I am so sorry to hear about your loss. You sound strong and your children wonderful. All of this has to be overwhelming. So much to process.
I am not a financial planner, but I do have a husband who has been very ill and on public/private disability for a few years, and a high school senior. I have run through the scenarios of how to pay for college.
Couple of observations: With disability payments: our private insurance payments deduct the ssdi from what they pay, and that ssdi should include payments to your kids. Meaning, you likely have already been dealing with the tax issue with social security, but may not know it. Do your kids get 1099’s from the SSA? My son does. But he doesn’t file taxes. Post-death Social Security probably won’t be more than ssdi, so I doubt it will change anything tax-wise for you. Your cpa will be able to confirm.
The Social Security payments your kids will get - will they end when they turn 18? If so, then it may not be an issue for them reporting income for financial aid. You would probably want to state clearly in the explanation section of the financial aid application that the income exists but will go away. No doubt you will be spending that money as it comes in every month, so you won’t have an asset accumulating that impacts financial aid.
The net price calculators do ask questions about public benefits. But I am not confident they fully capture the complicated situation you are in. Try them to get a sense of what the schools ask.
Thank goodness for life insurance. It isn’t enough and doesn’t replace what your family has lost, but it will help. I agree with the advice of spending out of that pot first. It is very smart of you to speak with a cpa now to figure all of this out. Maneuvering through the benefits and insurance can be overwhelming and you have a lot on your plate right now.
Please take care of yourself. I understand the need to get all of these issues sorted out right away, especially if your children are worrying about their future. But broad strokes, the income and insurance are going to be used for their intended purposes and likely won’t impact their financial aid prospects a couple of years down the line. You will have a clearer picture in about a year. These things take time to figure out, but you know enough right now to ease your kids’ minds on this one issue.