Fri. Jun 9th, 2023

The Difference Between a Structured Settlement and a FAFSA

Structured settlements are the result of legal cases that stem from a product-liability claim, a workplace accident or another personal injury. They pay out periodic payments that help minors meet their long-term needs such as food, shelter and medical care.

For students and parents who are planning for post-college education, a structured settlement can help preserve financial aid eligibility. However, it is important to understand that some colleges and universities report lump sum payments received as income on the FAFSA and CSS Profile.

How to Shelter a Structured Settlement on the FAFSA and CSS Profile

A structured settlement is a form of money compensation awarded to victims of personal injury or wrongful death. The funds are usually distributed as a regular stream of payments that are tax-free. In some cases, the settlement may also include a death benefit that provides payouts to the victim’s heirs.

It is important to shelter the value of your structured settlement on the FAFSA and CSS profile. This means that you should take steps to ensure that your structured settlement does not negatively affect your ability to apply for federal student aid or receive scholarships from the college or university.

One strategy is to invest the proceeds of your structured settlement in a tax-advantaged investment that will earn higher returns than the interest on your settlement. For example, you can invest the proceeds of your structured settlement in an annuity that will pay a fixed rate of income for a set number of years. This type of investment is often called an “annuity lifetime benefit.”

Another option for a structured settlement is to sell part or all of your ongoing payment stream in exchange for a lump sum. This is a common strategy for people who need additional cash.

See also  Tax Issues in Structured Settlements and Periodic Payment Judgments

This type of arrangement can allow you to take control of your financial future, and can make it much easier for you to manage your money. It can provide you with security and peace of mind over the long term, and can also help prevent your family from being burdened with large bills when you are gone.

You should seek out several offers from a structured settlement buyer before making a decision. These buyers will be able to offer you the best possible price for your settlement payments. The buyer will typically charge a fee of between 9% and 20% of the total amount they will pay you.

When selling your structured settlement, be sure to get a written disclosure statement from the seller and read it carefully. The disclosure statement should be clear and concise and clearly indicate the terms of the sale. It must be accompanied by a copy of the original structured settlement agreement.

It is also helpful to have a lump sum portion of your settlement that can be used to meet immediate needs, like purchasing a home, vehicle or paying off debts. You can also use it for any unforeseen emergencies.

The main advantage of a structured settlement over a lump sum is that it allows you to build long-term income without having to worry about market fluctuations or other risky investments. It also protects your income from inflation and the effects of a depreciation schedule.

A structured settlement can be especially beneficial to people with children, as it can give them financial stability until they are adults. This is because a structured settlement is designed to be flexible and can be set up to meet a variety of needs, from monthly payments for everyday living expenses to a lump sum that can be used for a child’s college tuition.

Sheltering a Structured Settlement on the FAFSA and CSS Profile

The Federal Application for Student Aid (FAFSA) and the College Board’s CSS Profile are two of the most important financial aid forms you must submit. They are used to determine how much aid you can receive and where you can apply for it.

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The FAFSA and the CSS Profile assess your family’s income, assets, and other information to determine your need eligibility. They also ask about any 529 college savings plans, small businesses, and other investments you have.

While the FAFSA looks at your income, the CSS Profile examines a larger range of assets, such as business assets, life insurance, and trusts. It also considers multiple years of income versus one year.

When you fill out the CSS Profile, you have a chance to explain your circumstances. This can help you receive more aid than if you had simply filled out the FAFSA without the additional information.

You’ll need to prepare several documents to complete the CSS Profile, including your W-2 forms and any other tax records for the year you’re applying. You’ll also need to keep a copy of all your financial documents, such as bank statements and investment accounts, on hand to support your application.

It’s important to remember that you can change your CSS Profile any time if your circumstances have changed, so you should make sure to save and update it regularly. You can also add any new information requested by the school.

If you’re applying to more than one school, you should use a separate CSS Profile for each. That way, you don’t risk losing any information.

The CSS Profile is a more in-depth form than the FAFSA, and it’s used by many schools that are more generous with need-based aid. That’s because it enables colleges to look beyond your income for more context about your family’s financial situation.

Students who are applying for need-based financial aid should fill out both the FAFSA and the CSS Profile as early as possible, ideally by the beginning of January each year. The earlier you submit them, the sooner they’ll be processed and the better your chances of receiving need-based financial aid.

See also  Indiana Structured Settlement Protection Act

Those who are not applying for need-based aid should fill out the FAFSA and the CSS Profile only when they know they’ll be receiving money to help pay for school. That way, you can focus on other aspects of the college application process, such as deciding which colleges you want to attend.

There are fees for both the FAFSA and the CSS Profile, but these can be waived if you have a financial hardship or if your college requests it. You can get a fee waiver by contacting the College Board or through your financial aid office.

In addition, some colleges require students to fill out the CSS Profile if they’re interested in financial aid from outside sources such as private scholarships and other merit-based aid. Some families find it beneficial to fill out the application even if they don’t plan to apply for aid, since it can help them determine their net price, or what they actually will have to pay for college, experts say.

Jeffrey Augers
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By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.