Financial Planning for a family with a special child

Firstpost has been running a series on financial planning for specific needs for a couple of months now. And we emphasise again, although the basic financial principles remains the same, we have to weight them differently based on your specific needs. We have covered planning for Twenty Somethings, Dinks , Nuclear Family and Suddenly Single, to name a few. Today, we bring you financial planning for families who have children with special needs.

Your life: You have a small happy family of your own, and that’s your world. You are a couple with one or two kids, out of which one kid is a special child. Life is pretty good, but the special child needs special attention, and hence your world revolves around her. Your bundle of joy makes you smile and you want to give her the best. And you know as long as you both (spouses) are around, all will be taken care of. But, you also know you live with a fear: what will happen to your special child (by then an adult, yet not financially independent), when both of you are no longer around. But as, American journalist Ellen Goodman once said, “The central struggle of parenthood is to let our hopes for our children outweigh our fears.” We attempt to offer direction to your money life and address this fear.

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Your Money

Contingency Funds: The three to six months of monthly expenses amount kept aside as emergency funds won’t work for you. Mumbai-based Pankaj Mathpal, a Certified Financial Planer, says: “You will need to keep aside a much higher amount as emergency funds. And also ensure that these funds have liquidity and there is a regular cash flow.” We suggest at least 12 months’ monthly expenses for emergencies should be kept aside.

[caption id=“attachment_489623” align=“alignleft” width=“380”]  Representational image. Reuters[/caption]

Life Insurance: Here again a term life insurance policy with a cover equal to 12-15 times your annual expenses, or 8-10 times your annual income plus debt obligations, won’t work. Mathpal says, “Children are financial dependents for around a maximum of 25 years on their parents. But with special children, more often then not, they may be financially dependent for years to come, even after their parents are not around. Hence, your life-cover needs to take into account this need too.” How many times your annual income do you need as life cover? We won’t give you a firm answer. We strongly recommend you take the assistance of a CFP, who would be able to give you the exact amount needed, based on your financial and social circumstances.

Medical Insurance: Ideally your family floater medical insurance policy should allow you to include the child with special needs. Surya Bhatia, Delhi-based CFP, says, “We have seen instances when the insurers have refused to cover a special child under medical insurance. For such a family, it’s going to be a fight to get the much-needed medical insurance.” We recommend you buy a family floater policy of at least Rs 10 lakh. And also build a separate corpus for the child’s medical and other needs too. Your child might need regular medical assessments, physiotherapy, occupational therapy and like.

Investments and retirement: There is no doubt that you will need to build a larger corpus via your investments and for your retirement. So, stay away from investing in direct stocks, and take the mutual funds route, apart from a mix of FD, bonds, gold and like. Retirement regulars like EPF, PPF and NPS should work well. Keep your asset allocation and risk profile in mind while investing. Let’s be honest, if you are super rich, things will be easier for you. But of you are a regular middle-to upper middle- income family, you will need to let go of a few finer things in life to ensure a big enough corpus for your future as well as your child’s. Which means, every penny you save will take to one step closer towards your financial goal.

Take tax benefits you are entitled to: Sudhir Kuashik, Chartered Accountant and co-founder Taxspanner.com, says, “There is nothing wrong in taking tax benefits which you are entitled to. Section 80DD gives tax breaks when you spend for maintenance, including medical treatment, for dependents with disabilities and Section 80 DDB applies to deductions for medical treatment of dependents.” The CA also observed that not many take such benefits, due to lack of awareness.

Estate Planning: Mathpal says “Estate planning is the most important part of the financial plan for you. Instead of making a will, make a non-revocable trust in your child’s name. So that no other nominees or dependents contest the money once you are gone.” Ensure that you choose the guardian of the trust very, very wisely. He can then take your place once you both are not around. Bhatia says, “Getting the right person to take care of the trust is very difficult. Ideally it should be someone who will outlive you as well as the child.” If the child has a sibling, he could be that person. Your own brothers or sisters may not outlive the child. If you have another child before or after your special one, your financial plan will change, since you will need to accommodate his financial needs too.

Today, many special children are able to live a fairly independent life, at times even independent financial lives. This varies from case to case, but for this story we have assumed a special child may be a financial dependent all her life. Your financial plan will vary depending up on the degree of dependency of your special child. While we have always recommended consulting a financial planner, in your case, we recommend it with all our conviction. That way, you will be able to live a good life with your special someone - and also give her the same after you’ve gone.