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How a provider trust can protect dependants with special needs



Having someone who will take care of your children after you die is a very real concern for most parents. For those with dependants who have special needs or disabilities, securing their financial future is even more important. 

“A person with special needs may be a child or adult who is mentally or physically disabled,” says Alex Simeonides, CEO of Capital Legacy. “The question is how well will the day-to-day needs of your loved one be met once you pass away?”

Dependants who have special needs often require expensive medical assistance, caregiving and specialised equipment which makes it vital that sufficient financial provision is made to support the dependant for the duration of their lifetime.

While a parent with a special needs child may have taken out a life insurance policy or sought advice from a financial planner about how to manage their wealth, the challenge is ensuring that these funds end up benefitting and taking care of the various needs of the loved one when they can’t.

“Unfortunately, we sometimes see the nominated guardian mismanaging or squandering the finances intended for the person who has special needs, leaving them with little or nothing to survive on,” he adds. “In other cases, the guardian may need access to funds, but without proper estate planning the inheritance may be paid into the Guardian’s Fund which falls under the administration of the Master of the High Court. These funds are not easily accessible, and the process can easily frustrate a Guardian who is trying to release funds for a beneficiary’s maintenance and benefit.”

One way to prevent these problems from occurring is to create a provider trust through your will. A provider trust is a unique estate planning tool used to protect the inheritance of your surviving dependant with special needs, if they are unable to do so for themselves. The provider trust ‘holds’ your assets for the sole benefit of your dependant with special needs who is set to inherit in terms of the will.

“The provider trust houses all the assets in your estate – for example property, pension pay-outs, money from your life insurance policies and any donations so that they can be properly allocated to care for your dependant with special needs,” says Simeonides.

You can appoint trustees – either professional trustees or someone you know and trust – to manage the trust properly. When the trust is managed by a professional entity, you can rest assured that the money will be used as you instructed in your will as they must act independently and objectively.

If a dependant with special needs suffers from any mental illness as defined in the Mental Health Act or any serious “disability” as defined under the Income Tax Act, the provider trust is treated leniently from a tax point of view. This means more of your money goes towards looking after your loved one. To qualify for these tax benefits the disability must make it impossible for the individual to earn money to support themselves or for them to be able to manage their own financial matters.

You can still set up a provider trust if your loved one does not qualify under these criteria yet is incapable of managing their own finances. An example of this would be a beneficiary who suffers from substance abuse – the trust would, however, then not qualify for the tax exemption.

“Many institutions charge an initial trustee fee for setting up and maintaining a trust, but at Capital Legacy we don’t charge an upfront fee. Once you pass away, the cost of maintaining the trust is an annual fee of 0.75% on the capital, far lower than other institutions. This ensures that your money is properly managed to take care of your dependants who have special needs.”

Of course, the cost of not drawing up a proper will and setting up a trust can be far higher to your estate than if you were to have a valid and up-to-date will. Any assets you have will be turned into cash and the money will be held by the Guardian’s Fund and managed by the government. These funds are usually invested at below-market interest rates. 

“When you have a provider trust in place, your estate can be administered much more efficiently, and you can trust that your loved one with special needs will be taken proper care of with the money they inherit,” says Simeonides.

The photo for this blog was supplied by the Dempsey Foundation, an NPO that Capital Legacy supports. The foundation helps support families of those with cerebral palsy. The Dempsey Foundation was founded by Johan and Claudette van Schoor whose youngest son, Dempsey, has cerebral palsy. Pictured in the photo are Dempsey and Claudette.