Plan proactively to secure a special child’s future

Besides investing adequately, parents also need to set up a trust and write a Will

Besides investing adequately, parents also need to set up a trust and write a Will. SWARNAMI MONDAL writes

Rahil and Dishari’s only child, Yatharth, suffers from a rare malformation in the brain that has impaired his motor skills, speech, and skeletal and muscular systems. Although he is a happy-go-lucky kid, his condition requires constant medical attention. But Dilshari, 30, an investment banker and Rahil, 32, an IT professional, have more to worry about than just his health. How do they ensure that Yatharth is financially secure in adulthood?

Estimate the corpus required: When investing for a child with special needs, parents must make an early start. Says Uttam Kumar Sen, founder, Step Ahead Investment Advisors: “Parents should start saving early, say a decade or two in advance, to be able to create a sizeable corpus.”

Knowing how much will be needed to secure a special child’s future is difficult, but parents can make an approximation of the medical and other expenses and factor in inflation. Make sure the investments are able to take care of the child’s normal and extra-normal needs. “Ideally, the overall corpus should be 5-10 times the couple's combined annual income. The parents must take into account their own life expectancy along with that of their child when trying to determine how much he will need,” says Vipin Bhutani, financial planner and founder, WealthMaker. Corpus for normal expenses: To build this stack, parents can invest in a wide array of options, including equity mutual funds, balanced funds, Public Provident Fund and post-office savings schemes. Since the time horizon is long, parents should allocate at least 70-80 per cent to equities, provided their risk appetite permits it. Equity-oriented hybrid (balanced) funds are an attractive option if the parents are first-time investors.

Buy adequate insurance: Each parent should also ideally buy a term life insurance plan with a sum assured at least 10- 15 times his annual income. The parents should also buy a family floater health insurance cover of up to ~20 lakh.

Create an emergency fund: This is essential to meet unforeseen and immediate medical contingencies. Says Mumbai-based financial planner Pankaaj Maalde: “These savings should be parked in liquid funds and fixed deposits so that they can be converted to cash at short notice.” Rahil and Dishari’s monthly expenses, investments and EMIs amount to ~90,000, so they should aim to build a contingency fund of no less than ~540,000, to cover six months’ expenses and investments.

Meeting extra-normal needs: The investments in this zone will cater specifically to Yatharth's medical and other needs, especially after his parents are no more. Currently, ~9,000 a month is spent on his treatment, and ~300,000 will be needed three years later for surgery. Maalde says a systematic withdrawal plan in a conservative mutual fund will deliver the monthly payouts required to meet the cost of Yatharth's regular treatment. For the surgery three years on, the couple could invest in ultra short-term funds.

For long-term medical and other expenses, especially those occurring after Rahil and Dishari are no more, the couple should consider working on a plan that fetches them ~1 crore in 20 years. The couple's combined income is ~190,000. After all expenses, they have a surplus of ~100,000. Sen says they can reach the ~1 crore milestone by spreading their surplus across various investment classes, including equity funds via systematic transfer plans (STPs), hybrid funds and debt funds.

Succession planning is vital: Rahil and Dishari need to figure out who will care for their child and how once they are no more. In the absence of reliable family and friends, parents can opt to set up a trust that can take over the financials and dayto-day responsibilities of the child. “Parents must appoint at least two trustees — one, a family member or friend, and the other a corporate trustee,” says Arijit Ghosh-Dastidar, managing director of Dasgupta and Chatterjee LLC, a Kolkatabased estate planning firm. Corporate trustees can put in place a system to pay the child’s bills and disburse payments for other expenses. Identifying suitable trustees is of utmost importance.

A letter of intent should be drawn up to act as a guide for the trust. It will pass on vital information about the child to the guardian or trustees. It should be very detailed. One copy each should be given to the trustee and the guardian. “A tracking mechanism must be worked out to check the trust’s performance, and all the assets should ideally be held under its name,” says Ghosh-Dastidar. Rahil and Dishari should ideally invest more in financial assets than physical ones as the former are easier to manage. Physical assets should be limited to one property.

Fending off the sharks: What happens when the trustee passes away, and greedy relatives come to stake a claim on the assets left behind in the trust? Two or more trustees should be appointed so that even if one passes away, the other/s can continue to protect the child’s future. The two roles — that of guardian (under whose care the child has been placed) and trustee – should be separated so that even if the guardian passes away, the trust can still function and meet the child's needs. It is also advisable not to make a challenged child dependent on the goodwill of one's normal offspring, or name them jointly in property.

Set up a Will: For a couple like Rahil and Dishari, drawing up a Will is necessary to ensure the assets they leave for Yatharth are bequeathed to the trust. “They should also name the person appointed guardian in the Will,” says Supratim Roy, a Calcutta High Court advocate.

In Yatharth’s case, the Will should not be a do-it-yourself (DIY) endeavour. His parents should hire a lawyer. Once the Will is drafted, one copy should remain with the lawyer, one should be sent to the trustee, and a third to the guardian. It is important to include “pour-over language” in the Will. “Such language indicates that any property that the child inherits will go directly to the trust,” says Ashik Hussain, a Calcutta High Court advocate.