Special Needs Trusts In India: What Parents Need To Know

Special needs trusts are the gold standard in providing for a child with special needs to maintain eligibility for government assistance without those funds ever being tapped for daily living. Supplemental needs trusts, or the more official name used by some states, allow a beneficiary to benefit from an asset held in trust without sacrificing eligibility for needs-based government programs.

What is a Special Needs Trust?

A special needs trust is a legal arrangement where assets are put aside to maintain the care of a person with special needs without disrupting their access to government benefits. Such trusts were established in terms of the Indian Trust Act of 1882, which deals with all trusts in India, public, private as well as charitable. Under this act, parents or legal guardians can create trusts which provide for a child with special needs and enter into details that ensure financial security for that child.

Types of Special Needs Trusts

There are various types of trusts in India. Public trusts benefit the masses, and normally more than one trustee manages such trusts while private trusts benefit particular individuals or sections of people and are usually managed by a single trustee. Charitable trusts are for religious and social causes, operated by a board. Special needs trusts are usually private trusts created to benefit a specific individual who has a disability so that the assets protected will only pass to him or her and can be protected against creditors or other claimants.

How a Special Needs Trust Works

A special needs trust is set up by a document called the trust deed. This is the defining document that says the purpose, assets, trustees, and beneficiaries. Assets are transferred to the trust; the ways in which this transfer may be done are either by lifetime transfer or by the use of a will by parents (or the settlor). Through the trust, these assets are now officially owned by the trust; hence, a trustee looks after them according to the guidelines found in the trust document so as to ensure that these assets go toward care for the beneficiary.

Generally, trusts are categorized into two types-first-party trusts, funded from the assets of the beneficiary, and third-party trusts, funded from the assets of a family member or friend. A private trust is also established from a source of the grantor's resources because Indian law does not prevent any individual from establishing a private trust. Therefore, parents, grandparents, or legal guardians can set up one on behalf of a child with special needs.

Things to Ponder When Creating a Special Needs Trust

Parents should consider the following when setting up a trust:

1. Purpose of the Trust: The purpose of the trust shall state that it is for the care of an individual with special needs for protection purposes against benefit qualifications.

2. Identifying the Trustee: A responsible individual or professional entity should be identified to administer the trust. Such a person will have a responsibility to act in the best interests of the beneficiary as per the terms of the trust.

3. Prepare the Trust Document: This is a legal document that should specify asset management and distribution rules. Seek the services of an attorney to ensure the document is perfect in every detail.

4. Registration of the Trust: In India, the trust is expected to be registered with the state authority which establishes its legal existence.

Legal Support

Under one roof, the Indian Trusts Act, 1882 and the Rights of Persons with Disabilities Act, 2016 provide legal support to special needs trusts. This helps protect assets for people with special needs and encourages management. Section 80DD under the Income Tax Act provides relief in respect of the income-tax chargeable under this Act for any two successive years, or the previous year and any one of the two successive years, as the case may be, if such dependent fulfils particular conditions.

Check List for commencement of a Special Needs Trust

• Whether parents have verified

• It can be set up only one beneficiary who is a person with special needs

• Direct cash distributions to the beneficiary are not made.

• Successor trustees are appointed.

• The trust is effective at whatever funding level.