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 and Benefits

  • 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.

Revocable trust

 There is another trust called revocable trust where a trustor can change or cancel the trust during his/ her life time. He/she will get the income from trust. Only after his/her death, property will transfer to the beneficiaries as per the estate planning recommendations.

Conclusion:

Akash’s parent should consult trusted certified financial planner or SEBI registered investment adviser from Navi Mumbai to create an irrevocable trust. This type of estate planning will benefit his son - Akash with financial support throughout his life time. 

Last modified on Friday, 16 August 2013 13:32

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

2 comments

  • Dipak

    posted by Dipak

    Monday, 05 August 2013 07:23

    Good information

    Report
  • Shruti

    posted by Shruti

    Sunday, 19 May 2013 11:36

    This is something everyone should be aware of!
    Nice Article

    Report

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