A special child trust in India is an important estate planning tool for special needs children families. Being a separate legal entity the trust has many advantages for securing the child future. The primary benefit of this trust rest on the ownership of assets. Once transferred to the special child trust these assets cannot be claimed by any individual. The trustees manage the affairs of the special needs trust for the benefit of the beneficiary i.e. special needs child. But surely none of the trustees have any say in the ownership of trust assets. With this and many other benefits a special child trust is the most viable option for the families.
Since the special child trust objective is lifetime care of beneficiary its need to be funded well. The assets in the trust can come in parent’s lifetime or after them through a Will. But the larger question which is faced by most parents is –
- How much corpus is enough for the trust to ensure the lifetime expenses are met?
There is no straight answer to the above question. It requires an estimation of the special needs child requirements which include regular and unexpected expenses.
Here is how to identify the corpus needed by the special child trust to fund the lifetime expenses:
Identifying the expenses of the child
The special child trust is going to manage affairs of the child after the parents. So what expenses are incurred in child care needs to be identified. This should include not only living expenses but any unexpected ones which can arise. However, many parents are unaware of what is spent on the child care. This arises from lack of proper budgeting. Unless the child expenses are identified separately a near accurate estimation is difficult.
What the expenses should include
1. Day Care – In most situations, a special need child stays with the parents. So any one of them will be managing the child affairs. The expenses here will include food, clothing, health, medicines, therapies, etc. and which need to be assessed. Some support persons might be hired such as full-time servants. The cost of all such individuals should be part of the day care expenses. In some situations after the parent’s death, the child might stay in a special institution the expenses of which should also be considered.
2. Schooling– Special needs children are sent to special schools. The fee of the school will be an expense which parents have to incur. This schooling expense will vary for life stages such as minor, adult and higher age. the parents should estimate this change in expense with some probabilities.
3. Transportation – Transportation is a higher cost in special needs child care budget. There are situations when the school may not be near and so transport is needed to drive the child from home to the school and back. Parents who take this responsibility on themselves will generally find their fuel expenses on the higher side.
4. Extra Activities– Additional activities apart from the schooling may be required to keep the child active. These activities can be arranged at home or the child may be moving out for which additional expense will be incurred.
5. Buying Special Equipment– The field of health care is making advanced equipment for special need children to improve upon. Even in normal stages of life, there are special equipment which parents have to purchase for the child care support. The cost of all such equipment should be assessed and included in the total cost of child care.
Additional expenses of a special child trust
Apart from the child care there are expenses which special needs trust will require in managing the corpus. The cost of hiring professionals, fees for trustees, audits etc. are expenses which the trust will incur. How these expenses will get funded should be assessed. Some of the cost will be fixed such as yearly audit etc.. while some may be variable such as professionals or trustee fees. The source of funds for both these should be allocated or provision should be made for funding these expenses. Then there are one-time expenses which may arise. All such additional cost should be identified and factored in while identifying the provision.
Identifying the sources of funding for the trust
The next step is to identify the sources of various assets which will be needed to fund the special child trust. Most parents do not have immediate assets to fund the trust if something happens to them today. A life insurance is must for meeting this objective. But identifying the right amount of coverage is important and so a financial planner advice should be sought. Insurance policies which have cash values may work very well in funding the long term needs of the child. But the structure of such policies is very poor in India. Specialized policies were withdrawn and doesn’t looks to be introduced sooner. Apart from this parents need to work on different sources for funding the trust. This can include employer benefits, self-invested asset, inheritance from grandparents/relatives etc.
Forming a sepcial child trust is very good estate planning tool for the families. But it needs to be funded well to take care of the special needs child expenses for lifetime. When parents are not there this will be the only resource from where the child expense will be met. So it’s necessary that all factors are taking in consideration while identifying the amount needed to fund the trust.
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