Plan Special Needs

In India, private trust covers the structure of creating a secure future for a special needs dependent. Through the private trust, the parents can choose to manage the child affairs as they wish to. It also ensures that the legacy left for the special needs child is managed to provide for the child lifetime care needs. Though a trustee manages the affairs they never own the trust assets which bring a fiduciary nature when a trust is functioning. This helps in addressing concerns of the parents when they are no more.

Who Can Set Up A Special Needs Trust?

There is no restriction in the Indian Trust Act as to who can set up a family private trust. Parents, Grandparent or Legal guardian can set up a trust for the special needs child future. It’s not necessary for the settlor to be a trustee of the trust. If separate persons are identified then the settlor can only create a trust while trustees will manage the trust. Alternatively, the initial trustee/s can be settlor also. The benefit they derived from this is that they can manage the affairs well knowing their special needs child. The future trustees if identified can join as co-trustees and can fill their place when they are not around.

Steps To Form The Trust For Special Needs Dependent

Three Step Process

Step 1

Identify the Elements Required

A private trust has four elements:
– The Settlor, Beneficiary, Trustee, and the Subject Matter.

Since you are the settlor the first element is taken care of. You need to identify who will be the trustees. The settlor can be the initial trustees but it’s good to identify who will be the future trustees. If you have it from your family then it surely eases your stress. But if not then you can even have a professional trustee. Then you need to identify the beneficiary which in this case will be the special needs child. But if at all you are looking to add other family member as a beneficiary you can do so. The last is the subject matter of the trust i.e. assets. Which assets trust will hold and what time is important. You will have to analyze how these assets will pass on the trust so that you can plan accordingly. All these elements are important to address and start preparing the trust.

Estimate the Funds Required For Special Needs Care

One of the major considerations while setting up a trust us to identify the fund’s trust will require. These funds should be enough to manage the special needs child affairs and bear the cost of trust if any. Having said that identifying the lifetime care cost of special needs dependent is important. Without which it will be difficult to know how much funds should be left for the trust.

Identifying the lifetime cost care is a complete financial planning exercise for which various factors need to be considered. Life expectancy, inflation, returns, etc. Then there is a cost which a trust may incur additionally such as accounts management, managing investments, professional fees. Etc. These costs will be incurred from the corpus left for the child which means the requirement will be a bit higher than just the child expenses. Who will fund these cost and where can the funds be arranged needs to be decided first.

Step 2

Preparing the Trust Deed

Once the funds are known then the formation of the trust deed is important. A trust deed is a legal document which validates the setting up of a private trust. The drafting of the trust deed is the most crucial element because this will be the basis on which the trust will function. The trust deed ideally should carry all the provisions- The rule and power of trustees, management of funds, dos and don’ts, income distribution to the beneficiary, the winding up of trust all need to be written in the trust deed. Then the trust deed should clearly mention Its advisable that experts help is sought considering the legality and complexities involved in the function of a trust.

Step 3

Registering the Trust Deed

Once the deed is drafted it has to be mandatory registered. The process of registration of the trust deed is as follows:

1. The trust deed is first to be printed on a stamp paper of requisite value
2. The deed is to be presented at the local register under the Indian Trust act 1882
3. One passport size photograph & a copy of the proof of identity of the settler
4. One passport size photograph & a copy of the proof of identity of each of the two trustees.
5. One passport size photograph & a copy of the proof of identity of each of the two witnesses.
6. Signature of the settler on all the pages of the Trust Deed
7. Witness by two persons on the Trust Deed.
8. Go to the local registrar & submit the Trust Deed, along with one Photocopy, for registration. The photocopy of the Deed should also contain the signature of the settler on all the pages. At the time of registration, the settler & two witnesses are required to be personally present, along with their identity proof in the original.
9. The Registrar retains the photocopy & returns the original registered copy of the Trust Deed.

Appointing the Trustees

If trustees are different than settlor, then they can be appointed right at the formation of the trust. But if settlor will work as a trustee and if future trustees are identified the trust can be asked them to be appointed later. After registration, it’s the trustee who appoints the future trustees. Any individual, corporate or a professional can be appointed as a trustee. The cost of the trustee will be born by the trust. But finding the right institution may be difficult since most families do not have access to their services. That’s where we come in.

One of the important considerations for all the families is from NRIs. Such families with special needs children wish to settle in India because they have the social environment here. They can form the trust for their children in India well before their resident status is converted to Resident India. However, there are restrictions for becoming the initial trustees with NRIs as the resident status. The Indian Trust Act, 1882 mandate to replace the trustee if current trustee stays outside India for more than six months. These rules specification don’t allow NRIs to become the initial trustee of Indian Private Trust.

19 comments on “How to Set Up Private Trust for Special Needs Care?

  1. Thanks for the great article. How is taxation handled for income generated from trust assets?

    1. Sundeep,

      If its a specific trust then the income generated from trust assets are taxed as beneficiary income. The assessment can happen at beneficiary level or at the trust level.

  2. What is the benefit of such a trust? In other countries, the general purpose is that the money is not directly in beneficiary’s name, and thus this arrangement will preserve their govt benefits..

    But not clear what would be the purpose to do the same in india.

    1. Ritesh,

      A trust can be created for multiple purposes. It can be for managing properties which are in different states, continuity of businesses, securing the future of children as trust assets gets protection from creditors and chances if disputes are low and many others. Yes the same structure is here that money is not directly in beneficiary name but it is utilized only for the beneficiary benefit when in the trust. Unlike other countries we yet do not have government benefits but expect whenever it comes it may have the same structure. As I mentioned a trust can serve multiple purposes so you need to define the objective you wish to achieve. We guide families across the globe on meeting their objectives through a trust structure. Feel free to discuss.

  3. Hi. We have a special needs child who is 30 years old. We are interested in creating a trust for him to provide for his needs when we are no more.


    1. Dear Sajiv,

      Kindly provide your contact details so that we can discuss your requirements.

      In the meantime you will recieve a questionnaire on your email from the organization which addresses the legal asects. This is to provide some basic information on the trust you wish to create.

  4. I want to set a trust for my 11year old Autistic child. Moreover need to know if I can do disability related professional work under that trust

    1. Hi Bhawana,

      Please provide your contact no or call me at 9971845454 to discuss.

      Jitendra PS Solanki

  5. Hello , i want to open a special needs trust in india for my brother has severe brain injury due to a motor vehicle car accident in usa. He is non verbal and completely disabled. We already have a Special needs trust in Usa at the moment. My brother was a students and this accident happened with a 18 wheeler tractor trailer. We had to rush in emergency to USA as we dont have any family and friends in the US. I and my mother are in usa taking care of him since the accident. We are planning to move to india for some ayurvedic treatment and brain injury rehabilitation. Our primary location would be Mumbai as they have the medical facility for brain injury patients. Please if you can help us in setting up a trust in India. I know how the special needs trust works . However, i have no clue how is it in india and how the tax system is as over here in usa special needs trust are tax exempt. Also i would love for you to talk to our trustee in usa so that we can come to a common ground of understanding. Please help us.

    1. Dear Yash,

      We Can surely assist you in trust formation and can have a discussion with your trustee in USA

      Let us discuss the same. My number is 9652i33279. Good if you can call me and we can then plan to schedule a discussion with Our legal team and your Trustees in USA.

  6. In case of a private irrevocable trust for a person with special needs as a beneficiary, there are 2 entities, the trust and the beneficiary. Who should be assessed for income tax, the Trust or the beneficiary? Do you also offer help with registering such a trust?

    1. Dear Sandip

      Trust do not have its income of its own. Whatever income is derived by the trust is considered as beneficiary income. The trust is assesessed on Income tax only at a fixed maximum marginal rate in case of discretionary trust though some exemptions are evailable. Else trust income is assessed as a representative of beneficiary.

  7. I humbly request you to respond this query:-
    About one hundred families having dependent differently abled adult (autism, downs syndrome etc.) have come together to set up an assisted community living and live together in a gated housing complex. They want to form private trust for each individual; but many find it hard to identify a trustworthy person for the position of a Trustee. Is pooled trust be an answer? Can a pooled trust be formed in India? How will be be taxed? Since individual beneficiary-wise sub-accounts for the pooled trust can be maintained, will the Income-Tax dept allow the income be taxed at the individual beneficiary’s hands instead of treating the aggregate pooled income as the basis for tax slab rate and for determining taxable income?

    1. Dear Mr. PK Jayaram,

      1. Pool trust is not viable in a private family trust. Each parent will have to form a private trust. It can only be done as a public trust if beneficiaries are not part of same family.

  8. (1) Is it possible to create a pooled trust in India by a group of individual parents having a dependent adult with special needs (autism, downs syndrome etc.)?
    (2) If so, how will the income of the trust be taxed?
    (3) Will the calculation of taxable income be on the basis of the income attributable to the individual beneficiary’s investment assets and taxable at the hands of each individual beneficiary (as separate single assessee) or will the whole income be treated in aggregate (i.e. clubbed as of single assessee)

  9. Re: Personal finance query
    Financial Security and estate planning for families having persons with intellectual developmental disability
    Under an NGO (charitable Society registered under The Societies Registration Act 1860, one hundred families with PwIDD (Persons with Intellectual developmental Disability) as Members of the Society want to form individual private trust with the PwIDD as the sole beneficiary to financially secure the PwIDD’s future. Each family would live in own house/flat with the PwIDD in the same campus as Community living, availing common facilities such as common kitchen, the vocational training center and care homes built pooling their own funds in the NGO. Besides the NGO taking life long care of each PwIDD after demise of the parents (shifting the PwIDD to care home after demise of both the parents after selling the house/flat to the next eligible new family and investing the sale proceeds of the house/flat for the sole benefit of the PwIDD), NGO will also give free respite care(only day care) for poor special needs in around the location in the village.
    1) Estate planning for financial security needed mainly after the demise of the parents entails need for institutional and legally acceptable entity like a trust having sufficient funds (investment corpus) to meet the PwIDDs recurring life long daily expenses (&life long care) after the demise of parents, though successor legal guardian will be appointed. One popular option in practice is forming a private trust.
    2) Instead of one hundred individual PwIDD trusts (requiring several trustees) causing high administrative cost and difficulty in identifying trustworthy, knowledgeable and able Trustees, can a few Pooled Trusts (having individual PwIDD-wise separate Sub-accounts) – say 10 Pooled Trusts, each having ten Beneficiaries?
    3) If so, what will be the income-tax implication for each pooled trust? Since the income is non-business and purely to use for life long care of the PwIDDs, can we apply for tax exemption if as per current income tax law, it is taxable?
    4) For achieving the above objective, can we form Trust as Public Trust instead of Private Trust?
    P K Jayaram🙏

    1. Not viable. A public trust is a charitable trust and so objective will be different.

      What can be done is families can appoint each other as trustees in their private trust.

      Why not call me at 9625133279 and lets discuss. We can work towards creating some ecosystem to achieve this objective.

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