Summary: A trust is a fiduciary arrangement where a trustee holds assets for beneficiaries, and can be created by individuals or, with court permission, minors. Trusts can be established for various purposes, including charitable, educational, or private needs. The key players in a trust are the settlor (creator), trustee (administrator), and beneficiaries (recipients). Trusts can be public, private, or a combination of both, and each type serves distinct purposes and follows specific regulations. Registration is crucial for benefits like probate avoidance, family wealth management, and tax exemptions. The registration process involves deciding trust details, drafting a trust deed, submitting documents to the registrar, and obtaining a registration certificate. This formal process ensures that the trust operates legally and efficiently, protecting the interests of all parties involved.
♦ Who may create trusts —a trust may be created—
a. by every person competent to contract, and,
b. with the permission of a principal Civil Court of original jurisdiction, by or on behalf of a minor.
♦ Parties Involved in The Trust
i. The Settlor
This is the person who creates the trust. The settlor can be more than one person.
ii. Trustee
Every person capable of holding property may be a trustee; but, where the trust involves the exercise of discretion, he cannot execute it unless he is competent to contract
Trustees hold a fiduciary position and therefore can only benefit from the trust property in a personal capacity as a beneficiary. In such cases (particularly with discretionary trusts) A discretionary trust gives trustees the power to decide how much beneficiaries get from a trust and when they
- Acceptance of trust —A trust is accepted by any words or acts of the trustee indicating with reasonable certainty such acceptance.
- Disclaimer of trust —Instead of accepting a trust, the intended trustee may, within a reasonable period, disclaim it, and such disclaimer shall prevent the trust-property from vesting in him
A trustee is bound to maintain and defend all such suits, and (subject to the provisions of the instrument of trust) to take such other steps as, regard being had to the nature and amount or value of the trust-property, may be reasonably requisite for the preservation of the trust-property and the assertion or protection of the title thereto
- Beneficiaries
Beneficiaries are the people for whose benefit the trust has been established.
A beneficiary’s precise entitlement will depend upon the terms of the trust – he or she may be entitled to income (a life interest), income and capital (an absolute interest) or income/capital at the discretion of the trustees (a
♦ Categories of Trusts in India
- A trust may be created for any lawful purpose.
- Every trust of which the purpose is unlawful is void, and where a trust is created for two purposes, of which one is lawful and the other unlawful, and the two purposes cannot be separated, the whole trust is void.
i. PUBLIC TRUST:
Public trusts are established to benefit the public. They often focus on charitable, educational, and religious purposes. The governance of public trusts is guided by specific statutes such as the Religious Endowments Act of 1863, the Charitable and Religious Trust Act of 1920, or the Bombay Public Trust Act of 1950. Charitable and religious trusts are prevalent examples of public trusts in India.
Public trusts can merge with other public trusts with similar goals
ii. PRIVATE TRUST:
Private trusts are established to carry out activities for specific individuals, families, or close associates. These trusts can have beneficiaries closely related to the trust’s founders and are governed by The Trusts Act of 1882.
It has to be register under the provisions of Registration Act 1908
iii. PUBLIC CUM-PRIVATE TRUST:
This type of trust serves both public and private purposes. It can utilize its income for the benefit of the public and specific individuals or families. The beneficiaries of a public cum-private trust can be a combination of public and private individuals.
Private trusts are established to carry out activities for specific individuals, families, or close associates. These trusts can have beneficiaries closely related to the trust’s founders and are governed by The Trusts Act of 1882.
♦ Why Trust Registration?
There are many advantages of registering a trust in India. A few of the significant advantages are as follows
i. Probate Avoidance: Any individual can leverage the trust registration to transfer the heir’s assets without a proper Will. The trust is a private agreement that does not require any additional registration. Hence, the ownership can be changed without the need for a Will, with the help of the trust’s registration.
ii. Family Wealth Management: Trusts assist in allocating specific assets, preserving and managing family wealth that may be challenging to divide individually.
iii. Legal Safeguards: According to the Indian Trusts Act, of 1882, the trust can ensure legal protection. The trust’s legal standing can also not be harmed by any third party making unnecessary claims. Hence, there are many legal benefits to the trust. This helps protect the beneficiaries, the trustee, and the trust owner.
iv. Advancement of Non-Commercial Activities: A charitable trust helps in benefitting oneself from one’s assets. It benefits the beneficiaries and the charity. A person without possession of assets can benefit from the trust. This is one of the significant benefits of the trust
v. Public Interest: Public trusts, designed to serve the general public, are required to register to ensure that their activities align with the best interests of the public
vi. Getting Access to tax Exemption: The registered trusts in India get many tax exemptions. These are offered by the Income Tax Department of the Indian government. As the trust’s objective is not to generate profits, it can be included in the tax exemption laws. A trust with a registered deed can only avail of these benefits. From the stringent taxes, the trust can facilitate better coverage
♦ Dissolution of a Trust
A Trust Shall Extinguished in following case-
- when its purpose is completely fulfilled or
- when its purpose becomes unlawful or
- when the fulfilment of its purpose becomes impossible by destruction of the trust-property or otherwise or
- when the trust, being revocable, is expressly revoked
A Trust May Extinguished in following case
- Where all the beneficiaries are competent to contract—by their consent.
- Where the trust has been declared by a non-testamentary instrument or by word of mouth—in exercise of a power of revocation expressly reserved to the author of the trust; or
- Where the trust is for the payment of the debts of the author of the trust and has not been communicated to the creditors—at the pleasure of the author of the trust.
♦ Process of Registration of Trust Registered.
Step 1 – Decide Following Details of Trust:
- Name of the Trust
- Settlers of the Trust
- Prepare a Memorandum of Association for the Trust
- Two photographs of the parties involved in the trust.
- PAN cards of the individuals associated with the trust.
- Address proof of the individuals.
- Identity proof of the individuals.
- Authentication from the partners (if applicable).
- No Objection Certificate for using the premises (if applicable).
- Any form of a utility bill as proof of address.
- Address proof of the trust registered office.
- 12A Registration and 80G Certificates from the respective income tax authorities to claim deductions (if applicable).
Step 2 – Drafting of Trust Deed:
A trust deed is a crucial document that outlines the key details and provisions of a trust. It encompasses the following clauses:
- Period or term for which the trust will remain in operation.
- The registered office address of the trust.
- The geographical area or region where the trust will carry out its activities.
- The goals and objectives that the trust aims to achieve.
- Information about the person establishing the trust (settlor) and details of the assets or property being transferred to the trust.
- Information about the board of trustees(The law mandates that a trust must have at least two individuals who will act as trustees to manage and administer the trust’s assets for the benefit of the beneficiaries), including their membership, qualifications, terms, and tenure.
- The roles, responsibilities, and powers of the trustees.
- Procedures for amending the trust deed and provisions for the closure or termination of the trust.
- The trust deed ensures that the trust operates in accordance with the relevant laws and regulations.
The trust deed serves as a legally binding document that governs the operations and functioning of the trust, providing clarity and guidance to all parties involved.
Step 3 – Certified Copy of Trust Deed
Submit the signed trust deed and other required documents to the registrar. This involves the active participation of the author, trustees, and beneficiaries.
Step 4 – Register Trust Deed with Registrar of Trust
After reviewing the submitted documents, , if the registrar is satisfied with their validity and compliance, the trust will be registered by them.
Step 5 – Obtain Registration Certificate
Upon approval, the registrar will issue a trust registration certificate. Trustees and the trustor should retain this certificate. Subsequently, the trust, now registered, can open a bank account in its name.
CONSLUSION:
In conclusion, while the process of registering a trust in India may seem complex, it is an essential undertaking for anyone committed to establishing a robust and legally sound entity dedicated to philanthropic or private endeavors. With careful preparation and adherence to legal requirements, the formation of a registered trust can lead to meaningful and lasting contributions to society.
Further related questions, What is the procedure for registration of a trust?
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).
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