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I have a son with special needs, he is autistic and has learning difficulties. It is unlikely he will ever have a 'normal' life or be able to financially support himself.

I am extremely worried of what will happen to him when me and his mother are no longer around to make sure that he is ok.

what is the best investment, insurance policy, or any other way I can make sure that he has a monthly income of about £1500 - £2000 for the rest of his life after I have died.

to give some more information as requested. I'm 39 years old, his mother is 34, we are separated and getting divorced. my son is 3 years old and he has an older brother who is 7 years old.

I own a house which is worth about £135,000 with an £88,000 mortgage left to pay. I earn £50,000 a year, i think my income can increase to between £70,000 - £75,000 over the next 10 years.

I'm in the UK

Thanks

  • 2
    Don't forget inflation - and it depends on where in the UK you are - you can't get a cardboard box on the 5th floor for under 400 quid a month, and that's hardly got room for a visitor a few times a week (like an aide worker, if necessary.) So I would aim higher than 2k a month, personally. – corsiKa Nov 2 '17 at 15:31
  • Doesn't the UK have some form of disability welfare system? Once your child becomes what ever it take for government to consider that they are independent of you (you being dead sounds solid.) He should be able to go on to that. And at least not be in any danger of starving out. (From experience in Australia, I can say it might not be a great time financially, but at least here, its more than enough to not die if fugal). In a decade or so it will be time to start making sure your son is setup for this (assessed etc). Its good your thinking about this, but don't be "extremely worried.". – Lyndon White Nov 3 '17 at 7:18
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    I just wanted to add that I have great respect for you. Thinking this over now, while you still can, and making sure your children are ok in the long term, is a great thing to do. Its very responsible, and sadly too few people prepare for all eventualities. – Polygnome Nov 3 '17 at 11:45
  • @LyndonWhite my fear is that is he going to end up lonely, isolated and abandoned to the welfare state. I see older people with disabilities all the time, particularly men, they live a subsistence level life and it's almost as if they are invisible, no one even sees them yet alone pays them any mind. Hopefully his brother will take some responsibility for taking care of him but it will be a lot easier if he is financially secure. – user1450877 Nov 3 '17 at 12:15
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Typically a trust is the solution to this. You set up a trust fund, and either fund it with money now, or (more likely, in your situation given your income) make it the beneficiary of a life insurance policy.

The trust would invest in something with a reasonable return; say assume 3% to be safe. So you'd need £24,000 per year, so you need at least £800,000 capital; let's say an even £1 million would be better (that way if there are a few lean years your son still has plenty of wiggle room to draw off of capital). Obviously more is safer, and means you can use safer investments; £500k would be enough if you assumed a 5% return, but that requires more aggressive investments and more risk.

Trusts also are probably taxable, depending on various details (I don't know UK law, in particular), so you may need a bit more to take taxes into account.

You'd need to set up a trust (which incurs administrative and legal expenses), designate a trustee (hopefully you already have a will which designates a particular person as guardian for your son if you and your wife both pass away; you can either designate this person trustee, or someone else, depending on how you prefer to do things). Make sure the trustee(s) you choose are reliable and will have your son's best interests in mind; you can certainly write the trust documents in such a way as to require that of the trustee(s), but it's very hard to enforce such a provision, particularly after you've died.

In the US, we have a concept called an Irrevocable Life Insurance Trust; that is one possibility for you, if the UK has the same concept - this is a trust that specifically exists to be the beneficiary (and, technically, owner) of the life insurance policy. From a quick google search, it looks as if the UK does have similar concepts, but please consult a specialist to get the complete information, and to set it up.


Also, don't forget to take into account your other son. Until he's finished with school, his needs should be considered as well; either in a separate trust with a separate life insurance policy, or perhaps using funds from your pension or savings. He's not in a much better position than his brother if you pass away when he's 9, after all.

You'll also want to make sure that he understands why this trust exists, and why his brother will presumably inherit substantially more than he will, regardless of when that actually happens. Being open about financial decisions is important, especially when on face they appear to be imbalanced. It's the sort of thing that if you discuss it, and the reasons for it, over the course of your son's childhood, he'll be much more understanding when you do eventually die, than if it's a surprise to him.

  • 10
    He'd also be pretty jealous if his brother gets a million dollar trust and he gets nothing. – corsiKa Nov 2 '17 at 15:31
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    @corsiKa Perhaps; I would hope that he'd understand the reasoning behind it, particularly if both parents live into their 70s and he's a successful adult by that point. – Joe Nov 2 '17 at 15:43
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    @Joe Nice answer, you laid out the issues well – zeta-band Nov 2 '17 at 16:25
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    @TorKlingberg I think that setting it up now it should be assumed that it lasts basically forever, because if it does have to last 50 years (as it could at this point, or more) you don't want to be paying it out of principal. But yes that's the other thing - if there is significant inflation you may end up spending principal anyway. – Joe Nov 2 '17 at 17:28
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    One very important consideration is to be aware that in the UK a beneficiary can under certain circumstances "collapse" a trust and attain full legal title to the trust fund. I won't attempt any details as this isn't Law SE, but make sure to get legal advice on this point. Your "income for life" scenario will break down if your son figures out (or is told) that he can get access to the capital instead of the income, and decides that he quite likes the idea of having all that money. – JBentley Nov 2 '17 at 21:41
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A bit more detail to complement the advice already given.

  1. You need around £800k - £1M to comfortably allow for an ongoing income of £20k per annum. I would get some advice from a qualified IFA however as there may be other methods that require less capital.

  2. You can get life insurance fairly cheaply to cover you up until retirement age, ie I am paying £16 a month for £350k worth of cover up to age 50. You can probably get £1M cover up to around age 60 for £50 - £100 a month, it should certainly be very cost-effective and see you through the next couple of decades at least.

  3. You need to get a will written, this should be done by a professional as your will requirements are not straightforward, but only likely to cost a couple of hundred pounds for this service. I would advise getting a will drawn up as soon as you can and you may want to review this once your divorce is finalised.

  4. Once you get to retirement age, your pension can be used to provide the income for your son after your death. Again you will need to consult an IFA as the rules for this have changed recently and could change again, but if you can put as much money into your pension before you retire that should stand you in good stead and you have plenty of time to do this.

Don't forget you will need to take into account inflation, so the £800k or so you need today will go up annually depending on the prevalent rate of inflation.

In the UK there is a "trust for vulnerable beneficiaries" that offers some benefits that your son might qualify for - see the link below:

https://www.gov.uk/trusts-taxes/trusts-for-vulnerable-people

More information (UK specific) about Trusts:

https://www.moneyadviceservice.org.uk/en/articles/setting-up-a-trust

This advice is given in good faith but I am not an IFA or legal professional.

  • 5
    +1 for including inflation, which is a huge concern for a contingency which could be decades in the future. (It is to be hoped!) – carbontax Nov 2 '17 at 12:27
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    My instinct would be to avoid waiting for the divorce to finalize before writing a (hopefully, new) will. If the OP has an existing will, the wife would probably get the lot; if not she will probably get the lot. OTOH, I would accept the advice of the lawyer handling the divorce (they should be thinking of this already). – Martin Bonner supports Monica Nov 2 '17 at 15:29
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    @MartinBonner Note that in the UK divorce (and marriage) has an effect on existing wills. In the case of divorce, it nullifies any gifts made to the divorcee, and removes them as an executor. This may be desirable but it may also be a problem (if e.g. they were the sole executor). I agree with not waiting until the divorce is finalised. Wills are cheap and should be updated as often as possible really, and particularly after any major change in circumstances. – JBentley Nov 2 '17 at 21:48
  • I've edited regards the will and divorce, thanks for the comments. – davidjwest Nov 3 '17 at 7:50

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