Financial plan with difference for a special child

Tarun BiraniTBNG CapitalNothing is more precious to us than the future of our children. As parents we want to give our best to our children. Good financial planning helps us to put our best when it comes to prepare it money wise. But a family with a special child has to work harder and needs to plan differently. A good advisor understands that while doing financial planning for families with special child, one needs to factor in equal time for financial as well as non-financial aspects. The emotional aspect becomes one of the most important aspect in such cases as early months are spent in understanding and counseling on aspects like therapies, disability certificates as well as NGO’s role. A regular financial plan focuses more towards achieving the long term goals. But a financial plan for a family with special child needs to focus on planning and achieving both, short term and long term goals. Here are a few things that should be kept in mind while creating a financial plan for a family with a special child: 1)Contingency planning Contingency is all together a different goal unlike the one where we plan for 3 month of expenses.Contingency goals can be divided into different sub goals like: Funds needed for meeting the expense of yearly therapies. Funds needed for meeting the yearly school fees.etcThis is because usually fees of good quality special schools & therapies are higher & would normally account for major portion of your outflow. It is the only hope for an improvement of the child. And you do not want any compromise on that for the want of funds. 2)Extended support Disability can hamper a person’s ability to work & earn one’s living. It is always advisable that parents with special child should not only plan for their child’s education but also plan for extended support as needed by the child. This again becomes an important goal which needs proper planning & only regular investment towards this goal will help to achieve it.3)Investment portfolio:Here the overall portfolio has to be divided into short /medium term portfolio & long term portfolio. Short/Medium portfolio: This would mainly be the investments you need in 1 to 3 years. The goals aligned can be paying yearly fees or 6 monthly therapies charges. There are investment instruments like liquid fund, arbitrage fund & Debt accrual fund that would help generate alpha as compared to traditional options like saving account.Long term portfolio:Extended support for the child: In future once he has completed his education, to ensure a bright & promising normal life you might need to give him financial support. The life of the extended support would depend upon the kind of disability the child is facing, this extended support might also continue till there life long.Don’t forget your own needs: Retirement planning means planning for your sunset days, planning for all the expenses before hand when your regular income stops, Retirement planning is equally important to have a comfortable life post your retirement. 4)Asset allocation:Right asset allocation plays a crucial role for an investment portfolio to grow, but for a family with special child, I would recommend to have a portfolio biased towards financial assets like mutual funds and fixed deposits than physical assets, because it is easy to liquidate them in an emergency.Apart from risk profiling, asset allocation in this case would also depend upon the age of the child. For example: families with young special need child can invest in equities as it has the potential to deliver healthy returns over the long term. 5)Review meeting every quarterThis is a special plan wherein the short term goals are more important than long term; Short term goals are the foundation on which the long term goal can be build.Thus I always recommend a review every 3 months to check if any change or foreseeable change in the Inflow & outflow statement as it would directly impact the short term goals.6)Make a private trustIt is strongly recommended that parents form a trust for child with special needs to take care of their long term requirements. Both parents can be initial trustees and further trustees can be added in future as per comfort. Services of professional trusteeship companies can be availed. With a trust in place you can start funding it with gift’s received by your child, you can also make trust a beneficiary of your insurance proceeds & estate, this way you ensure that when you die all the proceeds are not placed directly to your child but they are passed as needed. In the best scenario, all the expenses would be made in the same way as you use to take care off when you were around.The primary purpose of a special needs trust is to ensure a stable quality of life of the beneficiary. Generally trust fund can be used for paying regular therapies, travel other services like mobile phone, computer, clothing etc.7)Make a WillA will specifics that what has to be done with your asset’s after your death. In this case it ensures that the asset’s are left for the trust & not directly passed to your child. A Will also specifies the guardian who will take care of your child.8)Guardian different from trusteeGuardian is a person who will take care of your child’s day to day activity & Trustee is the person who will take care of the asset’s you left after your death for your child.It is usually debated that it is good to have a single person delivering both the responsibility as a guardian know more about the child’s regular need. But I would suggest that the guardian & trustee should be different people, trustee can also be a group of people. This will ensure transparency on how the funds are been used & also works as a double filter system & also gets opinion of different person on a particular matter.9)Make Use of Tax Deductions There are certain tax related benefits for families who have special needs dependants.Deduction U/S 80DD for medical treatment of disabled dependent:Disabled dependant is not suffering from severe disability: Deduction allowed is Rs. 75,000/- over a financial year.Disabled dependant is a person with severe disability:Deduction allowed goes up to Rs. 1,25,000/- over a financial year.Conclusion:Financial plan helps us to see the bigger picture & secure our family financial wellbeing and gives us peace of mind. Sound financial planning will help us giving our child a secure future which all the parents dream too, but with special needs, Child’s financial security is not an option but a necessity.