Dear Dr. Don,
I have stage-4 terminal breast cancer. I expect to live no more than a year. I am a divorced mother of three children, ages 4, 8 and 12.

I have a life insurance policy worth about $80,000. I wanted to know the best way to have the money invested so my children can use it for college. Is a 529 plan the best way to go? Or should I invest the money another way?
— Beth B.

Dear Beth B.,
First off, I want to express my sympathies to you and your family.

You should work with a life insurance agent and attorney to structure your life insurance policy to work toward the goal of having the insurance proceeds invested for the children’s college educations.

Your life insurance agent, in conjunction with your attorney, can also help you decide if an accelerated death benefit — rather than having the beneficiaries receive it after your death — makes more sense in accomplishing your goals for this money.

Since the children named as beneficiaries of the insurance policy are minors, you’ll want to name a trustee to manage the insurance money. A pot trust could make more sense than separate 529 college savings accounts.

A pot trust pools the money for all the children in one trust and allows the trustee to use discretion in how the money is spent. For example, if you are adamant that the money should only be spent for education, a child who decides not to go to college will not share in the trust proceeds.

The big advantage to 529 college savings accounts is that distributions used to pay for qualified educational expenses are free of federal income tax. There can be state income tax savings on the contributions and distributions as well.

However, taxes shouldn’t be the tail wagging the dog in deciding to invest in a 529 account. You need to consider investment options, fees and expenses, as well as the tax impact.

529 prepaid plans are another type of tax-advantaged college savings account. The prepaid plans lock in the cost of college. Because college-cost inflation is outstripping regular inflation and investment returns, prepaid plans can be a good choice for some children. A prepaid plan may offer the biggest bang for the buck in trying to finance a college education for three children with $80,000. provides a nice overview of the different types of accounts, and investments in those accounts, in “College Savings 101.”

My concern is that you may have two layers of administration of these accounts — the trustee for the children and the custodian/trustee of the 529 account. Those fees plus any investment management fees charged by the portfolio manager will be a drag on overall returns. 

The pot trust could accomplish your goal at a lower overall cost.