Financial Planning for a special needs child family means planning for two generations. The crux of the planning is providing financially for the child for the time when you are not there. But even within your life time, meeting the child’s needs is a complex exercise due to several factors and there is no choice of which factor to consider first and where delays are possible. So parents need to take a financial planning approach while planning the child’s future.
The financial planning process can be understood by breaking it down into a few steps. Here we shall look at the various aspects which should be covered in a special need financial plan:
Identify The Special Needs Planning Stages
There will be life stages of the child where parents will feel financial pressure. When therapies and medications start, when the child reaches 15 which is a transition to an adult, when child turns major i.e. age 18, when a parent retires, and on death of either a parent. What situations can emerge at these critical stages in the life of a special needs child and how to deal with them, must be considered at the planning stage itself. . For example when a child is transitioning to an adult stage, there will be a change in living needs, behaviour and financial requirements, which parents must accommodate in their finances. Thus, parents should draw the life stages of the child and identify clearly where they need to plan.
Below is a map which illustrates the situation that may arise at different life stages of the child:
Legal and Estate Planning
In many situations parents need to deal with legal issues such as obtaining the legal guardianship of the child once he or she attains the age of 18, or addressing issues related to making the child a beneficiary in financial assets. Appointing Guardians, Caregiver and Trustees who will be responsible for the child’s affairs when parents are no more, needs special attention. A Will and a Trust must be factored into the planning, to ensure that the child’s future is secure. Also, all the personals who will be attached with child care need to be made aware on the child’s requirements for which a Letter of Intent, although not a legal document, may be considered. Lastly, options for the child’s residential needs when parents are not there should be factored into estate planning.
The planning of insurance for a special needs family is different from traditional planning. Here, great value needs to be attached to the parent taking care of the child at home unlike traditional planning where only the wage earner insurance is considered. So insurance needs of both the parents should be identified and planned. Also, this is the most effective way for leaving a higher corpus for child care and forms a major source for funding the trust in case of contingencies.
Cash Management and Budgeting
Budgeting involves identifying child expenses separately. This helps parents become aware of the regular financial requirements for the child that may be accommodated in their day to day finances. By identifying child expenses separately a more accurate estimation of the financial requirement for the child can be done.
Cash Reserves with Special Needs
Families with a special needs child may have to plan additional cash reserves than just 4-6 months expenses as advised in traditional planning. The higher cash reserves are meant for situations like sudden disability, change in caregiving requirements, and expenses for child’s medical support etc.
Appointing the right guardians is crucial for special needs children families. Until parents are alive they assume the role of guardians. Once the child reaches 18 they have to obtain legal guardianship from the court. But it is more important to identify a suitable guardian to look after the child’s needs, as desired, after the parents’ death. Parents need to make the guardian aware of the child’s requirements and behaviour. After ensuring the identified guardian’s capability and willingness to take responsibility, take consent and make it official.
This is critical as parents with a special needs child will have to plan retirement differently. They might have to relocate, cut down on lifestyle expenses. Many a time parents have to delay their retirement to ensure their child’s needs are taken care. Identifying the funds required and options for residential needs of the child needs to be included in retirement planning.
The article first published in the book ” Financial Planning for families having children with special needs”