It isn’t income; it is an asset.
Depending on the laws of the state, parents can be the guardians of the minor’s financial interests. In fact, in most normal circumstances, parents already fulfill that role. In my case, the insurance companies wouldn’t make payment to the minor beneficiaries unless there was a “conservator of the estate of the minor” appointed. In my state, this is relatively easy (and inexpensive) to do through the probate court. My wife and I were appointed as conservators of the estate, and the death benefits were distributed as we requested. If we had not taken this step, the benefit would have been held in a minimally interest bearing account until the beneficiary reached the age of majority, and at that point the beneficiary would have had the option of how to take the benefit - lump sum, annuity, etc.
You should check with the insurance company to see if there are distribution options. If there are, you and your daughter might consider taking the benefit over a number of years, in order to lessen the financial aid impact in any one year. If what I went through is any indication, you might get little or inaccurate information from the insurance company in response to specific questions about distribution options. I strongly encourage you to read the policy section regarding death benefit distribution options that the beneficiary has. This document is a binding contract, and the insurance company is legally obligated to go along with any valid distribution option that a beneficiary (or a legally appointed representative) chooses.
Excellent. I will tell the FA office that they are wrong and so is the CSS representative that provided me written guidance to the contrary. I am sure that when I tell them that twoinanddone from the CC forum told me this, they will quickly realize the error of their ways.
Now, on a serious note: do you have any source you can cite that backs up your opinion, as far as CSS Profile is concerned?
Yes, my understanding is that’s the way it would work.
Thanks so much @MiddKid86 and everyone else for your replies. I truly appreciate it.
On a side note, does anyone know why my “Me” green check mark is appearing next to the pinned thread “parents able to pay, but not willing to”? I haven’t posted to that thread…
If your daughter is an excellent student, she might qualify for merit scholarships solely based on grades and test scores. So identify schools that have the attributes she likes and give merit. Then (independent from fin aid) her insurance money may very well cover four years and more.
For FAFSA purposes only…if this parent has incime less than $50,000 and the kiddo qualifies for free or reduced lunch…don’t they qualify for the simplified needs test…and assets would not be counted on FAFSA…for child or parent. And for FAFSA, the equity in your primary residence is not even mentioned…at all. This is for FAFSA only.
Profile schools are another whole subject. There is no simplified needs test, so the assets would be counted.
But really, we checked again and again when we inherited money when a parent died and we were told over and over…this was not income…but the balances in our accounts were assets.
How strong is this student? There could be places where she would get sufficient merit aid to cover a good portion, if not all of her tuition. Room/board would be about $12,000 a year…and that could be taken from the insurance and there would still be money left after four years.
Thanks @mommdc and @thumper1, D is a sophomore and so far, so good. She took the PSAT (sophomores take it as practice at her school) and scored a 209, GPA is 3.8 UW, 4.7 W. All classes are Honors except the 2 AP’s she’s taking this year. I haven’t given a ton of thought to merit money, I just assumed they look for 4.0 students.
Depending on your state she could be a National Merit Finalist if she repeats or improves her PSAT score junior year. Being in range already she should prep hard next year. NMF can open a lot of doors.
SAT/ACT scores are generally more important for merit aid than GPA. There are fewer high test scores than there are high GPAs.
Well a sophomore PSAT is excellent!
You mentioned one LAC that she is interested in. Go to that school’s finaid web pages and find the Net Price Calculator. Run it with and without the insurance money as an asset. Not that you can hide the asset but doing it both ways will tell you how much impact on cost it’s having at that school. NPCs are only estimates and some are better than others, but you could run them for a few other schools to get an idea of how much aid she may get. Of course aid policies change year by year so you need to run the NPCs each year, especially senior year.
@annoyingdad, I ran the numbers through a NPC three ways.
- Without the insurance payout, the EFC IS $2150.00
- With the payout as an asset only, $26,625.00
- With the payout as untaxed income and asset, $72,324.00, far more than I thought it would be.
I’ve googled… And googled and finally called a financial planner. It looks like the insurance payout must be reported as untaxed income for the payout year, so #3 it is. I feel sick.
Your next call should be to the insurance company to get a copy of the actual policy and to learn what payout options there are for a minor child.
@blossom, feeling frozen at the moment. 
I called an attorney friend and, apparently, my state does not take kindly to adults trying to release funds for a minor - too many people steal from their kids, I guess. This would involve courts, lawyers, court-appointed financial guardians, etc., each of whom will want my last penny. The good news is we can show real benefit to my daughter so it could happen. I will also look into the possibility of an annuity. Thanks to everyone for your help here. I’m grateful I didn’t wait until next year to look into this.
Yeah, but that’s the worst case scenario, with your daughter taking a lump-sum distribution when she turns 18, right? If she has the option to take the benefit in equal payments over, say, four years, the reportable income will be only 25% of the lump sum amount for each of those four years, and if she spends the payments on college costs and does the timing right, potentially none of the benefit would ever be reported as an asset.
Have you checked to see if the insurance policy has benefit payment options other than a lump-sum distribution?
Marjie- you are doing the opposite of what your state is trying to prevent- you are not trying to get funds released for a minor so you can spend them, you are trying to DELAY the release so that the funds can pay to educate your child. I’m not suggesting you get a guardian or enter into a protracted legal process- merely find out from the insurance company what type of payment options exist via the original policy which should cost you zero dollars.
@
Three comments:
- Have you considered putting the $800 per month SS check into a 529 account for your daughter instead of into the household spending budget? Can you afford your lifestyle after the SS ends in 27 months if you have been relying on the monthly SS to make ends meet? How does the SS compare to the monthly child support and maintenance you received?
- If filing Form 1040A would be helpful for financial aid, how much more in income tax would you pay by not itemizing deductions? You say that the condo has high equity - how much is your mortgage interest + property taxes + state income taxes compared to the standard deduction?
- That's an excellent sophomore PSAT score!
There may be a problem with this I’m not seeing, but could she use the $100k to pay down your mortgage? Her investment wouldn’t be reported on the FAFSA because it is your primary residence and her investment will still be there for her when she gets out of college. If she receives the money in Sept, she could pay down the mortgage (or refinance) before filing CSS or FAFSA, when it will no longer be in her bank account. You may want to put the house in both your names (if that doesn’t screw up the student asset sections as I know the parents get a primary residence exclusion but maybe not a house in the student’s name?)
If she wants the money for grad school or another reason, you could refinance or take a HELOC at that time.
Thanks to all for replying. I’m feeling much more rational than the other day when I ran the net price calculators, that high number threw me into a full-on panic attack, lol. I put in a written request for info on the insurance policy - they will not answer any questions over the phone because I am not considered a guardian of my daughter’s financial interests regarding this policy since it pays at age 18. They aren’t allowed to speak to her because she’s a minor. I should have answers soon and am hopeful that she can have it distributed annually.
@middkid86, were the annuitized funds then subject to taxes?
@madison85, we are not allowed to save SS survivor’s benefits, they must be used in full each year and I must account for every penny. No problem there, she costs far more than the benefit.
I’ve filed 1040 the last couple of years and it doesn’t look like I’m able to file 1040a. Also, I mentioned earlier that my daughter qualified for reduced lunch, however, that was last school year, not this year. I made a bit more money and with her SS, was above the qualifying amount, though not by much.
Does anyone know much about the Dislocated Worker designation for Simplified Needs? It says “is a displaced homemaker. A displaced homemaker is generally a person who previously provided unpaid services to the family (for example: a stay-at-home mom or dad), is no longer supported by the spouse, is unemployed or underemployed, and is having trouble finding or upgrading employment.” I stopped working full-time when my daughter was born, and my return to work has been difficult, I earn less than half of what I earned before she was born, so I feel underemployed, though I’m sure there are a few million people that feel the same since 2008. I sent out 60 resumes before I even got a call for an interview. Employers don’t seem to be interested in SAHMs returning to work. Would I qualify? I’m hoping that after a few years of work under my belt, my resume will look better without the large employment gap and I’ll be able to find something better.
In any event, my kiddo will go to college - she may have to adjust her thinking (me too) on where that will be, but will leave without debt if she chooses wisely. She’ll be in better shape than many of her peers, unfortunately for so many families out there.
@twoinanddone, thank you for thinking outside the box, though it’s probably a bit more complicated than I’m willing to deal with given my financial ignorance, ha!
Are you sure you have to spend every penny? (It’s a moot point since you say you need to.)
A friend’s minor child received SS (one parent over age 65) (different from SS for survivor benefit?) and initially she believed it had to be all spent on the child but researched it and met with a SS person and it was fine to put the monthly checks into a 529 plan account.
Can you make ends meet when the $800 monthly checks stop?