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Financial planning for single parents of special needs children

Single-handedly parenting children with special needs requires special planning around the financial needs of both the parent and the child.

At the best of times, single parenting can be a formidable task especially when it comes to finances. For those mothers and fathers who are single-handedly parenting children with special needs, the task must be even more daunting and, as such, requires special planning around the financial needs of both the parent and the child. Here’s what should be considered:

Funding their education

While there are a number of schooling options for children with special needs, private school options can be particularly expensive. Private schools that cater for children with special needs and learning disabilities charge tuition fees ranging from around R6 000 per month to R12 000 per month, excluding aftercare costs, which can be unaffordable for many parents. While there are a number of government school options in respect of special schooling, the nature and level of instruction may not be suitable for your child’s needs. As such, planning for your child’s immediate education costs will require careful research and budgeting to ensure that it is both affordable and sustainable into the future. If your child intends to study further, you may want to consider setting aside some money each month for these purposes. Depending on the time horizon, you can set up a unit trust fund that is earmarked for your child’s tertiary education or open a tax-free savings account for these purposes.

Consider: If your child qualifies for a NSFAS bursary, in terms of which your combined annual household income does not exceed R350 000 per year, this could be an option for funding your child’s undergraduate qualification.

Planning your estate

As a single parent, estate planning is imperative to ensure that your child is taken care of emotionally, physically, and financially in the event that you are no longer around. Estate planning can be complex and there are many parts that need to operate together to achieve the purposes of the estate plan, so ideally this exercise should be undertaken with the guidance of an expert in this field. In the first instance, you will need to ensure that you have a valid will in place and that it is held in safe-keeping with the knowledge of a trusted friend or family member.

Testamentary trusts

It is essential to ensure that your will makes provision for the distribution of your estate so as to protect the interests of your child. In terms of our law, any child under the age of 18 is not capable of inheriting lump sums or other assets directly as they are not deemed to have legal capacity in respect of such assets. To ensure that the assets intended for your minor child are protected, it is advisable to set up a testamentary trust. This type of trust is set up in your will and only comes into existence in the event of your death, whereafter any assets intended for your minor children will be housed until they reach the age of majority or an appointed age. If your child is mentally or physically incapable of managing their own affairs and meets the criteria set out in terms of Section 6B (1) of the Income Tax Act, the trust may qualify as a Special Trust Type A which enjoys significant tax advantages. Qualification criteria include that your child must have been diagnosed by a medical professional and the condition must be permanent.

Consider: If your special needs child’s condition is such that they will be able to manage their affairs once they reach adulthood, then a testamentary trust may be an appropriate estate planning tool. For instance, if your child is physically disabled but has full mental capacity, then a testamentary trust designed to protect their interest while they are still a minor may be a suitable option.

Living trusts

Depending on your circumstances, you may consider setting up a Special Trust Type A while you are still alive with your special needs child as the beneficiary to the trust. This type of trust is particularly effective when it comes to safe-keeping assets on behalf of children who will never be able to manage their own affairs. Such an entity will enjoy the same tax and capital gains tax advantages of its testamentary trust equivalent but will be managed by your appointed trustees while you are still alive. In the event of your passing, the trustees will continue to administer the trust in the best interests of your child. Keep in mind that the trust can take out a policy on your life, with the proceeds of the policy being payable to the trust in the event of your death, thereby providing the trust with sufficient capital to continue covering the living and medical expenses of your child after your death.

Consider: You need to implicitly trust that your nominated trustees will administer the trust in your child’s best interests after you are gone. As such, give careful thought when selecting your trustees, ensuring that at least one of the trustees has the requisite financial acumen to manage the trust assets. Further, it is advisable to ensure that at least one of your trustees is a close family member or friend who you can trust to speak on behalf of your child and ensure that their emotional and physical well-being is taken care of.

Guardianship

If you are the child’s only guardian, you must ensure that you appoint a legal guardian for your minor child in terms of your will. It is important to note that whereas a child’s guardian is a legal appointment, the position of a godparent is not. In terms of the Children’s Act, you are entitled to nominate a legal guardian for your minor child in your will, keeping in mind that the person nominated must expressly accept the position – so be sure to discuss the matter with the intended guardian upfront. In the event of your death, the nominated guardian will be vested with the care of your child and will acquire full parental responsibilities and rights.

Consider: If you nominate your parents as your minor child’s legal guardians, bear in mind that your parents may reach a stage where they are no longer physically capable of looking after your child. At such a point, you may want to revise your will and nominate an alternative guardian.

Protecting your risk

As the sole breadwinner, making provision in the event of your death or disability will naturally be top of mind. If for whatever reason, you are incapacitated by illness or injury and unable to generate an income, an income protection benefit is an excellent way of securing an income while you are indisposed. Generally speaking, most income protection benefits can be structured to provide you with income replacement in the event of temporary or permanent disability. Life cover can be used to ensure sufficient capital in your estate to cover the continued living and medical costs of your child, although be aware that it is not generally advisable to nominate a minor child on your life policy. Any capital amounts bequeathed directly to a minor child will be held by the Guardian’s Fund and administered on behalf of your child until they reach age 18, and the interest rates are generally poor. If you have set up a testamentary trust in your will, a more practical way of protecting the proceeds of such a policy would be to nominate the trust as the beneficiary of the policy.

Consider: As your child gets older and your net worth grows, you may be able to trim back on the amount of life cover you have in place. Any premium savings can be re-directed towards boosting your investment funding or paying down debt.

ADVISOR PROFILE

Gareth Collier

Crue Invest (Pty) Ltd

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