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<\/a>\u201cWho would take care of our son Armaan should something happen to us?\u201d was the key question burning in Rajesh & Arti Malhotras mind when I met them. Malhotras have a 5-year-old talented autistic child.\nRajesh is a corporate executive in his early 40s and his wife Arti a housewife. These were some of the several questions that the Malhotras were thinking about:
\nWho can be trusted to ensure the safety, health, and financial well-being of their son when they are not there?
\nIs there a common forum or self help\/support group available?
\nAre there any benefits from the government available?
\nWill the child be able to work and handle financial responsibilities alone?
\nWhat if the physical or mental impairments worsen over time?
\nWe then discussed Malhotras goals and came up with the following
\nIncome of Rs 50,000 per month for son Armaan starting 2024.
\nRetirement income of Rs 100,000 per month for Malhotras starting 2024.<\/p>\n
Corpus for medical expenses of at least Rs 1 crore by 2024. \u00a0<\/p>\n In this case it is imperative that the parents be the legal guardians of Armaan post 18 as he would require someone to take prudent decisions whether legal, financial or otherwise on his behalf. Before the National Trust Act, parents of such offsprings with named disability were not empowered to become the legal guardians of their children after they were 18 years of age. Parents had to approach the courts to get the guardianship of their child in special circumstances.
\nA detailed assessment of their current cash flow and net worth statements revealed the following.
\nThe contingency fund was very comfortable but on the higher side. They had a lot of liquid assets in their saving accounts and low interest fixed deposits. Even with the interest rates at 8 % their post tax return was around 5.3 %.
\nThough Malhotra has a high rate of savings, he has been unable to build a structured and balanced portfolio in alignment with his goals. Most of the assets are in debt and cash form. Given that his goals are long term (18 years time horizon) in nature, exposure to equities is very low and restricted to 2 stocks and 2 mutual funds.
\nSurplus cashflow is not being channeled into appropriate investments every year hence a lot of money is in savings account. At the same time adhoc purchases based on new product launches or sales pitches to him, inputs from friends, broker and his relationship manager were the preferred route.
\nExcept for home loan, he does not have any debt.
\nMalhotra has 2 endowment plans and & 2 pension plans. Based on the life insurance need analysis, he is highly underinsured.
\nMalhotras investment portfolio is heavily skewed towards employees provident fund\u0010(EPF) gratuity and public provident fund (PPF). Most of these are employment related investments. 57 % of his investments are in debt form while 39 % of the investments are in cash and around 3 % of the assets are in equity. Together cash and debt form around 96 % of the portfolio.
\nWe came up with the following recommendations
\nBesides the tax deductions under Section 80C , Section 80D (deduction in respect for medical insurance premium) and the home loan interest under Section 24, that Malhotra has been utilising , we decided to also utilise all the deductions available to him under Section 80DD (deduction in respect of maintenance including medical treatment of a dependant who is a person with disability).
\nWe created a cashflow management strategy to ensure that surplus funds are invested in appropriate investments according to the plan and not on an adhoc basis. We developed an investment policy for the client which defined the asset allocation , money management approach and how he should view the investments from a volatility perspective (Given his risk tolerance)
\nWe suggested that a Malhotra Private Trust should be created with the sole intention of using the trust funds for the benefit of Armaan. We framed a trust deed with explicit provision for:
\nAppointment of trustees
\nResignation\/death of trustee and filling up the vacancy
\nObjects of the trust
\nPowers of trustees
\nObligations of trustees
\nProperty of the trust – movable and immovable
\nDissolution of the trust.\u2022 Rajesh , Arti , Shekhar (Rajeshs brother) and Anuj (family friend and lawyer) were made the trustees of the fund.
\nBased on the needs analysis we found out that the Malhotra was short of at least Rs 2 crore of insurance. We suggested he opt for a term insurance plan of Rs 1.5 crore. We also decided to go ahead with Jeevan Aadhar which is a policy from LIC for special dependants.
\nThis policy was structured in a manner to provide a lumpsum amount as well as an annuity. We decided on making the trust the nominee for this particular policy. Premium under this policy is deductible under section 80DD of the Income Tax Act up to the ceiling mentioned therein.
\nWe created a will with Arti as the sole executor of Rajeshs estate. In case, Arti dies before Rajesh, then we decided that Shekhar and Anuj would be the executors of the trust and the estate on Rajeshs demise.
\nOne of the most important issues in this case is one of the one of guardianship. A guardian is a person who assumes the care and protection of another person. The guardian takes all legal decisions on behalf of the person and their property.
\nAll parents are the legal guardians of their children till the child turns 18. After that parents are no longer the legal guardians. This means that they cannot take any legal decisions on behalf of their child, or legally represent their child.
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\nThe National Trust Act for the first time enables the person with cerebral palsy, mental retardation, autism and multiple disabilities to have a guardian representing her\/ him throughout their life.
\nThe parent can now get legal guardianship of their son or daughter with disability and represent them even after they are 18 years of age. This should be done on Armaan turning 18. It should also be include in the will who his guardians would be should something happen to the Malhotras Given the fact that very little can be expected from the government, families will do well by forming and strengthening self help groups dedicated to this cause.
\nIncreased awareness, corporate, individual and media help will go a long way in creating sustainable long-term models to address this very critical issue.
\nDisability can strike anyone and can come unannounced. Every family should explore and address the possibility of disability in a thorough manner. If we dont, in the blink of eye, we could overlook a crucial detail that might have disastrous consequences.
\nmyplan@fpsbindia.org<\/a>
\n(The Case Study is only a model for educational purposes)<\/p>\n