Among the myriad of issues with which parents of children with a disability have to cope, one of the most difficult is the question of proper financial planning. The question of where money can be got, in the first place, is a question for those with limited resources. But these issues can be problematical even for those with some financial resources available to them. The question most frequently asked of financial advisers is: ‘What is the best way of structuring things for the benefit of my child?’
This is an outline of the ways in which a solution has been arrived at for one hypothetical family. It may not be the appropriate route for persons in other circumstances and every family should seek advice to see what will best meet their own requirements. It is hoped that the following example of ‘Mary’s family’ may provide some guidance as to the possibilities that exist.
Mary has Down Syndrome and her parents wish to make provision for her financial security. (There are other children who are fully able, and this example is not concerned with the planning undertaken on their behalf.) Mary’s father is the director of a company and regularly contributes to a personal pension fund. His wife works as a civil servant, with her own pension rights. So, although both parents are well provided for in terms of their retirement years, they are concerned about how their daughter Mary’s financial security when they are no longer alive. The following plan has been devised, by reviewing the financial circumstances of both parents.
Each parent has been accumulating assets for their retirement through their pension funds, within which additional assets may be transferred before incurring tax. Since both parents have a pension scheme in their own right, neither really needs to provide a spouse’s benefit. It has been found that the father’s scheme can be amended to permit the surviving ‘spouse’ benefit to go to a person other than his wife–the key requirement being that the beneficiary is ‘a financial dependant’. So it is possible to amend Mary’s father’s pension to allow her to be the beneficiary of the survivor’s pension, on his death.
Under Revenue Commissioners’ rules, this would allow an income equivalent to 4/9 of the father’s income to be provided for Mary, guaranteed for life and increasing in line with the Consumers’ Price Index. The scheme is paid for from before-tax income and the additional cost of providing the benefit to a beneficiary significantly younger than a spouse (as in Mary’s case) is quite low–approximately ten per cent.
Mary’s parents would also like to transfer sums to a trust fund during their lifetimes; other family members may also wish to make some financial provision for Mary. It has been decided to establish a discretionary trust immediately, with the parents as initial trustees. In addition to cash transfers which may be made in the future, the trust also receives a life policy on the life of the parents. As the policy is written on a ‘joint life second death’ basis, the cost of premiums is quite low. However, in the event of the death of both parents, Mary’s trust fund would immediately have significant cash resources available to it. The trust fund, including any cash investment it has received, can then be managed at the discretion of the ongoing trustees, exclusively for Mary’s benefit.
As mentioned above, a whole host of other issues need to be considered, in addition to financial circumstances. It may be possible to deal with the question of Mary’s future accommodation needs by establishing some form of residential situation, in combination with other similar families. Such a scheme would be based on tax allowances available for various forms of care facilities; parents who hope their children might ultimately reside in the facility could contribute to the building and development of such a unit on a tax-efficient basis.
The process of financial planning, for persons with or without a disability, is a matter of seeing what is possible in the context of the financial circumstances of the relevant individual. For those who are not in a position to do such planning for themselves, it is appropriate for their parents/guardians to devote some time to this issue, thus removing considerable future worry. It is also reassuring to know that major cost savings may be achieved by structuring this planning in a manner appropriate both to the needs of the child and the financial circumstances of the parents.