FINANCIAL PLANNING FOR A SPECIAL NEEDS CHILD
· Most parents are concerned with the financial security of their kids till their late 20s or early 30s.
· But, for a special needs child, you need to ensure financial independence for the entire lifespan.
· As long as you are alive, you can satisfy the kids' wants, but are worried about how they will pay for their needs or who will make the decisions for them after you.
1. Calculation of child’s expenses
· First, prepare a list of the child's current expenses.
· Then add those that are likely to occur in the future, such as salary of a care-giver and medical costs, and also the cost of inflation.
· This will give you a fair idea of what you need to invest every month to achieve that goal.
2. Investment plan
· The next step should be to build assets that will provide an income to take care of these expenses, and should be such that are used for the child’s benefit alone.
· Ideally, the investment plan should start from the day the child is born.
· Any cash gifts received by the child should be invested in long-term options, such as equity mutual funds, because you can afford to take risks as you are investing for a very long period.
· However, if your child needs constant medical care, you should avoid a large exposure to equities, and your portfolio must be balanced with a 60:40 ratio skewed towards debt.
· This is because at least the capital you have invested must be protected in case you want the money immediately for the child's constant medical care.
3. Insurance plans
· You must also take the largest term cover for the longest tenure that you can get for yourself.
· You can also take whole-life plans with limited payment period, as the policy will never lapse, and the proceeds will help fund the child, partly as a lump sum and partly as annuity.
· If your child requires medical treatment or suffers from severe disability, avail of the allowable tax deductions for these expenses through certificates from a specialist at a government hospital.
4. Estate plan
· For this, you will need to appoint a guardian as well as form a trust.
· The guardian and the trustee will take care of the property of the trust and the income generated, to ensure that the funds are used appropriately for the entire lifespan of your child.