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If you have a child or dependent who has a disability or special needs, you’ll know what it takes to adequately care for them.
It goes without saying that you’ll want to make sure they are cared for as well as you care for them, if you’re no longer around.
A child or adult who is mentally or physically disabled is defined as a person who has special needs, however, an aged parent or even a dependent who is unable to manage their own finances can count.
In the spirit of International Day of Persons with Disabilities, Alex Simeonides, the CEO of Capital Legacy, shared five financially savvy techniques you can apply to protect a special needs dependent.
1) Talk to a financial advisor
Managing your money in the best way possible while you’re able, creates the wealth which can be used to provide for day-to-day maintenance, such as medical costs; care giving; and equipment, for your dependent, Simeonides told Parent24.
"Your financial advisor should give you the best advice about life insurance products, investing, and building your asset portfolio so that it grows over time," he said.
They should also advise you on how best to transfer these assets to the correct trust type you will need to create for your dependent.
2) Draw up a will
If you don’t draw up a will, the care of your dependent with special needs may be at risk h warns.
"Their inheritance may be entrusted to the nominated guardian, who may squander or misuse the money, or it could be monetised and paid into the guardian’s fund which is administered by the master of the high court," he explained.
Money that is held by the guardian’s fund can be difficult to access and is usually invested at below-market interest rates.
Making provision for your loved one through a will gives you the peace of mind that they will get the financial support they need once you’re no longer around.
3) Set up a provider trust to protect your loved one’s finances
A Provider Trust can be set up through a special clause in your will, Simeonides said.
Its purpose is to provide financial support and to sustain an individual who has a mental illness or disability that may impair them from being able to support themselves financially.
The individual with special needs should have been diagnosed by a medical professional and should have had the disability, which appears to be irreversible, for at least a year.
Furthermore, the individual with special needs must be the sole beneficiary of the trust – no other person may benefit from the trust during the beneficiary’s lifetime.
One distinct advantage of this type of trust is that it enjoys special tax benefits that are not available to ordinary trusts – including certain relief from Capital Gains Tax and being taxed at individual rates, he explained.
In the event that the individual does not meet the requirements, the Provider Trust business rules will still apply, however, the tax concessions revert to a trust type B.
4) Appoint an Administrator and Trustees for the Trust
Simeonides describes how the administrator is responsible for taking care of the administrative tasks of operating the trust.
In addition to the administrator, you should appoint trustees who make decisions related to how the funds in the trust are distributed.
They are required to exercise their powers independently and objectively to the advantage of your dependent who has special needs, so choose carefully!
Some examples of powers awarded to trustees include buying and selling property; paying for care giving; medical scheme contributions; and overseeing bank accounts.
It is recommended that an impartial professional trustee be appointed to assist with the day-to-day management of the trust account.
5) Shop around to compare costs
Under the law, service providers may charge up to 1.14% of the gross asset value to set up a Trust.
The cost of establishing and maintaining a Provider Trust only starts after you have passed away, as it is a Testamentary Trust, he said.
There is no prescribed limit on the amount an administrator can charge to administer the Trust, so be sure to do your homework and compare rates.
Whichever way you look at it, the benefits of a Provider Trust far outweigh the costs involved in running it – ensuring that your dependent with special needs is well taken care of when you can’t be there.
Compiled for Parent24 by Anneline Hlangani
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