Friday, November 16, 2012

Special Financial Planning for your child with disability


I came across this informative peace, though not complete in many respects. This is based on the information and law that exist today and doesn't suggest or foresee the circumstances in the coming days looking at the major developments in the sector, particularly, the Delhi High Court ruling that calls for equal benefits in Post Life insurance to the disabled employees; the UN Convention on the Rights of Persons with Disabilities; the Rights of Persons with Disabilities Bill 2012 awaiting introduction in the parliament and the supported decision making in place of full /limited guardianship. Nevertheless, this may help many. Here it goes.

A differently abled child needs special financial planning for a secure future

Vidyalaxmi, ET Bureau | Nov 14, 2012, 09.08 AM IST

NEW DELHI: Every child is special; and differently abled children are even more special. In normal circumstances, the biggest worry for most parents is high education expenses. However, in case of special children, the worries extend beyond that. Parents of such children have to plan for extra medical expenses and for expenses much beyond college. In some cases, even for their lifetime. The parents also need to put in place a system where there is someone who takes care of the child when they are no more and the benefits should keep coming to the child.

"When it comes to a special child, financial planning involves two stages. The first stage is financially providing for the life during the parents' lifetime. In the second stage, one has to build a mechanism through which the child continues to meet his/her financial needs after the parent's lifetime," says Mukund Seshadri, certified financial planner & partner, MS Ventures Financial Planners. On children's day, it is time to make a beginning and build a meaningful corpus for your special child. One can consider the following points while drawing up a financial plan.

Legal guardian after 18 years

In a regular case, parents' responsibility could be for a limited period. However, in case of a special child, the timeframe could depend on the severity of disability. In some cases it could extend for a very long time. "These children go to special school and could need extra health care expenses. You are natural guardian to your children only until they are 18 years; but once their status changes from 'minor' to 'major', you need to take legal guardianship from court for your special child," says Pankaj Mathpal, certified financial planner and managing director, Optima Money Managers. "Parents can take the legal guardianship themselves or appoint a sibling or somebody else as guardian to the child."

Allocate more to equities

"In case of a special child, you may have to provide for income for the entire life. This is very difficult to calculate," says Kartik Jhaveri, certified financial planner, Transcend India. Even if the child could eventually generate income based on his abilities and skill sets, retirement planning should be done in a manner that the child has sufficient means of income through alternative sources. The investment plan will vary from family to family based on their financial realities. Asset allocation is the key and knowing the kind of corpus and returns that you would need for your goals is paramount, according to experts. "As a general rule, a portion of the portfolio should be allocated to equities and this portion could be higher considering the time horizon in such cases (for retirement goal: parents as well as child's ) is more than 30-plus years. Parents should also have exposure to real estate (not as an investment, but as a residence), which can come in handy to the child," Jhaveri adds.

Buy a high sum assured term plan

This is a must, especially for parents who don't hold any assets. "Parents should consider buying a high sum assured term plan, which will factor in the uncertainty risk if something were to happen to the parents. Today' term plans are very reasonably priced and affordable," says Seshadri. "Parents should choose the child as a beneficiary and can nominate some trustworthy individual to ensure that the beneficiary gets his/her share of proceeds after the parent's death."

Create a trust

Another way is to create a non-revocable trust and appointing trusties. Creating a trust comes with its own set of challenges such as setting up the trust, registering a PAN Card, defining the functions of the trust, choosing the trustees etc. You can form a trust any time. The first step is to frame a trust deed with legal help. The trust deed defines the objective of the trust, includes the names of trustee members, powers and rules and regulations pertaining to its functioning. The key is to appoint trustee members who are younger to the parents.

This may take care of the possibility of the trustee's death before the parents'. "Closest family members are the preferred choice for trustees. In absence of that, you can take help of some NGOs or The National Trust," says Mathpal. The National Trust is an autonomous organisation of the ministry of social justice and empowerment, Government of India, set up under the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act (Act 44 of 1999). If you plan to set up a trust, financial advisors expect the initial costs to be around Rs 30,000 in metros and Rs 20,000 in smaller towns. "If parents have a trustworthy relative in a sibling or an uncle/aunt, it is any day easier to create a will. The process of setting up a will and its execution is far simpler and affordable for most individuals," says Seshadri.

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