Financial planning for children with special needs: a comprehensive guide

Raising any child is costly, but when a child has special needs, the financial planning process takes on an added layer of complexity. Every diagnosis, prognosis, and expectation around life expectancy shapes the plan, and in many cases, the time horizon must extend beyond your own lifetime to include that of your child. Financial planning for a special needs child is therefore both deeply personal and highly specialised.

Mapping an expense timeline: Before putting a budget in place, it is useful to plot a timeline of expected expenses unique to your child’s condition. By mapping out anticipated treatments, therapies, medical equipment, and possible hospitalisations, you can identify the large costs that may arise in the short to medium term.

This timeline can then be overlaid on your household budget to give you a clearer sense of what is affordable and sustainable. In some cases, a parent may need to reduce working hours or stop working altogether to provide care. However, a decision should only be made after careful budgeting and with full knowledge of the cost of alternative care facilities or professional caregivers.

Life cover: Unlike most children who grow into financial independence, many children with special needs will remain financially dependent for life. This means that parents generally require higher levels of life cover than other families. Your financial planner will help you quantify the future costs of care, factoring in living expenses, schooling, medical costs, assistive equipment, and the possibility of professional carers or care facilities. Where a special trust has been established, it may be appropriate for the trust itself to own a life policy, with the proceeds payable directly into the trust on your death. This ensures that funds are safeguarded and used exclusively for your child’s benefit.

Medical aid and gap cover: Although no medical aid will cover all the expenses associated with raising a child with special needs, ensuring your child is on a comprehensive plan remains essential. Look carefully at benefits such as coverage for chronic conditions, medical appliances, specialist consultations, and hospital networks.

If your child’s condition requires frequent hospital stays, a gap cover policy can be invaluable in bridging the shortfall between what specialists charge and what the medical aid will reimburse. Enrolling your child early helps to avoid waiting periods and exclusions. Equally important is a clear understanding of which treatments and medicines are covered so that expectations are managed. An independent healthcare advisor can provide much-needed clarity in this area.

Establishing a Type A special trust: A Type A special trust, created under Section 6B(1) of the Income Tax Act, is an estate planning mechanism designed to protect the financial future of a person unable to manage their own affairs. This trust can be established during your lifetime (inter vivos) or through your will (testamentary). It must be set up solely for the benefit of the disabled person, diagnosed by a medical professional, and administered by at least three trustees. The trust benefits from more favourable tax and capital gains rates than a standard trust, making it an efficient structure for long-term care. It can also own a life policy, with the proceeds payable directly into the trust on your death. Because of the technical nature of this vehicle, it is essential to engage a specialist practitioner to draft the trust deed.

Providing for your child in your Will: Your Will should adequately provide for your special needs child, including the nomination of a guardian, should both parents pass away while the child is still a minor. It is often practical for the guardian to also serve as a trustee of the testamentary trust, but it is important to discuss the responsibility beforehand. Note that your Will can also give broad directions for your child’s care, while more detailed instructions are best recorded in a separate letter of wishes.

Don’t neglect your own retirement: One of the greatest risks parents face is sacrificing their own retirement planning to prioritise their child’s needs. Yet financial security for your child depends on your ability to remain financially independent in retirement. Multi-generational planning, which considers the transfer of wealth between generations, is crucial in balancing your needs with those of your child. A well-structured plan ensures that both your retirement and your child’s long-term future are adequately provided for.

Parenting a child with special needs is all-consuming,emotionally, physically, and financially. While you cannot change the diagnosis, you can plan carefully to ensure that your child is cared for and provided for, no matter what the future holds. A thoughtful, well-structured financial plan can offer both peace of mind and the reassurance that you have done everything possible to protect your child’s future.

* Tapfuma is a Certified Financial Planner professional at Crue Invest.

PERSONAL FINANCE