TIPS FOR PARENTS TO SECURE FUTURE OF CHILDREN
From the day your bundle of joy arrives, securing him, both emotionally and financially, takes centre stage. However, providing for his overall growth—from his health and well-being to best-in-class education— can be a challenge. More so, if you have to care and provide for a child with special needs. The financial goals of special needs children are unique, ranging from high critical care costs and appointment of a caregiver to providing for a lifetime of support. This is where meticulous planning comes into play.
Appoint a guardian
No matter how disability affects your child, chances are that you are not going to outlive him or her. Therefore, identifying and appointing a legal guardian, who will not only work in your child’s best interests, but also be able to make informed decisions on his or her behalf when you are not around, is paramount. However, if you think of appointing, say, the child’s 70-year-old grandmother, who is sure to work in his or her best interests, it would be of little use as she might not also survive till the child grows up. So, it should be someone caring who is likely to outlive the child.
Create a trustYou need not grant full powers to the guardian and can bestow limited guardianship that would allow the person to take care of specific needs, like financial or medical care. While appointing a guardian, make sure to consult a lawyer and draft a legally valid agreement, detailing the roles and responsibilities of the guardian. Verbal agreements are of little use and such appointments must be on paper and duly signed.
To further secure the future of your differently abled child, you should create a trust that can look after his or her finances in your absence. You have to appoint a trustee, who could either be the legal guardian or someone else, to manage the affairs of the trust. He would also be responsible for managing the paperwork, such as ownership documents associated with the trust, as well as ensure that tax liabilities are met on time. Given the level of responsibilities involved, you must appoint someone who is trustworthy and capable.
Some people prefer appointing an institution, such as a bank or a boutique estate planning firm, as a trustee. “In a way, they are a superior option because they are professionals. Besides, they are unlikely to cheat as they have a reputation to maintain,” says advocate Geetanjali Dutta. Besides, institutional trustees will have a longer life span than individuals.
“But whomever you appoint as the trustee, make sure you do adequate research about the person’s character, trustworthiness and capability,” warns Dutta. You will also need to take the help of a lawyer to set up the trust and ensure that it has a proper structure and serves the purpose for which it was created. Also, lay down a detailed mandate for the trustee by keeping the needs of your child in mind. For instance, you could set a mandate that the child be kept in a care centre and the trust be used to fund that specific purpose.
Funding the trust
High net worth individuals, who have many properties, can easily earmark some of these to fund the trust. How should a middle-class, salaried individual set up a trust? The first step to this seemingly mammoth task is to list out the child’s current expenses, including education and medical care.
Next, consider additional costs that may arise in the future, such as the need for a caregiver. Do not forget to consider the costs of routine equipment, such as a wheelchair or other communication tools. Finally, consider an annual inflation rate of around 8 per cent to arrive at the estimated future value to take care of the special-needs child.
Once you have the target amount, start identifying assets that could be enrolled under the trust to fund your child’s needs. Assets could include real estate, equity or even debt investments that you have made for your child. All cash gifts receives in the name of your child, should also be invested in longterm options, including equity. Do not expose your portfolio to too much risk. Ideally, maintain a ratio of 60:40 in favour of debt.
You should also have adequate life insurance, which could fund the trust in case of your premature death. A pure term plan is definitely a good option that will be able to meet your targets to a great extent, but also be on the look out for special plans that are specifically designed for the benefit of differently abled children.