Financial Planning For A Child With Disabilities
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02 Apr, 2018
Life has a way of throwing curveballs at us. One minute, everything seems fine but within the next, life gets turned upside down. Disability is one such curveball. A freak accident or a genetic condition – a disability can come in various forms. People often think of disabilities as simply physical disabilities. But suffering from a mental disability can be just as much, if not more stressful.
While living with a disability is hard enough in itself, planning one’s finances to factor in the disability is a whole different ballgame. The important thing to remember is to establish a comprehensive and well-thought out financial plan. Generally, parents worry about how they will be able to fund their children’s education and ensure they lead a good life. But parents with special needs children have worries that extend beyond the years it takes to attain a college degree.
As parents to a talented, autistic eight year-old Trisha, the fundamental question running through Neeta and Mayank Gohil’s minds was ‘Who will take care of our daughter, in the event that something happens to us?’.
Mayank is a corporate executive and his wife, Neeta is a housewife. Some of the questions that continually troubled them were:
- Who can be trusted to ensure the health, safety and financial well-being of their daughter when they aren’t around?
- Is there a common forum or self-help/support group available?
- Does the government provide any benefits?
- Will Trisha be able to handle working independently and handle financial responsibilities by herself?
- What if the physical and mental impairments Trisha faced, worsened over time?
The root of these worries was the uncertainty of whether their child would be fine after they were no more. Keeping these in mind, we planned and worked towards building a plan, where certain legal and financial arrangements in place, to ensure the best financial security for Trisha. The important point to remember while creating the plan was that the plan simply couldn’t be based on what the parents wanted; Trisha’s life goals and ongoing health needs had to be considered primarily.
Our discussions led them to determine their goals to be:
- Income of Rs. 50,000 per month for their daughter, starting from 2024.
- Retirement income of Rs. 1,00,000 per month for the Gohil’s, starting from 2024.
- A corpus for medical expenses of at least Rs. 1 crore by the start of 2024.
A detailed assessment of their cash flows and net worth at the time of creating a plan revealed that:
- Their contingency fund was comfortable but leaned towards the higher side. Their savings account was made up of lots of liquid assets low interest fixed deposits. Even with the interest rates fixed at 6.5%, their post-tax returns were around 5%.
- Despite having a large corpus of savings, Mayank had been unable to build a structured and balanced portfolio in alignment with his goals. Most of his assets were in debt and cash forms. Given that the family’s goals were long-term, their exposure to equities was very low and restricted to two stocks and two mutual funds.
- There was a rather devastating combination in effect; where on one hand surplus cash flow was not being channeled into appropriate investments and on the other, ad-hoc purchases were being made based on advice from friends, brokers and the bank relationship manager.
- Except for the home loan, he did not have any debt.
- Having only two endowment plans and two pension plans, based on the life insurance need analysis, he was highly underinsured.
- Mayank’s investment portfolio was heavily skewed towards Employees Provident Fund (EPF) gratuity and Public Provident Fund (PPF). A majority of them were employment related investments. 57% of his investments lay in debt, 39% in cash and around 3% of the assets were in equity. Cash and debt combined to form around 96% of the portfolio.
Based on this assessment, the recommendations we came up with were:
- In addition to tax deductions under Section 80C and Section 80D and the home loan interest under Section 24 which the Gohils were availing anyway, we decided to also utilize all deductions available under Section 80DD (deduction in respect of maintenance, including medical treatment of a dependent who is a person with disability).
- We created a cashflow management strategy to ensure that surplus funds were invested in appropriate investments in line with the plan and not on an ad-hoc basis. Additionally, we developed an investment policy for the client; which covered asset allocation, money management approach and how to approach investments from a volatility perspective.
- A suggestion was made to set up a Gohil Private Trust with the sole intention of using the trust funds for the benefit of Trisha. A trust deed was created with explicit provisions for:
- Appointment of trustees.
- Filling up the vacancy in the event of a resignation or death of the trustee.
- Objects of the trust.
- Powers of the trustees.
- Obligations of trustees.
- Property of the trust- moveable and immovable.
- Dissolution of the trust.
- Neeta and Mayank, along with Jitesh (Mayank’s brother) and Anish (a family friend and lawyer) were appointed as trustees of the fund.
- As per need analysis, we understood that the Gohils were underinsured to the sum of at least Rs. 2 crore. To rectify the situation, we suggested he opt for a term insurance plan of Rs. 1.5 crore.
- A will was created and Neeta was appointed as the sole executor of Mayank’s estate. In the event that Neeta passed away before Mayank, Jitesh and Anish would become the executors of the trust and estate upon Rajesh’s demise.
In such a case, guardianship is one of the most important issues that needs to be tackled. A guardian is one who assumes care and protection of another person. An important part of being a guardian is taking all legal decisions on behalf of the person and their property.
Parents are legal guardians of their children, till the point they turn 18. Post that, they are no longer legal guardians and can no longer take and legal decisions on behalf of the child, or legally represent the child.
In cases like that of Trisha’s it is imperative that the parents remain the child’s legal guardians post them turning 18. This is because they would need someone to take prudent decisions, whether legal, financial or otherwise on their behalf. Earlier parents of offspring with named disability were not empowered to become legal guardians of their children after they were 18 years of age. It was only after parents approached the courts, that the National Trust Act was passed and it gave guardianship of the children to the parents under special circumstances.
The National Trust Act, for the first time, enabled persons with cerebral palsy, mental retardation, autism and multiple disabilities to have a guardian representing them throughout their lives. However, given the fact that very little can be expected from the government in the form of additional help, families fared better by forming and strengthening self-help groups dedicated to the cause.
Disability can strike anyone and can come unannounced. Every family should explore and address the possibility of disability in a through manner. If they don’t, in the blink of an eye, they could overlook a crucial detail, that could lead to disastrous consequences.