This is the time of the year when we start to think a bit more into the future. We may have plans to get fitter, lose a bit of weight or even budget our finances better. Why not add to your list one essential financial goal and that is the start to fund your child’s Special Needs Trust. This will be one New Year resolution that will dramatically change your child’s future quality of life.
To start I would recommend setting aside a small proportion of Domiciliary Care Allowance or Disability Allowance each week for your child’s trust. There are a number of options available to parents about what to do with it but nothing happens if you don’t commit to setting aside at least €20 per week. The older your child is the higher the amount you have to set aside.
What size fund to you need?
There is no real answer to this other than the better funded your child’s Trust is, the more financial option they have. You can never over fund your child’s Trust, as if by chance they don’t use all the money in the Trust in their lifetime then the money is transferred back to their next of kin. This is generally their siblings.
The big risk is underfunding your child’s Trust, this can happen if you wait too long to start funding. If your child is over the age of 10 and you haven’t already built up a good fund then you run the risk of time catching up with you.
The foundation of your child’s Trust should be a Trust Life Policy.
This is very similar to a life policy that all parents have, except that it is better suited to funding a Special Needs Trust. The issue with regular life policies is that they have a term and if parents pass away after the term then no payout occurs. The Trust Life Policy pay out a fixed lump sum if you pass away before or after your term expires. This is an ideal solution as parents want to ensure that whenever they do pass away that their child’s Trust has additional lump sums of money.
Parents have the option of saving money every month over a number of years through Saving or Investment Plans. This can lead to having a substantial amount of money that can be placed in your child’s Trust. Key things to investigate when setting up these plan are; risk, management charges, levies, PRSI and taxes on your savings.
Any money you saving in your child’s name will be means tested and any money saved in the parent’s name will also be means tested when you apply for any future entitlements such as Carers or medical card. Interest rates are also very low and tax on savings is very high (currently around 39%).
The big risk when it comes to funding a Trust?
If parents don’t manage their finances well then this will have a huge impact on what can be passed into the Trust. I have come across many families that when they retire they struggle financially, spend what is left of their savings, have small pensions and sometime they may need to enter the Fair Deal Scheme because of nursing care which leads to little or nothing being passed into their child’s Trust. The child is then totally reliant on the HSE or government for financial support.
My other big worry for parents is that they end up losing a lot of their personal savings by investing in unregulated schemes. There are a lot of advisors and companies that are unregulated and have fancy marketing materials that are trying to entice parents to invest in these types of scheme. These type of schemes are incredibly risky and when they go wrong parents are left high and dry. These schemes or scams might be a more accurate description are very enticing and offer you investments into foreign property, cryptocurrency (Bitcoin) or other alternative assets classes. These schemes are popping up more now because money on deposit is earning so little.
These companies say they offer excellent returns for your money and will “guarantee” your capital plus so much interest. If it looks too good to be true then something is definitely up.
Remember when it comes to funding your child’s Trust then start as soon as you can. Avoid taking unnecessary risk and play it safe. Remember you are doing your best to build up an adequate Trust for your child, you are not trying to be the next Warren Buffet.