How to form a trust for a special needs child | Economic Times

What is a trust?According to the Indian Trusts Act 1882, a trust is a legal entity created by the ‘author’ or ‘settler’ whereby he transfers assets (property/investments) to a second party called the ‘trustee´ for him to hold and manage it for the benefit of a third party called the ‘beneficiary’. There are two types of trusts:1. Testamentary trustThis trust is created as part of the will written by parent(s) and comes into effect only after the death of the parent(s). The executor creates the trust and enforces the directions of the testator, transferring property and other assets to the special needs beneficiary. 2. Inter vivos trustAlso known as living trust, it can be created when the parents are alive. Various assets can be put in the trust and used as per the owner’s discretion.Steps to form the trust1. Select a name for the trustPick a name that is suitable for the purpose for which you are setting it up.2. Identify the trusteesTypically one or both parents of the special needs child are the settlers. They need to identify trustees who understand the child’s needs and will work in his best interests, besides being capable of managing the assets. A good combination would be a relative close to the child and a professional who can manage the assets.3. Identify assets and sources of fundingWhether the corpus is created over time or all at once, it should be enough to take care of the needs of the child for his entire life. This requires correct calculation of the amount required by factoring in inflation and costs (for managing investments, professionals’ fees, etc.).Also read: How to plan your finances for a special needs child4. Draft the trust deedThe trust deed has to be executed on nonjudicial stamp paper. It is legal evidence of the existence of the trust and should carry all the directions to run it. List details about how the trust and assets are to be managed, powers of trustees, and the child’s healthcare needs. List how the wealth is to be managed if the child dies and if the trust is to be dissolved.5. Get it registeredThis is mandatory and is done at the sub-registrar’s office by paying a fee. The original and photocopy of the deed should carry settler’s signature on each page, passport photo and copy of identity proof of settlers, trustees, and two witnesses. It then has to be submitted to the registrar with attested copies. The registrar keeps the copy and returns the original deed, or registration certificate, within a week.6. Open an account for the trustGet the PAN and TAN number for the trust and open a bank account.