How a trust can care, provide for your child
Parents need to plan in advance how and who will take care of their children in their absence
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Creating a corpus for children with special needs can be a task for parents. But often a bigger worry is how will this corpus devolve on the child and who will provide for and take care of the children when the parents are no more. This is where succession planning can be crucial for parents of children with special needs. Creating a trust can address such concerns to a large extent. We explain how.
Parents need to plan in advance how and who will take care of their children in their absence. “There are multiple options that parents can explore. For example, guardianship and power of attorney. But all these are dependent on the availability of their relatives or friends. One does not know whether they will have enough time to spare for this job," said Sandeep Nerlekar, founder and managing director, Terentia, an estate planning firm.
So, in the absence of a family member or a friend, who can take care of financials and take over the day-to-day responsibility of the child, parents should look for other appropriate options. “Creation of trust works out the best. Parents should appoint at least two trustees, family members or friends, and a corporate trustee," said Nerlekar.
Corporate trustees are professional firms or companies that provide or arrange different services as required by the trust. The work of a corporate trustee includes arrangement and execution of all the daily operations like arranging for full-time helps, cooks, health care attendants, doctors, paying bills, arranging for basic household groceries etc. The corporate trustee can also put the payment systems in place and pay for all the expenses via that channel, explained Nerlekar.
Ideally, parents should set up a trust during their lifetime and as early as possible to understand the way a trust operates. “It will also help them pass on the day-to-day operation and execution responsibilities to corporate trustee," said Nerlekar.
However, formation of a trust and handing over responsibility to them doesn’t mean that the parents don't have any rights on the finances. “The parents (settlors) can make changes and give suggestions to the trustees if they feel any changes need to be made in the trust," said Nerlekar.
Typically, there are two types of trust—revocable and irrevocable trust. Under revocable trust, the settlors can at any time during the tenure of such trust, revoke or end the trust. On the other hand, an irrevocable trust comes to an end when its tenure gets over or the objective is achieved or upon the death of the beneficiary.
Also read: How to form a trust and its benefit
Parents should sit with the family and corporate trustees to work out and develop a tracking mechanism, which can help the trust oversee the operations smoothly and manage them.
Once a trust is set up and parents are satisfied with its operations, all the assets should be ideally held under the trust's name and new investments should also be routed through the trust.
Having a trust helps, but you still need to be smart about investments. Ideally, parents of a special needs child should invest in financial assets instead of physical assets, as managing financial assets is simpler even for a trust. “It’s always better to have major investments in financial assets rather than physical assets. One should limit the investment in one residential property, as it would be easy for the trustee or the caregiver to manage it. Multiple properties will create management challenges," said Nerlekar.
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