Investment avenues for special dependent

As discussed in our previous article, we need to save for the entire life of disabled dependent. It is not so different from saving for any other goal. The only difference lies in the availability and management of these savings for the sole welfare of the disabled dependent. So, in order to ensure that you plan well your investments, we should take care of following points:

• Regular Income
• Maximum Tax benefit
• Lowering investment charges
• Clear nominations
• Appointment of Guardian

For Regular Income – To ensure that you get regular income for your dependent directly credited in their bank account, investment is recommended in fixed and secured investments. It should be made irrespective of the low rate of returns. It should be made for longer duration and also preferred to be tax efficient. The quantum of this investment should be calculated by living expenses requirement. Suppose, you require Rs.60,000 per month for living, you should invest around Rs.80,00,000/- to support your lifestyle. Some of recommended asset classes would be:

• Fixed Deposit – It is simplest to operate and ensures that capital is secured.
• Real estate- It is recommended you create a real estate rental income in their name so that this income can supplement his monthly income requirement. Please ensure you nominate the dependent and let it be managed by a guardian.
• Liquid funds – These funds are to meet the emergency requirements of health. It could be possible that even though you may take some additional health cover for the dependent, it has some exclusions and gaps to be filled.
• Equity funds- Even if you favour equity based exposure; it should be ensured that it generates some regular income like dividends or high dividend yielding stocks.

For Tax benefits – Be aware of the various deductions under section 80 for the disabled dependents.

• 80U- Deduction to be claimed in case of self disability. The said definition of disabled is defined in the IT Act, 1961. Amounts amended in latest budget as Rs75,000 for person with disability and Rs.1,05,000 for person with severe disability. To avail the deduction, a certificate is required from the certifying medical authority (approved by the government).  At the time of filing return, be sure to fill the required separate forms.

• 80DD – Deduction can be claimed for dependents for expenses borne by assessee. Dependant means spouse, children, parents, brothers & sisters of the taxpayer. The expenses can be claimed for medical, nursing or rehabilitation of the dependent. As per the latest budget, the allowable deduction is for disability from 40% -80% - Rs 75,000 and beyond 80% - Rs.1,25,000.

Insure your life – Life insurance is taken to cover the life risk from any kind of untold eventualities. However, when you have a disabled dependent it is always advised to have a policy with sufficient sum insured (at least 10 years of your current annual income) in the name of earning member. There are whole life policies, which can be left as a nomination to the dependent. This will ensure lump sum payment in case of any fatality. There are even special plans, which give accumulated amounts on maturity of policy and then again, on death of insured. Although, it could be expensive investment, it can be used as a diversification tool.

Creation of trusts - The specific trust created for the welfare of dependent frees one from any kind of fear regarding the misuse of the attached assets. We just need to follow some few rules will creating a trust:

• Create a trust with exclusive purpose (specific trust) to provide regular monthly income to dependent and bear all medical contingencies.
• Attach all investments especially real estate to ensure the rental income is not misused.
• Get a well trusted person to manage the regular working of the trust. Ensure timely audit to avoid any misuse of funds. It should be created in your life time.

All the above investment avenues are to be double sure that the dependent is not left in any financial crunch after you. It is essential that the process is started at earliest. If it is not possible to fund the requirement at its fullest make the minimal investment as possible.