Financial planning for children with special needs

All children are expensive, but planning for a child with special needs comes with its own set of financial challenges. Diagnosis, severity, prognosis and life expectancy all impact the financial planning process, and the time horizon of your financial plan may need to cover your lifetime as well as that of your child. When undertaking financial planning in respect of a special needs child, the following should be considered:

Develop an expense timeline and budget

Before developing a budget, it is a worthwhile exercise to develop an expense timeline which is unique to your child’s specific condition. By drawing up a timeline, you will be able to plot the large expenses, treatments, medical equipment and/or hospitalisations that you can reasonably expect in the short-to-medium term. This timeline will naturally depend on your child’s condition, prognosis and life expectancy.

Armed with the foreseeable medical expenses mapped out, the next step is to update your monthly budget, taking into account your child’s expense timeline. In the case of a severely disabled child, it may be necessary for one parent to stop working in order to care for the child and, before taking such a decision, it is important to prepare a detailed budget and to consider other options such as private caring or care facilities – both of which can be costly.

Life cover

As parents of a special needs child, it is likely that you will need greater levels of life cover than most parents. While most children become financially independent in their early twenties, many parents accept that their special needs children will never be financially independent nor able to manage their own finances.

Your financial planner will assist you in quantifying the future costs of caring for your child, taking into account living costs, medical and healthcare expenses, the costs of a carer or care facility, special schooling and upgrades in medical equipment. You will need advice in sourcing the most appropriate life cover, benefits and premium structure for your circumstances.

If you have set up a special trust for your child (see below), you may wish to consider a trust-owned policy on your life which pays out to the trust in the event of your death. In the event of your passing, the proceeds of this policy will be paid directly into the trust account and will be used solely for the benefit of your child.

Medical aid and gap cover

Even the most comprehensive medical aid scheme available will not cover the costs of raising a special needs child, although it remains advisable to ensure your child is on a comprehensive plan option with a gap cover benefit.

Key benefits worth considering when choosing a medical aid plan for your child include chronic condition coverage, scans and scopes, medical appliances and the extent to which specialists are covered. Choosing a plan option with a network may limit you to certain hospitals and service providers which may not be ideal if your child has specific medical needs.

If the nature of your child’s condition involves frequent hospital stays, a gap cover benefit will help you to fund the difference between what is charged by the specialist in hospital and what is ultimately paid by the medical aid. In order to avoid waiting periods and exclusions, do not delay enrolling your child onto a medical aid.

To avoid frustration, ensure that you know upfront what benefits and medicines will be covered by your medical aid at the time of enrolling your child. Many people become disillusioned with their medical aid when trial drugs or new therapies are not covered by the scheme. Further, some parents pay for certain treatments upfront, only to discover that the scheme will not reimburse the costs.

It is unrealistic to expect a medical scheme to pay for every single health-related cost; advice from an independent healthcare advisor will help to prevent disappointment later on.

Emergency fund

The likelihood of unforeseen expenses is far greater when raising a child with special needs. Emergency treatment, large hospital co-payments, equipment repairs, and emergency travel costs can burden an already-strained budget. Whichever vehicle you choose to house your emergency money, ensure that it is accessible immediately.

While most people aim to build up to three- to six months’ worth of income in their emergency fund, your particular circumstances may warrant ultimately building up a year’s income in your rainy-day fund.

Creating an emergency buffer may take time, but is an essential element of your financial planning if you are to avoid going into debt to fund your child’s healthcare needs.

Type A special trust

A Type A special trust is an excellent estate-planning tool for a special needs child. A Type A special trust is set up in terms of Section 6B (1) of the Income Tax Act, solely for the benefit of a person incapable of managing their own affairs. Because seriously-impaired people are at risk of being taken advantage of, this type of trust is an excellent way of protecting their financial futures.

It is important to note that this type of trust can only be set up for the purpose of benefiting the disabled person and for no other reason. Further, the beneficiary of the trust must have been diagnosed by a medical professional.

As the parent of a special needs child, you can set up an Inter Vivos trust during your lifetime, or a testamentary trust which comes into formation on your passing. When setting up the trust, be sure to name your beneficiary and to include at least three trustees to manage the affairs of the trust. Some of the benefits of a Type A special trust include more beneficial tax and capital gains tax rates when compared with normal trusts.

To provide for your child’s medical and living expenses in the event of your death, it is possible for the special trust to own a policy on your life, with the proceeds of the policy being paid directly to the trust in the event of your passing.

Because of the complexities and legislation governing this type of trust, it is advisable to have the trust deed drafted by a practitioner specialising in this field.

Will

Setting up your will so that it provides adequately for your child is important and it is advisable to meet with an estate-planning expert in this regard. If your child is a minor, you will need to nominate a guardian to take care of them in the event that you and your spouse die. It is perfectly acceptable for the nominated guardian of your child to also be appointed as a trustee of your testamentary trust.

Given the onerous nature of caring for a minor with special needs, it is advisable to discuss the guardianship of your child with the family member or friend to ensure that they accept the nomination in the event of your passing. The nominated guardian should be well-known to the family and should be someone you can wholly depend on to act in the best interests of your child.

Your will can give directions to the nominated guardian on how you would like your child to be cared for, although the specifics of this could be fleshed out in your letter of wishes (see below). It is further advisable to appoint an alternative guardian in the event that your nominated guardian passes away.

Letter of wishes

The care of your special needs child after your passing will be of huge concern to you. Raising a special needs child is undoubtedly more taxing and complex – and even if he/she is adequately provided for financially, the details of how they should be cared for can be arduous. Many parents of special needs children choose to include a life care plan in their letter of wishes, which sets out how they would like their child to be cared for if they are no longer around.

A life care plan should include your child’s medical history, as well as their current treatment and therapy plan.

You can also include details of the living arrangements you have made for your child, both in the short- and long-term. This document can also cover information pertaining to your special trust and instructions to the trustees on how you would like the money to be used for the benefit of your child.

By its nature, the life care plan should be detailed and specific in terms of how you would like your child to be looked after when you are not around, including your wishes regarding religious instruction, people who have an influence on his/her life, as well as morals and values you would like shared with your child.

Associated costs

A disabled child can be your financial dependent for the remainder of your life and beyond. Everything related to caring for a disabled person is expensive and putting money aside to cover these ongoing costs into the future is essential.

Costs such as special clothing or shoes, medical beds and/or bedding, home adaptations and renovations, prosthetics, wheelchairs, walking aids and special dietary supplements can be hugely expensive. Factored into the costs should also be the loss of income if one spouse is required to be the full-time carer.

With the investment timeline being the rest of your child’s life, it makes sense to seek advice on how to invest appropriately to meet the short-, medium- and long-term costs of caring for your child.

Take care of your retirement planning

The reality of having a child with special needs is that you may have to provide for your own retirement and well as your child’s. Nonetheless, taking care of your own financial future is of the utmost importance and should not be neglected in the process of planning your child’s future. Your child’s future depends on you being financially secure and comfortable in your retirement years.

Multi-generational financial planning, which seeks to ensure optimal financial succession between generations, is pivotal to the process of planning both your retirement and your child’s long-term future. Your advisor will guide you through this process to ensure that the correct estate planning and investment mechanisms are put in place and optimally employed.

There is no doubt that caring for a child with special needs is overwhelming, expensive and all-encompassing. While you may not be able to fix the diagnosis, you can put a financial plan in place to secure a future for both you and your child.

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