A ‘trust’ is an obligation:
Private trust is a trust created for the benefit of individuals other than a public or charitable purpose. It is created for the financial benefit of one or more designated beneficiaries rather than for the public benefit. It is usually governed by Indian Trusts Act, 1882.
The four distinct elements in a Private Trust are
Purpose of Private Trust
Benefits of a Family/Private Trust
Trust is designed to protect assets and benefit members of a group/family beyond lifetime. When assets of a group/family are in a trust, group/family members no longer have legal ownership of them – the assets are owned by the trustees, for the benefit of group or family members.
People usually set up a trust to get some benefit from no longer personally owning an asset. A trust may be useful to:
Reasons for Private Trust
Working of Private Trust?
Kinds of Private Trust : Tax wise
As the income of a private trust is available only to the beneficiaries, taxation is carried out according to the structure in which the income has been received.
From tax point of view, there are two structures under which the income of a private trust is taxed:
Specific trust: The income is received by the representative assesses on behalf of a single beneficiary. As the individual share of the beneficiary is known, taxation is done accordingly.
Discretionary trust: With more than one beneficiaries, the individual shares are not known. Here the income of the trust is not received by a representative but determined by the trustees.
Other Relevent Sections of Income Tax