.
CFPs focus on "helping individual clients achieve their personal financial goals ".
Large investment banks are a common employer of CFAs, while CFPs typically work with individuals and small business owners.
P.S. Regarding your statement: “Per example, non-qualified annuities will have to be reported on the CSS profile.” I think that you may misunderstand valuation of an annuitized life insurance death benefit payout. The value would be the annual payout received, not the lump sum purchase price of the right to receive a monthly payment for life or for x number of years; accordingly, based on my understanding, the value of a lifetime monthly payment of $2,000 per month would be $24,000 of income each year, NOT the total death benefit of several hundred thousand dollars which was used to fund the annuity.
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I don’t think this is correct. The FAFSA filled out in 2024 is the 2025-2026 FAFSA and will use 2023 income/tax forms. Prior-prior starts counting from the year the student is in college. So for fall 2025, that’s 2023 information (prior-prior).
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Non-qualified annuities are reported as investments on FAFSA and CSS Profile. Distributions are treated as income on both.
See analysis in the following article. It makes sense that non-qualified annuities would be included as an investment because (as Mark Kantrowitz writes):
Otherwise, if a non-qualified annuity were considered to be a non-reportable retirement asset, nothing would stop a family from making a lump sum contribution to a non-qualified annuity before filing the FAFSA, thereby sheltering the money from need analysis, and then taking an early distribution after the child graduates from college. The tax penalty on early distributions applies only to the earnings portion of the distribution, which would be small over the short term of a child’s college career.
IME many CFAs, CFPs, and CPAs know very little about saving for/financing college.
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The last article “What’s the Difference between Qualified and Non-Qualified Annuities ?” does not apply in the matter under discussion–although timing may have an impact. (Timing is another discussion so I will restrict my remarks to the difference between a deferred annuity and an immediate annuity. For example, in most Tax LLM programs, Timing is a separate course.)
The author discusses qualified & non-qualified annuities that are deferred annuities, but fails to address immediate annuities. In the instant matter, no deferred annuity is involved.
Perhaps if the author had taken the time to earn a CFP, CFA, or CPA professional designation, he would not have made such a glaring error.
P.S. In the situation under discussion, taxation gets more complicated than in the instance of a deferred annuity whether qualified or not. And, yes, I do understand that taxation is an ancillary issue not germane to OP’s concern. I made this note regarding taxation because the author of the article you cited discusses taxation–none of which applies in this situation (although, once again, timing can be an issue).
I am so very sorry for your loss and having to be overwhelmed with all these financial issues at this time.
So I am putting on my lawyer hat for a hot second. I am guessing your payout for the life insurance was about 900k (based on your statement that 280K was 1/3).
You and your husband previously lived on 1/8 of this amount per year. Now, you received a lump sum, and you need this money to last for 25 years.
What cannot happen is your child attends a school that costs 70K a year or anywhere near that amount unless you can guarantee that he will receive financial aid in a very significant amount.
My guess is there is a part of you that wants your son to be able to attend the selective school. He has had a terrible year and if this could bring him some joy than he deserves it.
In reality, you also have to think about your future. Will you be going back to work? Are there younger children at home or other responsibilities which may preclude full time employment?
None of this is fun to think about, much less discuss with a child. Talk to a financial advisor, and find out what is the realistic amount you can contribute towards a college education and still protect your nest egg.
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$280,000 x 3 = $840,000. Therefore, based on OP’s thread starting post, the life insurance payout was in the area of $900,000 if $280,000 was almost one-third of the death benefit amount.
To lower your EFC, just select the death benefit in the form of an immediate annuity. (Please do not be confused by another poster’s reference to deferred annuities as this has nothing whatsoever to do with your situation.)
That should answer your question of “Any suggestions to lower my EFC?” because the lump sum death benefit amount is not relevant if you select the death benefit payout as an immediate annuity (which can be for any number of years including for the remainder of your life).
Any experienced life insurance agent or CFP (certified financial planner) or CPA properly licensed in your state should be able to assist you as this is a very elementary matter–although of great importance to you.
Nevertheless, a full review of your financial situation in light of your needs and goals does call for a comprehensive review by a properly licensed, qualified individual in your state. Typically, one would consider using a CFP or a CPA.
An important issue is whether or not you have already taken the death benefit proceeds in a lump sum and, if so, how long ago was that sum received (as it may be reversible within a certain time period in your state). Again any CFP, CPA, or experienced life insurance agent properly licensed in your state should be able to assist you.