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Hello there -
There will be no way to get around letting the college financial aid office know about this money because the feds are very diligent these days and his name, DOB and social are searched for various sources of income while they are reviewing his FAFSA forms. However, the financial aid officers at each school have the power to override any decisions or denials made at the federal level based upon what are called "special circumstances" and your son's case sounds like a case that will need some explaining to the financial aid officer before he completes the final FAFSA applications and financial aid forms for the college (if he has completed them already and submitted them, he can still talk to the financial aid officer but he should contact them ASAP and get an appointment to sit down and discuss the situation). At that meeting , you and your son should tell the financial aid officer that he is willing to use it for school and ask for some assistance regarding what to do for the last 3 years if you are unable to get the monies stopped from payout. The financial aid officer can literally override every single determination made by the people who review the FAFSA if they want to or need to do so -- but they are very careful about what they do and who they do it for because they do not want to be seen as playing fast and loose with the rules. Finally, when you speak to the financial aid officer, you should discuss the possibility of placeing the money in an annuity that pays out 10K each year for four years so that is the amount that will be considered in the financial aid calculation rather than the entire 40K all at once distribution. Obviously, because the money must come out of the account when he turns 18, if you can get the financial aid officer to agree that the transfer of the money to a yearly payout annuity is not considered a one time payout of the 40K affecting his first year of eligibility very badly.
I hope that helps. I wish there were something in the law that I could point you to that will take this money out of consideration because it was from a lawsuit -- but I cannot do that because any source of viable income or money must be disclosed (if a person tries to hide it they can lose the right to apply for financial aid the entire 4 years of college!)
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