Making plans for Just In Case

Paying for College
1

<p>Ok, arrangements that I thought I had in place that would make sure my son is able to finish his college education in case something happens to me, need to be changed. I will be visiting a lawyer to draw up a new will and hope to find one who has some experience in this area, but I’m hoping to get some input on what questions I need to ask and what is the best arrangement to set up. I know there are years of experience among the posters on the board, so am hoping to take advantage of this knowledge.</p>

<p>Short background: I am still married to son’s father. My husband is disabled due to a stroke years ago. He is not considered competent to stay alone, manage his affairs, make his medical decisions etc.. , by his doctors, Social Security administration and the Texas Department of Aging and Disability Services, I hold medical and financial power of attorney, but he does not have a legal guardian. Husband’s sister has agreed to be responsible for those areas if something were to happen to me. I have no idea whether she would seek guardianship or not, that would be her decision. </p>

<p>Son is 19, attends Tulane with significant FA, both merit and need based. The merit money is renewable with a reasonable gpa requirement that he should have no problem meeting. He receives work study and subsidized Stafford, along with a Perkins loan. There is no unsub or parent plus loan in his package. The rest is various grant monies.</p>

<p>Question 1 – As long as my son is under 24, if I’m deceased, with his father considered incompetent, is he a dependent or independent student for FAFSA purposes. And what is the determining factor. Are the POA’s and doctor’s statement enough, or does his father has to be under guardianship of someone else, (son would not be his father’s guardian), or he is dependent till 24 no matter what? I’m thinking I probably want him dependent for FA purposes, but am I overlooking something? </p>

<p>Question 2 – And, I’m thinking the ramifications of this question are going to be based on the independent or dependent status. Would life insurance proceeds be assumed to be completely available for college costs? I’m guessing if son is independent, allowance would be made for living expenses outside of college? But if he’s dependent, he still will have living expenses for months he isn’t in college, would all the life insurance money be expected to be used for college? Note, we are not talking about a large amount of life insurance, I’m not completely sure, but less than $75,000</p>

<p>Father draws social security disability, however in the event of my death, that money will be used for his living and medical expenses, it is not enough to maintain 2 households, so money for utilities, groceries, etc… when son is not in school, will have to come from somewhere else. </p>

<p>We reside in Texas, which is a community property state, however our home and the land on which it is located, are my separate property, (inheritance and gift). If they are left to my son, would he be expected to sell them to finance his college costs? And would this be determined by whether he is a dependent or independent student for FA purposes? My hope is that he can have the house to return to for holidays and summers, plus after graduation till he finds a job, but that would be contingent on some of the life insurance proceeds being able to be used for utilities, property taxes, insurance etc….</p>

<p>And, what about asking these questions of the FA office at the Tulane? Are these within the scope of information that is normally made available to parents, so does this fall in that secret, we don’t share that information type stuff. And assuming I ask, would the information I get be geared toward benefiting the student or the school?</p>

<p>I’m going to check into the feasibility of acquiring more life insurance. My health is good, but money is very tight and I’m over 50, so rates are not real cheap. If there were large enough insurance proceeds to cover costs of remaining college years and keep the house intact, then it doesn’t really matter that much, except I’d like to structure things so that he would get maximum benefit of any inheritance, (not that money would make up for basically no parents), but it would be something. </p>

<p>And of course, I fervently hope that all this planning is unnecessary, but I’ve got to be prepared, it would be enough of a burden for him to lose me, I can’t have him unable to finish college as well.</p>

<p>Any thoughts on directions I should take, general advice, anything I might have missed and certainly any advice from anyone who’s been in my shoes would be greatly appreciated.</p>

2

<p>Best for you to consult a lawyer for advice.</p>

<p>Q1: If you deceased, your son still has a parent - his father; so he still consider as a dependent student. However,

Q2: I think the life insurance money would consider as “unusual one-year event”.

– income inflated by “unusual one-year event”
– financial difficulties such as unusually large medical bills that are not covered by insurance</p>

3

<p>You need to discuss estate planning with your lawyer. There may be some way to protect some of your assets or defer the payment of something like life insurance until a later date…in the event something happens to you. </p>

<p>As difficult as this is, it is good that you are thinking of it now.</p>

4

<p>since you are married, are you permitted to name someone other than your spouse as the beneficiary of a life insurance policy? </p>

<p>in some states, since the policy is purchased using community property funds, the spouse must be the beneficiary unless he/she signs (notorized) that someone else can be the beneficiary (this is to prevent straying spouses from naming their lovers as beneficiaries while using community property funds to purchase the policy). </p>

<p>If you should die, and there are life insurance proceeds, then for FAFSA purposes, your H may not earn enough for those assets to count. </p>

<p>Boy…this is all scary stuff. </p>

<p>Maybe the best thing to do is to name the H as beneficiary, and have your son be the guardian of the money…not the sister.</p>

5

<p>Talk with your life insurance agent about how payouts are handled. Sometimes the settlement can be made in several different ways, including delayed pay outs or so much each year for several years.</p>

<p>You also can discuss how property is evaluated for financial aid with the Fin Aid office at Tulane. If your son inherits the house, it may not factor into things at all.</p>

6

<p>The problem is, the lawyer who handled the legal stuff is fully versed on estate planning for seniors and people with disabilities, dementia, Alzheimer’s and how medicare, medicaid, nursing homes, and assets factor into that, that type of stuff, but not for assets and FA for college, or FAFSA etc…, it’s not a combination that comes into play that often, and its going to be difficult to come up with dollars for consulting two attorneys, but I may have to figure out how. It looks like a lot depends on how FAFSA will treat son. Yes, technically he’ll have another parent, but what if that parent is a ward of the state? </p>

<p>When I was bouncing ideas off of people, the following questions came up. What if father’s condition deteriorates so much, he’s not even aware of the fact he has a son? And how can a person who is not legally competent to handle his financial affairs, fill out the FAFSA? Someone asked, what if the surviving parent is an inmate, on death row, can incarcerated people fill out the FAFSA? </p>

<p>Course, I’ll probably stress like crazy trying to figure this all out and the odds are extremely high it’ll never come into play (which is a good thing).</p>

<p>Mom2CollegeKids - that’s interesting, I wasn’t aware some states didn’t allow life insurance proceeds to be left to anyone other than the spouse. At least, here I’m on solid ground, my dad was a 45 year senior account agent for Allstate, and I was licensed to sell at one time, I worked in his office before he retired. In Texas at least, you can name anyone as a beneficiary for a life insurance policy. Many charitable organizations use this as a way to raise funds, by pointing out that you can provide for the organizations that matter to you without cutting into current income. A lot of private schools make parents and grandparents aware of this fact too. You can technically leave a life insurance policy to a complete stranger if you desire. From time to time, there have been cases of people convincing or paying the homeless or down and out to take out a policy naming a con artist as beneficiary. About the only limitation is, if your spouse is named as a beneficiary and you want to change that, the insurance company will notify your spouse. </p>

<p>Note, this only applies to individual policies, joint policies or policies such as mortgage life are different. Glad you brought it up though, it reminds me that my parents took out life insurance policies, as the grand-kids were born, one per kid, so there is a chance that my son could also wind up with insurance proceeds from his grandfather as well. It is true that certain policies can have payouts structured in different ways, but he would have to have some up front if he lives in the house (yes, he does have many relatives that would provide him a place to stay for free, but knowing my son he would worry about being a burden). I considered sending him to live with my youngest brother and his family, when all this happened, and sometimes I think I should have, it’s not anything a kid should have to deal with, and there would have been no financial worries, but when I suggested it to my son, he freaked out, he considered it like I was abandoning him and insisted he didn’t care how poor we got or how chaotic things were. </p>

<p>Yes, I considered putting son in charge of the money for his dad, but I felt that if my sister-in-law was going to tend to his dad, it wasn’t fair for her to not have access to at least his SSDI, but I hadn’t considered making dad the beneficiary of the life insurance and giving son the POA for that. That might work, the money could be spent as his dad would have intended and my husband certainly would have covered college expenses if he was able to. </p>

<p>I am going to talk to his FA officer at Tulane, the worst she can do is tell me she has no idea how it would be handled. </p>

<p>It’s such a mess, I’m a major example of how the best laid plans can go astray. We had college funds for both kids, savings and I had intended to go back to work full-time when they started college so really thought we had everything lined up. Oh, well, just goes to show. I tell myself all the time, if I can just hold it together till son is done, THEN I can fall apart.</p>

7

<p>You better look again at Texas laws… If you name someone other than a spouse as beneficiary, you need the spouse’s notorized signature…</p>

<p>this is on Aetna’s website… </p>

<p>Community Property State Consent for residents of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin. If you are married, live in a community property state, and name someone other than your spouse as beneficiary, you may have your spouse sign below to waive his or her rights to any community property interest in the benefit.</p>

<p>As the Insured’s spouse, I do hereby consent to the beneficiary designation(s) indicated on this form and waive any rights that I may have to the proceeds of such insurance under applicable community property laws.</p>

<p>this shouldn’t be surprising…why should community property money be used to purchase life insurance if the beneficiary isn’t the spouse…UNLESS the spouse consents. </p>

<p>These laws had to be in place…otherwise a new widow(er) could learn after their spouse’s death that the beneficiary was someone else…when THEIR money was used to purchase the premium.</p>

8

<p>As difficult as it may be it is good that you are being proactive and you are putting plans in place, in the event should something happen to you (been there, since I am my child’s only parent, it has always been in the back of my mind what if…).</p>

<p>I believe that it is important to have an executor in place to handle your estate and to make sure that your assets are distributed in the way which you intend.</p>

<p>Some of the most important issues that you will have to take care of is designating someone to make sure that your husband is taken care of and to make medical, financial decisions for him if you are not in a position to do so. As challenging as they may be, you may have to include your son in on the decision making process because if something should happen to you, he and your other children are their father’s legal next of kin and will have the ability to challenge anything in place.</p>

<p>Regarding guardianship; provisions for guardianship are usually in place where there are minor children. Since your child is no longer a minor, guardianship is a non-issue.</p>

<p>For financial aid purposes, he will be considered an dependent student, because he does have a surviving parent. However, I would make sure that the documentation is in place in the event your son may need a dependency override or need professional judgment for financial aid . I would send Kelsmom a PM and ask her advice about this. She would also be in a great position to tell you the impact insurance monies and other assets left to your son would have to be reported on the FAFSA and how his financial aid would be affected.</p>

<p>All the best to you</p>

9

<p>This is my opinion only. You are in your fifites and in reasonably good health. Your son is a sophomore in college, I assume so he only has two more financial aid reviews to be done, three at most, I would hope, unless he has some setbacks (which I admit is entirely possible, but I won’t address those). Getting a term insurance policy to cover the awards he is getting should not be a huge expense and it that will cover his college costs very nicely. You can get rid of the coverage in three years. That way, he can get that money to pay for college. Also, even disabled, your DH can borrow through PLUS and get loans to pay for his college. IF he should pass away before the loans are paid, they are forgiven. The same if your son should pass. Terribly morbid, but I want to get right to the point here. </p>

<p>The fact of the matter is that it all comes down to the professional judgment of the financial aid director (and I would remove the name of the school from your post–these boards are monitored by a number of schools) and they tend to go after any assets they can, and why should they not? If your son gets a windfall of assets, they should go towards his college expenses. Why should they be exempt? That’s just my personal go on it. That his dad is disabled would certainly be taken into consideration. However, any assets your son has, through inheritance or whatever, generally has no exclusion allowance like you, the parent has, and the percentage taken on FAFSA and most schools is a hefty %, 20%, I believe rather than your less than 6%.</p>

<p>But for peace of mind, take out a policy for a quarter million, a term policy and pay on it until he is out of college. If anything should happen, that would do it.</p>

10

<p>If you can qualify for the best rate class you could get $250k in term coverage for $250-$500 annually (age 50-60) for 10 year term.
Get some insurance to cover those extra needs, cancel it when/if you no longer need it.</p>

<p>You might leave some specific financial aid notes, this website, details about how to do FAFSA etc with your estate planning paperwork. No sense having a steep learning curve during a time of grieving.</p>

11

<p>If you were to pass away, your son could request a dependency override from the financial aid office … but in all honesty, it would probably be in his best interest to remain dependent. In that case, it’s possible that the EFC would fall into the automatic 0 formula, in which case your son could have a million dollars in the bank and none of it would count against him in the financial aid formula. As long as he could get his father’s financial information, this is a possibility. If he were to request a dependency override in this case, though, I would think there would be a good chance it would be granted.</p>