Financial planning: How to secure the future of kids with special needs?

Often, you come across people who worry about saving enough money to pay for kids’ higher education, extracurricular activities, etc. While every parent wants to safeguard their child’s future, parents of children with special needs naturally worry about it more. Their expenses range from paying for therapies to lifelong medical needs and caretaker’s expenses. Various financial planners, however, suggest that a carefully jotted plan can ease this anxiety. Depending upon the child’s ability to be independent, parents should consider various heads of expenses that can come up in the future.

“The first step to developing a safety net is to get started and get organized. Start planning the moment you discover any kind of permanent disability in your child. The financial plan broadly depends on four things i.e the nature of the disability, life expectancy, future earning potential and housing needs. First of all, make a budget listing all the costs and expenses like schooling, therapies, etc. Start with an emergency fund. List down short term and long term goals,” said Ashima Gandhi, a financial advisor at Investoscope Financials.

How to beat inflation?

The best of financial planning can appear incompetent if rising inflation isn’t accounted. This is a bigger issue when planning a future for kids with special needs as the cost of medicines alongside living expenses will have a domino effect on the overall well-being and security of your child. So how to plan an inflation-proof portfolio for the kids?

In order to beat inflation, Gandhi suggests one to take the route of equities, “If you are a beginner, go for mutual funds than direct equities. Mindful planning goes into the selection of funds depending on various factors like age, risk appetite of the investor, etc. Create a balance between equities and fixed income to secure the wealth accumulated.”

Inflation may be a constant threat to your financial planning, but Forum Shah, a certified financial planner, likes to believe in the phrase “boond boond se sagar bharta hai” and reaffirms, “Any small investments done today depending on the time horizon of requirement, will help overcome the inflation burden. Further, while making investments, different asset classes should be considered to mitigate the risk of inflation.”

Insurance for kids with special needs

For kids or adults with special needs, insurance is a must. Both life insurance and health insurance plays an important role in their financial planning. A child with special needs has requirements that are far more extensive than those of others because there is a required corpus for coverage against medical bills, check-ups, therapies etc. and therefore, the insurance requirement also gets extended.

IRDAI has mandated mental health covers by all insurers. There are many private players like HDFC Life, Kotak Life Insurance in the life insurance sector while Star Health Insurance and Care Health in general insurance sector providing insurances for special needs.

One must spend some time to understand the benefits and limitations of these policies before buying one. Insurance should be managed with a structured approach increasing the cover size with age and child’s needs.

Selection of nominee

In case of children with severe mental disabilities, the family needs to have a trustworthy and capable person to assist the child. Initially, parents can take up the responsibility and they should start training someone in the family to do so in their absence. Most of the time it is the other sibling who takes this responsibility. If this is not an option, any family member with whom the child is comfortable should be chosen as the nominee.

“Another option is to consider making a Trust where the child with mental disabilities is beneficiary and the trustworthy persons are the trustees who can manage the affairs on regular basis. Creating a Trust can be a cumbersome activity as it requires fulfilling certain compliances,” Shah asserted.

Meanwhile, Gandhi pointed on the importance of stating everything clearly in the Will about who should take care of your assets on behalf of your child after you’re gone.

“A power of attorney is a written document that appoints someone to handle financial matters in whatever way you spell out. For instance, the person you appoint could pay your bills, manage your bank accounts, and make sure that you are getting your income. Make sure you get a durable power of attorney,” she explained.

Will vs Trustee Fund

Emphasising the importance of Will, Shah termed it as a very important document. More so for parents of the children with special needs, “In absence of Will, depending on the community which the family belongs to succession laws will be applicable. Further, the child with disabilities may not have the bandwidth to do the necessary things needed to take control of the assets of parents.”

Thus parents should make a Will in line with the distribution they intend to do. A caretaker/guardian of the child with special needs can be mentioned in the Will. Provision for some kind of remuneration/reimbursement for the caretaker can be mentioned in the Will.

However, according to Anshul Gupta, an advocate at the Supreme Court of India and managing partner at ANG Partners, trustee funds are more reliable when it comes to financial planning for kids with disabilities.

“There are legal advantages of using a trust fund to manage property intended for the benefit of the beneficiary (here: a child with special needs) if h/she lacks the legal and mental capacity to handle their own financial affairs. A trust fund can include insurance policies, cash, or properties. A Trust Deed is usually signed between the donor (here: parent) and the nominee/guardian as co-Trustee and the specific assets are then transferred to a trust fund,” Gupta explained.

He further said that trust funds do not involve legal interference as much as a Will and thus it’s a better way to transfer your financial assets smoothly. However, in case the co-Trustee does not adhere to the norms of the contract, the matter can definitely be taken to the court of law.

How to balance retirement corpus and lifelong funds for kids

What one needs to do in this situation is to focus on maximising regular savings. While we should mentally create compartments and map out assets to different requirements, in reality, it is all one big basket.

“While filling this basket, we should take care of the different asset classes to be used depending on the time horizon after which the funds will be required. If there is diversification based on this, the compounding of assets will help the family to achieve different goals. They should focus on maximising the investments,” Shah concluded.

Investing in developing your child’s skills is the best type of investment. Making your child self-sufficient with some knowledge of finance will help them. Aim for your child’s employability and financial independence.

“There are many NGOs and government organisations focusing on vocational training and placements of differently-abled people. Even private firms have stepped in. In general, a disciplined investment with a specific tenure in mind can help accumulate retirement corpus,” Gandhi concluded.