When you have a special needs childcare there is a concern of providing for the child life long care irrespective of what happens in your life. Considering the high ingoing expenses involved in childcare there are numerous uncertainties of life which can arise. In such a case, a private trust is the most viable option for families to ensure the care of the child remains financially secure.
But identifying how much to funds the trust is not an easy task. Though there are free calculators available online to determine corpus there is none for a special needs child. Hence garnering the support of a financial planner who expertise for your situation will do well.
The Cost Variables
Parents are aware that a child with special needs can generate multiple expenses. But these expenses vary for each family. The quantum will depend on the needs and lifestyle of the family. Most of these expenses will be variable as they change with child life stages. However, one of the biggest costs parents tend to incur is housing. If parents decide that the child will live in a private house of his own after the parent’s lifetime then they buy a new house. For example, a 2 bhk in a city like Noida and in a good locality may cost anything between Rs 50-70 lakh. There will be a monthly cost of living here like maintenance, club membership, staff to manage the house, etc.
For managing complete child affairs there will be a monthly cost which will include food, utilities, and staffing. Any additional expenses for various membership, vacations, entertainment, etc. will add to the budget of childcare.
A budget sheet like below gives a clear picture of how much parents spend on the childcare.
Source: Book ” Financial Planning for Families Having Children with Special Needs”
Source: Book ” Financial Planning for Families Having Children with Special Needs”Till parents manage it the cost can be kept low. But when parents passed away this cost will increase. Most of the work done by parents will now go into professional hands. When parents are thinking to fund the trust these cost has to be factored in. This cost will arise once the trust starts funding in the absence of parents. Apart from the childcare expenses, the trust will have an additional cost for administration like maintaining books of accounts, audit after a certain threshold, legal and administrative cost, etc. Even if a family member is involved there will always a need for a legal or financial professional to assist the trust which will add to the cost of the trust management.
How to Determine The Funds Required?
Let’s take a hypothetical case study and understand how much parents have to put actually in the trust for their child lifelong care. We will take a budget for “Vicky” (Assumed name) who is a special needs child. Here we are determining what’s the corpus required for his care when parents pass away and then what is the total corpus required by the trust to cover up all expenses. We assume his life expectancy to be 70 years and, parents life expectancy to be 85 and 90 years for father and mother. Here Vicky lives beyond 20 years after her mother passes away at 90. At this stage, Vicky will be 60 years of age. Assuming the money grows at 8% and the inflation is 7%. Vicky’s family has to provide to the trust a corpus of Rs 1.4 crore for Vicky’s lifetime.
The below charts illustrate how this corpus has arrived.
Annual Expenses for Vicky Care
Before Death of Vicky Parents
Expenses after Passing of Vicky Parents
As you can see on the above chart the difference in the care for Vicky estimated to be Rs 19000 p.m. Add to these the trust administration cost the monthly expenses to be planned by the parents after their lifetime is approximately Rs 65000. To manage this till Vicky lifetime his parents will have to ensure they leave behind a total corpus of Rs. 1.4 crore to be funded to the trust.
Any changes in the above budget of Vicky’s care will change the monthly budget for the trust and so the required corpus.
Special Needs Planning Is Inevitable
The parents have to plan well in advance to fund the trust with the right amount of money. Not many parents will have inheritance planned or surplus today. It is important that parents do a complete analysis of their special needs child requirement. Once this is identified parents will have to start saving and make the adjustment in the cash flows for any shortfall. To achieve this beginning has to be made to start analyzing your special needs child future requirement.