How to Set Up Private Trust for Special Needs Care?

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.

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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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