How do you provide for a special-needs child who might be dependent on you not only for the rest of your life, but for the rest of theirs as well?

My son was diagnosed with high functioning autism at the age of six. The condition has an impact on his ability to navigate his day-to-day world, and as his mother, this means I need to think very differently about protecting his future.

There are many families raising children with special needs, and the number and type of challenges vary. Some are physical and some are mental, and in many cases, it may be both.

After the emotional rollercoaster, the toughest part is managing the finances. There are so many therapies and interventions required for a special-needs child. These often include special schooling, which is not something that a parent of a newborn would have planned for.

In our case my husband took on additional work and this was earmarked to help cover the costs of our son’s additional educational needs.

If your child remains financially dependent on you into adulthood, you will need to consider this as part of your long-term financial plan. Their financial needs should be included in any retirement plan you have and you may need to include additional life cover to provide for them.

It is worth working with a trusted financial planner who can help you identify these needs and how to cater for them.

Tax breaks for a special-needs child

While the government provides no support for a special-needs child, it does provide various tax breaks. In order to claim, however, a specialist who works with your child will need to complete an ITR DD form to confirm that the child is unable to function without special support. This can also apply to children with severe learning difficulties or mental conditions such as obsessive compulsive disorder or autism.

You might be able to claim all your medical aid contributions as well as all medical costs not covered by your medical aid. If you require a fulltime caregiver, his or her salary is fully tax deductible, as is the cost of all their meals.

If your child is required to attend a special-needs school, the school fees could be tax deductible. If you need to purchase a special-purpose vehicle, the customs duty is possibly refundable. The amount refundable can vary between makes and models so do your homework when buying a car as to the maximum rebate.

You may also be able to claim the costs of any changes you need to make to your home, such as special railings in the bathroom or ramps.

Being able to deduct our son’s school fees and medical costs from our taxable income definitely made his special-needs school more affordable.

Medical schemes

Financial planner Louis van der Merwe of WealthUp says initially the instinct is to increase your medical aid cover, but this is not always necessary. First find out if your child’s condition is covered under the chronic benefits or prescribed minimum benefits. These are benefits that all schemes and plans are required to cover.

In my son’s case, it made financial sense to stay on the plan we had and pay for his medication out of pocket rather than spending the extra money on a more expensive plan.

Medical schemes have an age limit for child dependants. When the child reaches that age, the monthly premium is increased to the level of an adult dependant. However, this age limit is waived if the child is mentally or physically handicapped and financially dependent on you. Inform your medical scheme and fill in the appropriate paperwork before they reach your medical scheme’s deemed adult age.

Your will

If you have more than one child, allocating funds between a child without disabilities and one with disabilities can be a difficult decision. You may feel that you want to give all your children an equal share, however, your special-needs child may need more financial support.

Van der Merwe recommends doing a proper cashflow analysis of how much your child would need and making sure that the amount left to them is sufficient. Van der Merwe says a good option could be to require the assets be used to purchase a life annuity which will pay out an income to your child for the rest of their life.

Your will should also specify a guardian for your children and, where appropriate, a testamentary trust.

Consideration must be given as to where the child will live and who will take care of them. In selecting a guardian, it is very important that you first discuss this with the person. It is not a role everyone would want to take on.

Lauren Hean, MD of Appleton Fiduciary Services, says you should also be cognizant of the age of the guardian. What would happen to the child when the guardian passes away?

Hean recommends that you consider other options for your child should something happen to the guardian. This could include assisted living if appropriate.

It is recommended that you include a letter of wishes, outlining a care plan for the child. “It is very important that you have an open and honest discussion as a family. Everyone needs to know what plans you have made and why you have made those decisions. That prevents disagreements and arguments,” says Hean.

Life cover

Life cover is a great way to protect your child financially after your death. However, van der Merwe warns that you need to understand the escalation of the premium of the life cover. There are different premium patterns and guarantees offered by different insurance companies.

Make sure you know that the cover will remain affordable when you retire. There are many cases where people reaching retirement age are unable to maintain their life cover premiums and lose all those years of contributions.

Should you set up a trust for your special-needs child?

All parents of minor children should consider including a testamentary trust in their will. This is a trust that comes into effect the day you die. A Special Trust is used to take care of people who are not able to manage their own finances, either due to their age (such as children under the age of 18) or due to a disability. It is treated differently from a regular trust and is taxed at the same rates as a natural person. This means it does not attract the far higher tax rates paid by a regular trust.

If you have more than one child and your other children do not have disabilities, van der Merwe recommends you create a separate trust for the child with special needs because for the trust to receive preferential tax treatment, all beneficiaries must either be minor children, or all have a disability.

Historically testamentary trusts were usually set up relatively quickly (within four to six weeks), however van der Merwe says with the delays in the Master’s Office they are seeing cases where a testamentary trust can take up to a year to be created.

His recommendation is to create an inter vivos trust if you have a special needs child. This is a trust created while you are alive. If the beneficiary has disabilities, it would qualify as a special trust for tax purposes. You would be able to nominate the trust as the beneficiary of your life cover which would create immediate liquidity to support your child. You could also request your retirement benefits to be paid to the trust.

It costs less than R10 000 to set up the trust. You would need to submit annual financials and you would need to appoint a trustee. Van der Merwe says some trustees may waive or lower their fee while the trust does not have any assets or disbursements, and only charge a full trustee fee once assets were paid into the trust for the beneficiary.

Hean says one should think carefully about the costs of managing a trust and ensure it is part of the financial plan. If the estate is below R1 million, then it may not be financially feasible to have a trust in place. A R1 million trust would cost around R18 000 a year to administer, which is around R1 500 a month. This money could rather be going towards the care of the special-needs child.

You need to select trustees who will manage the funds on behalf of the child. These trustees are not necessarily their elected guardians. You may want to select a trust company for continuity rather than a natural person who may pass away before the child does. You can then nominate the guardians as co-trustees.

The trust deed should be very carefully drafted in order to give the trustees broad enough powers to ensure that they can make appropriate decisions. While you need to stipulate what the trust funds may be used for such as food, education, clothing and other day-to-day needs, you should be careful of trying to rule from the grave. The trustees should be left some discretion in terms of how the money is to be used, which is why it is important to select trustees that you trust.

You also need to consider what happens to the trust property when the trust beneficiary passes away – especially if the life expectancy may not be as high as is usually the case.

This article first appeared in City Press.