Succession Planning. A trust for your special child

Planning for special children requires careful deliberation to cover for the future needs of the special child, especially after the lifetime of both parents, and appointing a proper guardian.

A private trust for a special child allows parents to set aside money for their child’s future.

The trust is normally structured as follows. The Indian Trust Act recognizes three parties to a trust, namely, the settlor, trustees and beneficiary. Parents would be the settlors who will transfer their assets into the trust. Other family members can also gift assets. Parents are the initial trustees and the successor trustees, who will administer the trust assets after the lifetime of the parents, shall be chosen with great care. It is a legal requirement to have a minimum of two trustees. They could be family members, friends, professionals or a combination of them.

The beneficiary is the special child for his/her lifetime and the trust assets would be utilized to meet his/her requirements such as regular maintenance, medical and health, education and development, salaries of servants, driver, fees of home and centre for special children, house maintenance expenses etc.

It’s possible that the trust assets are not exhausted during the lifetime of the special child, hence one needs to identify the successor beneficiary. A provision is made to appoint the children of the special child as successor beneficiaries and in the absence of children, other siblings or family members are chosen as successor beneficiaries.

One can also appoint a protector who would oversee the administration of the trust assets and ensure it is administered for the benefit of the special child. For example, if you have two children and one is a special child, the other can be appointed as the protector. The protector would oversee the overall administration and could be vested with powers to change the trustee if they don’t act in the best interest of the special child.

Guidelines for distribution of assets

The guidelines for investment and distribution of trust assets can be defined in the trust deed. It’s better to be conservative and allow investments only in risk-free products, which will generate regular cash flow to meet the child’s expenses. One can also appoint a separate Investment Advisory Board comprising of experts, if required, who can provide recommendation to trustees to invest in trust assets. One can purchase a house under the trust where the special child wishes to reside. The trust should not allow for other investments in real estate.

A trust segregates the assets for the special child. This is a better option instead of transferring them to other children, where these assets would be mingled with theirs and leave the parents to assume that the siblings would keep providing for the expenses of the special child for their lifetime.

When should one set up a trust for special children?

This can be set up immediately as it requires time to set-up a trust, open its bank, demat accounts and gradually transfer assets into the trust. Administration of a trust involves a learning curve. The parents themselves can administer the trust and make suitable amendments during their lifetime, if required. Other family members can also be added as trustees along with the parents, to acquaint them with the functioning of trust.

Parents would want to acquaint their successor trustees about the routine needs of the child, such as their medical treatment, allergies, likes, dislikes etc. They can provide these instructions through Letter of Wishes to the trustees.The trust should be flexible to make necessary changes due to new developments in the life of the child. For example, if over a period of time, the child attains the maturity to understand finances, the trust deed should incorporate clauses to involve the special child beneficiary in the trust administration, where he can request for books of accounts and the distributions can be made directly to him, instead of the guardian.

Planning for your loved child could be worrisome and complex, but with the help of right advisory and sound planning, one can ensure that his/her financial needs are met.

The writer is AVP, Succession Planning, Emkay Global Financial Services Ltd

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