Financial security for self and family members is of paramount importance in one’s life and people work hard to create wealth and provide for safeguarding the welfare of family.

The need to provide such financial security becomes a little more complex for parents with special children. Such children require greater financial support to meet not only their regular living expenses, but also, the medical expenses, attendant expenses, special education needs and other expenses to provide comfort to such child.

Though parents of such children have adequate financial resources to provide financial support, but, one of the concerns for such parents is to ensure the financial security to special child especially after their life. Bequeathing the estate through “WILL” to special child is not a suitable option as child is not capable of managing the estate due to disability.

The other option for such parents is to leave the estate with a family member (brothers/sisters) and with a direction to use such estate for the wellbeing of special child. But the flipside of such arrangement is that there could be change of mind of such person or legal impediments in management of estate or a void due to death or disability of relative.

Setting up a private trust with an objective of wellbeing of child and leaving the legacy to the trust is perhaps is suitable option in ensuring the financial security of special child.

A trust is a relationship where property is held by one party for the benefit of another party. A trust is created by the owner, also called a “settlor”, “trustor” or “grantor” who transfers property to a trustee. The trustee holds that property for the trust’s beneficiaries.

The person who transfers the property to trustee/s is called the “author” or “settlor” of the trust; the person who accepts the trust is called the “trustee”, the person for whose benefit the property is accepted is called “beneficiary”; the subject matter of trust is called “trust property”; the beneficial interest of the of the beneficiary is his right against the trustee as owner of the trust property; and the instrument, if any, by which the trust is declared is called “instrument of trust” or “trust deed”.

Under Indian Trust Act, a settlor can create a trust with his or her own personal property and can officially appoint one or more trustees and lay down the terms and conditions benefiting the identified beneficiary or beneficiaries including one’s spouse, own child, relative or any other individual or group of individuals.

A Private trust could be created for the benefit of one specific beneficiary which is also known as 100% specific beneficiary trust. In such case, the entire benefit of the trust would go to the specific beneficiary named in the trust.

In the event of financial difficulties for the parents to provide for well being of special child, seeking financial support from family/extended family members or other members of society may give confidence to such members to contribute to the Trust as their contributions are applied judiciously for the welfare of the special child.

All incomes (other than the exceptions) of a minor child, whether direct or through a trust would be clubbed or added with the income of the minor child’s father or mother who has a higher taxable income. (U/s 64 (1A) of Income Tax Act).

As per Sec 64 (1A) of Income Tax Act, any income of a minor child who is suffering from disability of the nature specified in section 80U like physical disability, blindness etc. will not be clubbed with the income of the parents.

The specified disease u/s 80 U :-

  • Blindness
  • Low vision
  • Leprosy-cured
  • Hearing impairment
  • Loco motor disability
  • Mental retardation
  • Mental illness
  • Autism
  • Cerebral palsy

A specific beneficiary private trust with adequate provisions provides substantial safeguards to protect and provide the funds for the wellbeing of special child. And, as per the current Income Tax provisions (FY 2019-20) the income arising to special child either directly or indirectly is exempted from clubbing with the income of parent who has a higher taxable income.

A Suresh                   Chartered Trust and Estate Planner TM

suresh@propseva.com                                                        www.propseva.com

Brief about the Article:

The need to provide such financial security becomes a little more complex for parents with special children. Such children require greater financial support to meet not only their regular living expenses, but also, the medical expenses, attendant expenses, special education needs and other expenses to provide comfort to such child.