What is a Special needs trust?
A Trust where –
- Beneficiary is a Special Needs Person
- Beneficiary receives 100% of the share of income
- Trust dissolves only on the demise of the Beneficiary
- Income earned by the Trust is utilised for the benefit of the Special Needs Beneficiary, such benefits being spelt out in the Trust Deed
What is the need of a Special Needs Trust?
Parents of special needs children are always worried as to what will happen to their child after they are no more. They want to ensure that their child is able to lead a financially independent and dignified life after they are gone. Special Needs Trust is one such tool that enables a financially secure life for the child after the demise of parents.
Who can set up a Special Needs Trust?
A Special Needs Trust can be set up by Parents, Grandparents, Relatives, Guardians, family friends etc for the benefit of Special Needs family member.
Who are the Parties in a Special Needs Trust?
- Author/Settlor – person giving the property or creating the Trust
- Trustee – holds the property for another’s benefit and manage the Trust funds as per the Trust Deed
- Beneficiary – Special Needs Person for whose benefit Trust is created
Who can be Trustee of a Special Needs Trust?
- Every person capable of holding property
- If the Trust involves exercise of discretion, then the Trustee has to be a person competent to contract
- It is advisable to include Legal Guardian of the Special Needs Person as a Trustee
Can a Special Needs Trust receive gifts from relatives of the special needs person?
In a Special Needs Trust, gifts from following specified relatives can be received and are exempt from Income Tax (Sec 56(2) of Income Tax Act, 1961)
- Parents
- Siblings
- Grandparents
- Spouse & Children
- Paternal Uncle & Aunt and respective spouses
- Maternal Uncle & Aunt and respective spouses
What are the benefits of creating a Special Needs Trust?
- Effective mode of passing family assets to the Special Needs family member
- Helps in avoiding disputes and others claiming right over family property
- Helps in safeguarding the interests of Special Needs Person including the maintenance of special needs family members
- Helps to ensure medical, educational and other needs of the Special Needs Beneficiary are taken care of effectively
- Certain conditions can be attached to ensure that the Trust income & property are used only for the benefit of Special Needs Beneficiary
Is it compulsory to get the Special Needs Trust registered?
Compulsory if the Trust property includes immovable property.
What type of assets can be a part of the Special Needs Trust?
These may include
- Land/property
- Investments
- Cash
- Any other valuable assets viz jewellery, etc
Can there be more than one Authors/Settlors of a Special Needs Trust?
Yes
Is there any compulsion that the Author has to transfer some immovable/movable property to the Special Needs Trust?
No
What is the minimum amount that Author has to transfer to create a Special Needs Trust?
Special Needs Trust can be formed by transferring any nominal amount e.g. Rs 1000.
While deciding the corpus of Special Needs Trust, it is important to estimate the life expectancy of Special Needs Beneficiary, amount needed for maintenance of such person, income that the Special Needs Trust will earn on its property & investments, etc.
What is a Trust Deed?
- Trust Deed is a legal instrument which validates the setting up of a Special Needs Trust
- It lays down rules and regulations regarding the Special Needs Trust
- It lays down provisions regarding powers and responsibilities of Trustees, management of funds, ensures use of income earned by the Trust only for the benefit of Special Needs Beneficiary, winding up of Special Needs Trust, etc
- Registration is compulsory in case immovable property is in the name of Trust
- A written Trust Deed is always beneficial as
- It is the prima facie evidence of the existence of a Special Needs Trust
- Clearly specifies the objectives of the Special Needs Trust
- Helps in controlling and management of the operations of the Trust
- Lays down procedure for the appointment and removal of the Trustees, their duties and rights, etc
- Describes the course of action in case of dissolution of Special Needs Trust