Rachna Khare, 55, from Bhopal, understands this deeply. She recently established a trust for her 28-year-old son, Rachit. “By the time my son turned 21, we helped him transition to an assisted living setup. Once he settled, we focused on securing his financial future and consulted professionals who advised us to create a trust,” Khare said.
Likewise, Sunil Kawariya, 36, a financial professional in Bengaluru, who works at Right Horizons Portfolio Management Services Pvt Ltd, helping parents in this crucial task, has set up a trust for his seven-year-old daughter.
A special needs trust, also known as a private family trust, allows parents to transfer their wealth and appoint trustees to manage it on behalf of their specially-abled children. These trusts are governed by the Indian Trusts Act, 1882, and can be tailored to fit the specific needs and dynamics of each family.
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Trustees can be family members, friends, or even professionals from NGOs or residential homes where the child receives therapy or support. However, identifying trustees is a critical factor, as they will be responsible for managing the trust after the grantor’s demise.
For instance, Sachin Chopra, 44, who is trying to set up a trust for his 48-year-old brother, is struggling to find suitable trustees. “Lack of awareness and very little or no understanding of the role of a trustee makes it difficult to find the right people,” he said.
The Challenges
According to Jitendra Solanki, director of Dehradun-based estate planning firm, Special Needs Estate Planners Pvt. Ltd, each family can decide and create a structure as per their family dynamics. “What will be the power of the trustees? Who can withdraw the money? How can the money be withdrawn? These are some important aspects that can be defined in a trust deed.”
Creating a trust should not be difficult, said Solanki, who caters specifically to families with specially-abled children or relatives. There are many estate planning and law firms active in this space, the idea is to reach out to identify the right professionals, he added.
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Khare has decided to appoint herself, her husband, and two close relatives as trustees to look after her son. “The second line of trustees could be sons and daughters of our siblings, but we never know who would move abroad or stay in India. or be in the same city where my son lives. We want to streamline everything so that we can clearly explain the need in terms of time and effort to future trustees who will outlive us,” she said.
Similarly, Kawariya has appointed one relative each from his side and his wife’s side to take care of their daughter in their absence.
But what about those like Chopra who are not being able to identify a family member as a trustee? According to Solanki, the solution may lie in other families that are looking for trustees. “So, I become a trustee in your trust and you become a trustee in my trust. That is how people are trying to find a solution,” he explained.
Alternatively, one can find trustees from NGOs, residential homes or entities where one’s child goes for therapy. “Representatives of such places can become one of the trustees. The trust should ensure that another representative of the same place can replace him or her if the first representative is no longer around,” said Solanki.
According to experts, it is always better to appoint multiple trustees. “At least two trustees are required in a private family trust. There is no limit on the maximum number. Anywhere between 2-5 is a good number,” he added.
One can even consider appointing a corporate trustee. Nextgen Estate Planning, Warmond Trustees, and Khaitan & Co, provide trusteeship services for a fee.
“In India, corporate trusteeship services are expensive and only those with a sizable corpus can avail of it. We are trying to reduce the cost for special needs trusts. We too provide trusteeship services apart from managing the administrative part of it exclusive to such trusts,” said Solanki.
Cost of creating a trust
The cost of creating a trust can be substantial for middle-class families, with an upfront fee of ₹1-1.5 lakh, along with recurring administrative and management fees. Despite this, the investment is crucial.
“The costs will involve fees to be paid for administrative affairs, investment management and for services such as filing income tax returns,” said Solanki.
Preparing a will to ensure specially-abled children inherit their parents’ wealth may not be adequate, experts said. “Creating a will is efficient to pass on wealth. However, it cannot define how the money should be withdrawn and for what purpose,” said Bijal Ajinkya, a partner at Khaitan & Co, adding the selection of trustees is of prime importance.
“One of our UHNI (ultra-high-net-worth individuals) clients has a daughter (single child) who suffers from bipolar disorder. The family was very concerned about society manipulating the young daughter for wealth after the demise of the parents.”
“We suggested that instead of her receiving the assets directly by way of a will, they create a trust where she will be the beneficiary and receive monthly sums for her lifestyle, as well as fixed funds for special life celebrations and events. Further, after her, they can also specify who will be the next beneficiary,” added Ajinkya.
Key checklist
Delhi resident Vikas Arya is planning to establish a trust for his 21-year-old daughter, ensuring its structure remains unchanged during her lifetime. For such instances, parents may set up a discretionary trust and registering it with a lower amount, Solanki said.
A discretionary trust allows trustees flexibility and control over the use of assets for the beneficiaries. “The lower amount ensures you pay less stamp duty at the time of registration. While registration is not mandatory for movable assets, it is still recommended. Stamp duty has to be paid on the transfer of immovable assets, whether you do it at the time of registration or afterwards.”
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Parents should also create a legal guardianship certificate for their child upon reaching adulthood. The trust deed should include provisions to transfer legal guardianship to a designated person. Solanki also advised on managing withdrawals and decision-making for the trust’s bank account
“Do not give power to a single trustee to withdraw the money. Ensure a joint withdrawal with at least two signatories. Also, mention that the majority among trustees will prevail when it comes to taking a decision.”
Additionally, parents might appoint a family member as a protector to oversee the trustees’ activities. “Sometimes, siblings of a special child, or any other key family member, could be settled abroad, and therefore may not be able to take up responsibility as a trustee as per the Indian Trust Act. However, they can become a protector to oversee the trust’s functioning,” Solanki said.