Financial planning for a special-needs child

RAISING a child is stressful and expensive – ask any parent. But raising a child with special needs is exponentially so. Schooling requirements are different, constant care might be required (often throughout the child’s life), medical bills are higher, and there’s the crippling fear of how your child will cope when you pass away.

Every child is different and every family set-up is different, but one thing that most parents in this situation agree on is that proper financial planning helps to alleviate some of the anxiety. Here are five important points to consider:

1. Be prepared for what’s coming

A budget is key to any good financial plan, and in the case of a special-needs child, it’s even more crucial. Start by plotting an expense timeline detailing the medical treatments and care requirements that you can expect in the future, then create a monthly budget that includes those projected expenses alongside everyday living expenses. With the help of a financial adviser, you can then decide how best to invest your savings to guarantee long term financial security.

A proper budget will also help you make potentially difficult decisions, like whether one parent can afford to stop working to assist full-time at home, or whether it would be better for everyone concerned to hire help or look for a care facility.

2. Create a testamentary trust in your will

This is a special trust that is established in accordance with your will and goes into effect immediately upon your death. It’s a way to safeguard capital for your child and ensure that he or she is looked after according to your wishes when you are gone.

Careful consideration should go into the nomination of your child’s guardian or guardians, as well as the trustees of the testamentary trust. Often a sympathetic family member like a sibling will do double duty as both guardian and trustee, usually assisted by an objective professional like a lawyer. A supporting document called a letter of wishes might also be drafted, with detailed instructions about how the money from the trust should be used to care for the beneficiary.

Your financial planner or estate planner will help you understand the tax implications: a testamentary trust is taxed in the same manner as an individual, and the rate is lower than that of a normal trust.

3. Double-check your life cover

Life insurance is always important, particularly for the family’s main breadwinner, but it’s non-negotiable if you have a special-needs child who might never be able to live independently.

Once you have a will in place, you can make the testamentary trust the beneficiary of your life policy and thereby guarantee sufficient capital to last your child’s lifetime.

Life insurance requirements change over time, as you pay off debt, progress further in your career, or as your child’s individual needs change. Similarly, the monthly premium depends on various factors, including your earning potential, the lifestyle you’re accustomed to and your child’s projected expenses. A financial adviser can help you choose the right product at the right premium for your circumstances.

4. Practise letting go

This is much easier said than done, but special needs children need to be taught to cope without their parents, just like their able peers. Ironically, it’s often the parents who struggle most with letting go!

I have a school friend with a special-needs child and she resisted sending her to a care home for years, despite a psychologist’s recommendation to do so. Eventually, she capitulated and when she called her daughter after a couple of days to check in, her daughter told her to stop pestering – she had a job to do!

Initiating some distance will also help you to gain perspective on your finances – you will be better able to gauge your child’s ability to cope on his or her own, and you can put the necessary plans in place for long-term care when you are gone.

5. Look after yourself

The only way you can care for your child’s future is if you care for your own future. Being healthy and financially secure is key to providing a safe, happy environment for your special-needs child into adulthood. Don’t neglect your own retirement plans!

Once again, a Certified Financial Planner (CFP) will be able to help you navigate this tricky terrain and hopefully ensure the best outcome – not just for your child, but for the whole family.