Every family has concerns about the needs and care of their child in their absence. This concern requires urgent attention especially in families with a child who has special needs. It is good to be prepared to ensure the child's future is secure in the absence of the primary caregiver. We present to you a financial planning awareness series about various processes that you need to be aware of when securing your child's financial future.
Part 2 of series - Setting up a Trust in your child's name
- Why create a Trust for my child?
- What is a Trust?
- Who can be appointed as a trustee?
- What kind of Trust is essential and relevant to a Special Needs family?
- Who can be appointed a settlor?
- What is the role of the appointed trustees?
- Who is the beneficiary of a Trust?
- How will a Will, LOI and Trust deed relate with each other? What comes first?
- How many trustees need to be part of a Trust?
- Would a Trust created abroad also cover assets in India? Would it be legally valid in India?
- What happens to the Trust fund once the special child passes away?
- What are the necessary documents for formation of a Trust?
It gives the child ongoing financial support for his/her medical and lifestyle requirements. A Trust being an independent separate legal entity is not impacted by any eventualities in the personal life of the child’s parents/caregivers.
Any parent with a child with special needs can set up a private trust and secure the future of the child. This Trust can fund all expenses related to child care. The Settler of the Trust (person creating the trust) can specify how the funds should be utilized.
The money entrusted with the Trust can fund recreational activities, hobbies, vocational activities and professional services which are used for the child’s care. Trust funds can also pay for the residential care of the child where he/she will reside after the demise of the parents/caregivers.
Thus a private trust helps in ensuring support for the child continues in all possible scenarios.
A trust is legal agreement for management, preservation and upkeep of the child who is the benefactor of the Trust. The Trust deed defines the objective, power of trustees (people managing the trust), management, preservation and distribution of income to the child.
Any individual (family members, friends), Corporate (Professional Trustees) or a professional (Individual within or outside the family).
An irrevocable private trust is the most beneficial structure for a special needs family. This is so, as the assets go under the care of a Trust and it helps to safe guard the property of the child, inheriting those assets.
A Settlor is a person who establishes the Trust. It’s role is to legally transfer control of an asset to a trustee (who manages the Trust), who manages it for one or more beneficiaries (who benefits from the Trust i.e. your child).In certain types of Trust, the settlor may also be the beneficiary, the trustee, or both. There is no restriction on settlors or those who can create the Trust. Parents, grandparents or even a legal guardian can set up the Trust for the child’s benefit.
Anyone who manages affairs of the Trust as per the deed requirements. They do not have a say in altering its terms. They just execute (implement) the trust deed.
The person on whose name, the Trust deed is made out to. In this case it will be your child.
The Trust Deed is executed first when you (Parents) appoint yourself as initial trustees. You may transfer some of the assets to the Trust in your living and leave others to be inherited through the Will to save on the transfer cost of assets. The Will is executed after your demise, and the assets left over then are transferred to the Trust as per Will provisions. The LOI is a reference document for future Guardian or Trustees who will manage child affairs after you. This document will be referred after you. So Trust is the first document which gets executed.
A minimum two members are required to form a Trust. There is no maximum limit.
You have to create a separate Trust for Indian assets, since different countries have separate laws.
This needs to be specified in the trust deed. Without this entry a trust deed remains incomplete.
Trust deed prepared on a stamp paper, that needs to be registered in the sub registrar’s office is sufficient to form the Trust.