Why a Special Child Trust Is Important for Families?

For special needs child life time care creating a special child trust is the most viable option for the families. A trust is considered to be an effective estate planning tool when wealth has to be preserved for future generations. With a disabled child, the need for meeting this objective is much higher. A special need child is someone who lacks the capacity to manage his or her own finances. A  special child trust is intended to provide ongoing financial support for expenses like medical and lifestyle.

Special Child Trust

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The challenges faced by the  families

Apart from emotional stress, there are many other challenges which family of a special needs child has to face. The work life balance gets disturbed since care of the special needs child requires more time. Many parents find it difficult to juggle life between work and home. The other challenge is the career. The special needs child require support throughout his/her lifetime. Due to this one parent has to forego his/her career and another parent have to ensure he has a stable career in his life. Then there are costs of care which forms the major share of the family budget. Families do not plan it separately and then they are at a good shortfall in meeting the requirements. A suitable guardian and some others are burning issues which a special needs family have to deal with.

But there is one most important consideration or issue for a special needs child lifetime care. That is who will look after the personal and financial affairs if something happen to the parents today. Though a guardian can be appointed, he/she needs to be knowledgeable enough on all matters. More importantly, appointing a guardian does not resolve the issue of continuity of child care.

What options a special needs child parent has?

So what are the options a special needs child parent has to create a secure future for the child?. Here I list down 4 options which are available and what are the considerations to choose either of them-

1.    Leaving legacy To the Child– Well this is not an option to think about. The special needs child in most cases will not be in a situation to take any decision. Thus, Bequeathing any asset to him/her can be catastrophic.

2.    Leaving legacy To the Guardian– Though most families find this option highly favorable it has concerns which need to look into. We have seen children’s, siblings fighting for the share of parents wealth simply because they are not satisfied with distribution. Then money can change anyone and so though parents may be sure no one knows about the future. Good to avoid this option.

3.    Forming a Special Child Trust– This in my view is the most viable option. For continuity of child care, you need an entity which can continue manage affairs irrespective of what happens to the parent. In India, a private trust fulfills this requirement. It can be formed either by the parents or guardian/caregiver or grandparents for the child care.

4.    Institutions– In a limited way, this concept has arrived in India. A third person will set up an institution for lifetime care of special needs dependents. Though it can accommodate only limited persons it can be a considerable option at some stage of the child.

Types of Trust

There are different structures of a trust which can be created. There can be a public/charitable trust which benefits the public at large. Then there is a private trust which is created for the benefit of defined beneficiaries.  Within private trust there are 2 types of trust which can be created-  revocable and irrevocable trust.  An irrevocable trust cannot be revoked and so once formed it is treated as a seperate legal entity. Its this nature of the trust which helps families secure the wealth they wish to leave for their special needs child. Any assets transferred to an irrevocable trust cannot be claimed by any individual or future creditors including the settlor. Contrary to this a revocable trust can always be revoked by the settlor and so it is as good as a settlor. These types of the trust are more beneficial in managing immovable assets in multiple states or countries. Both these types of trust have their benefits  which needs to be factored in while taking a decision.

What options you decide has to be a careful thought. Issues which can jeopardize future of the special needs child should be addressed at the time of taking a final decision.

How a special child trust helps?

In India creating a special child trust  helps families in many ways.  It gives the child an ongoing financial support for his/her medical and lifestyle requirement. Since its a separate legal entity it is not impacted by any eventualities in the personal life of parents/ caregiver. Also, there is no specified definition of special needs which is covered under the trust. Any parent/guardian with a special needs child can set up a private trust and secure the future of the child. This special child trust can fund all expense related to special needs child care. The settlor (person creating the trust) can specify in the trust deed how the funds should be utilized. The money entrusted with the trust can fund recreational activities, hobbies, vocational, etc.  The funds can also pay for professional services which are used for beneficiary care. Lastly, the funds can pay the institution where the special needs may reside if at all decided.  Thus a private trust helps in ensuring the support for the child continues in all possible scenarios.

Benefits of a Special Child Trust

There are many benefits of creating a special child trust which is highlighted below:

1.    A trust is  separate legal entity which can continue running irrespective of what may happen to any individual. Even when the parents are not there the private trust continues to provide financial support to the special needs child.

2.    Another larger benefit of creating a private trust is that the assets are not owned by any individual. There is the settlor who creates the trust, the special needs child is the beneficiary and the trustees to manages the assets.

3.    There is the third advantage which a private trust brings to the family.  Once the assets are transferred to the trust they are free from claims of creditors.

4.    Then there is no restriction as to who can form a private trust for benefit of special needs child. The parent, guardian, grandparents, caregivers can form a private trust and secure the child future.

5.    A trust comes alive even in your living. A living trust can be formed where parents can be initial trustees which ensure they can understand the functioning of the trust. It also gives them time to make the future trustee, understand the child requirement and will be able to shoulder responsibilities.

6. Finally, the trust has tax advantages on many occasions.

Creating team of experts

Though Indian Trust Act 1882 lays the guidelines for a trust there are state-specific laws too. Also, we do not define a special needs trust yet here. What we have is a  private trust. But even the law does not go down to many specifications. As a result many decisions related to trust in India are decided in the court of law. This necessity the need for legal experts who can address the legal aspects while forming a trust.  This may not be enough. The special child trust needs to be funded with the right amount and the cost of childcare has to be identified well. When the trust is formed the experts which are related to child care may be needed to foresee the childcare. Looking at all these requirements it’s necessary that a team of expert is created by the family to meet the objective of the childcare. Estate Planner, Legal Professionals, Financial Planner, Therapists, Social workers and many others should be available. This team is the core team which takes through the parents of the requirements in their financial life. Where an estate planner clearly identifies the legal aspects of the child future a financial planner helps in identifying the financial requirements. With help of these 2 professionals, a private trust can be created and the right amount needed to fund the child care can be identified. Most importantly not only at the creation but continues support you will look for ensuring the child care is taken.

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About the Author

Jitendra P.S. Solanki

Jitendra is a SEBI Registered Investment Adviser (INA10000184) and has earned the much-respected professional designation of Certified Financial Planner (CFPCM ) and Chartered Trust & Estate Planner (CTEPTM). He is a post graduate from IIT - Roorkee and has spent 15 years in Financial Services Industry working with leading financial institutions & Banks, advising families on their Financial well-being. Jitendra specializes in advising families with special needs children on various financial & legal aspects.

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