Blog Post

Settlement Planning for Minors | Mind Your EFCs!

John Darer • May 11, 2018

Big Lump Sum At Age 18 Could Disqualify Child From College Financial Aid

Financial Aid Strategy

Parents, lawyers and judges must be mindful when considering settlement options for minors that could have a negative impact on financial aid. In the formula for Expected Family Contributions (EFC), assets of the student are counted at 20-25% (depending on the whether the aid is federal or institution based financial aid). So if there is $200,000 sitting in a bank account when the student is applying for financial aid , $40,000 to $50,000 is expected to be used by the student. The parents calculation is on top of that, albeit at a lower percentage. That eliminates needs based financial aid, or significantly reduces it at most state schools and many private institutions based on today's costs.

Structured settlements are a fantastic settlement planning tool for the settlement of personal injury claims involving children or minors. Yet sometimes we see parents who are intransigent in their desire for their child to receive all of the future proceeds in a single lump sum at age 18. Whether or not an 18 year old is mature or not to handle a large lump sum is fruit for debate. But setting that aside, why eliminate the possibility of financial aid resources?

Obviously wealth and resources for each family and student will vary. This is just something that one should consider when settling a personal injury or wrongful death lawsuit where there is there are minor plaintiffs.

Read more on Structured Settlements for MInors | Settlement Planning for Children
Read more on College Financial Aid and Settlement Planning | FAFSA and Profile

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