19 August, 2010

Planning for dependants with special needs

When you are given challenges in life, God wants you to meet them and rise higher. We all understand the philosophy… but that does not make taking care of a disabled dependant & planning for their future, any easier.
For families with disabled dependants, the challenge is two-fold. Firstly, see if they can be trained so that they can join the mainstream. This can happen if the individual in question is not mentally affected and the problem is only in terms of lack of vision/ hearing etc. The chances of rehabilitating such a person is much higher than in the case of a person who is deaf & dumb or is mentally ill or afflicted.
Hence, what is required to be done for these two different categories of people , is going to be different.
Planning for the physically challenged - For this category, there are going to be special needs throughout life. For instance, a person with malformed limbs will have to move around in a wheelchair. For this person to travel around, one would have to make a provision for a specially modified vehicle. Lots of these people also travel by public transport these days. Railways has provided a small compartment for them and BEST buses have a couple of seats reserved for them.
Apart from this, there can be a need for special tutoring ( in case the person concerned is blind / deaf, spastics etc. ). There can be a need for attendants, in case the family consists of working couples. Any home they would move into also may require modification depending upon the person’s incapacity.
From the family point of view, they need to plan for the future of such dependants, apart from planning for their own retirement. This is a constant source of worry for the parents/ guardians, of such dependants. They are also constantly worried about the financial future of their wards. Planning for the physically challenged is an easier job. They would understand and be able to manage money. For this category, it is a good idea to build a supplementary stream of income, along the way as their income may/ maynot be sufficient to meet their needs.
How to plan their finances –
1) A good idea in such cases would be build a corpus and ensure that a certain sum of money comes to them regularly. This will ensure that they feel secure and do not have to come to the parents for every need. For instance, a Post Office MIS of Rs.6 Lakhs, will give them Rs.4000/- a month on a consistent basis, which will be in addition to what they are able to earn. The investments can also be in regular dividend paying FDs, MIPs etc.
2) Another idea would be to invest in Equity / MFs ( Dividend payout option ), where (s)he get some payouts, from time to time. This is however not a dependable, regular source.
3) Corpus accumulation for their future can be through PPF, FDs, investments in Equity shares, Mutual Fund units etc.
4) Invest in annuity products for them, which starts when the parent retires. It will be a good idea to start 2-3 annuity plans which vests 3-5 years apart from each other, as the payouts start adding up over time, somewhat nullifying the effect of inflation. For instance, the first annuity of Rs.3,000/-pm starts in 10 years from now, another annuity for another Rs.2000/-pm can start three years from then , partly compensating for inflation. Another one can start in another three years. The idea of staggering is also that the longer the contribution/ vesting time, the bigger will be the compounding effect and higher the payouts.
5) Invest in special Life Insurance products like Jeevan Aadhar/ Vishwas , which has the option of receiving a portion of the corpus as a pension, when the parent is no more.

Planning for the mentally challenged - This is far more tricky as the dependant would not be in a position to manage the money and is truly dependant for their every need. In this case, corpus accumulation that will last the entire lifetime of the dependant, is an important goal as the possibility of the dependant earning a living is not really there. The products invested in should be fairly simple to manage & administer. Even if the parents are not around, it should be easy for someone else to understand and manage.
Planning the Finances - For this category it could be through annuities or other regular income products, which could be useful especially after the parent’s lifetime. These are recommended as these require the least intervention. Also, trusts can be formed for such dependants, with a close relative/ friend administering it , for the benefit of the dependant. The other option is to admit such dependants in such institutions which will take good care of them, for life. A onetime lumpsum amount or a lumpsum plus a monthly payment needs to be made to such institutions, for this purpose. For-profit and non-profit organizations are operating in this space. A suitable organization can be chosen, according to requirements.
Tax benefits : There are some income tax benefits to give relief to those with handicapped dependants. Rs.50000/- deduction is available for expenditure incurred on a handicapped dependant relative, including payment to specified schemes for their maintenance. If the dependants have severe disability ( blindness, mental retardation etc. ), the deduction allowed would be Rs.1 Lakh. This comes under Sec 80DD.

Published in Business Standard on 15/8/2010

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