How can a “Trust” help special Children?
Akash is 14 years old, staying in Kharghar with his parents. He is in born differently-abled. He depends always on his mother for daily routines. His parents are spending around to Rs 20,000 per month on his treatment. They are worried for his future; what will happen to him if they are not there?
Like Akash’s parents, most are worried for their special children. The emotional support can be provided by the family but a permanent financial solution for the children during their life time is the biggest challenge in our society. During their life time, they can take care of their special child but who will take care him after them?
The solution can be found by creating a trust under the guidance of Certified Financial Planner / SEBI registered Investment adviser for the benefit of the child during the life time of the parents and even after their death.
What is a “Trust”?
It’s an important part of Estate planning process for coming generations. The assets are transferred for the benefit of the beneficiary through a legal entity called “Trust”. It is different than a will. In case of a trust the assets are transferred to the Trust during the life time of the Parent unlike in the case of a will; where the assets are transferred after death. Drafting a trust deed is more complicated as compare to a Will.So it is desirable that it is drafted by a lawyer.The beneficiaries may be minors who are not independently capable of looking after them. The trust can be created by any person who is a major and is capable of entering into a contract.
Irrevocable trust
An irrevocable trust cannot be modified or terminated by the Trustor i.e. parents of special children. The income of this trust goes to the beneficiary. A special child needs regular medical assistance and financial support when parents are not around .By creating an irrevocable trust; parents get assured about the required support to the child.
How to create an irrevocable trust?
- There are three parties in a trust; Trustor, who creates the trust; Trustee, who manages the trust; Beneficiaries, recipient of the benefits
- One needs to ascertain the financial needs of the beneficiary.
- Then estimate the assets required to generate the income to support the needs.
- Take the help of a lawyer to draw up an irrevocable trust deed.
- The assets have to be identified to be transferred at the disposal of the trust.
- Select a trust worthy person as trustee who will have fiduciary responsibility over the trust.
- Then execute the trust deed with a notary public/Civil court
- Cost: For creating an irrevocable trust, initial expenses are required to set up and register the trust. There may be an ongoing fee owed to the trustee for managing the assets. There may also be accounting costs associated with tax returns etc as per tax planning schedule.
- Tax savings: Once one individual transfer his asset to an irrevocable trust, he/she will not pay any tax on the income of that asset.
- Protection from creditors: An irrevocable trust can provide safeguard against future creditor claims on the assets in case of bankruptcy, since the trustor ceases to have the title to the trust property, yet at the same time it enables them to have indirect control over the property through terms of the trust deed.