A Practical Guide for Settlors, Trustees, Professionals and Institutions on Creating and Administering Trusts under Indian Law
Because a trust is only as strong as the clarity with which it is created, documented and governed
Background
A trust is one of the oldest and most versatile instruments known to property law, and it continues to occupy an important place in India today. Families use it for succession planning, philanthropists use it to dedicate property for charitable and religious causes, and educational and healthcare institutions use it to secure continuity of governance beyond the lifetime of their founders. Yet, despite its wide use, the mechanics of creating, registering and administering a trust remain poorly understood by many who are actually planning to set one up.
My earlier article on this platform, “Section 8 Company vs. Trust vs. Society: Choosing the Right Legal Structure for a Non-Profit Organisation in India,” received a strong response from readers, and a number of them wrote in asking a more basic but equally important question: once a trust has been chosen as the appropriate structure, how is it actually formed, documented and registered? This article is intended to answer that question in a practical, structured manner, while also touching upon the governance and compliance issues that follow formation.
The discussion below draws upon the provisions of the Indian Trusts Act, 1882, relevant State legislation, and a few illustrative judicial pronouncements, presented in a manner that a reader without a legal background should be able to follow.
1. What Exactly Is a Trust?
Section 3 of the Indian Trusts Act, 1882 defines a trust as an obligation annexed to the ownership of property, arising out of a confidence reposed in and accepted by the owner, for the benefit of another, or of another and the owner. In plain language, a trust separates legal ownership from beneficial enjoyment. The person who creates the trust is the settlor or author; the person who accepts the obligation and holds legal title is the trustee; and the person for whose benefit the property is held is the beneficiary. A trust, unlike a company or a society, is not a separate legal entity in itself — it is a fiduciary relationship attached to property.
2. The Essential Elements of a Valid Trust
Section 6 of the Act requires that the author of the trust indicate, with reasonable certainty, four things: an intention to create a trust, the purpose of the trust, the beneficiary, and the trust property. These are often referred to as the “four certainties.” Where any of these is missing or vague, the arrangement may fail to qualify as a valid trust at all. In addition to these certainties, every functioning trust needs a trust deed — the instrument that records the objects, the trustees, their powers and duties, and the manner in which the trust is to be administered. A carefully drafted trust deed is, in practical terms, the single most important safeguard against future disputes.
3. Public Trust and Private Trust — Two Different Legal Worlds
Whether a trust is private or public depends entirely on who its beneficiaries are. Where the beneficiaries are specific, ascertainable individuals — such as family members — the trust is private. Where the beneficiaries are the public at large, or a sufficiently large and shifting section of it, the trust is public. The Hon’ble Supreme Court explained this distinction in Deoki Nandan v. Murlidhar, AIR 1957 SC 133, where it observed that in a private trust the beneficiaries are ascertained or capable of ascertainment, while in a public trust the beneficiaries constitute a body incapable of such ascertainment. This test, laid down nearly seven decades ago, continues to be applied by courts while classifying an endowment as public or private.
The classification is not academic — it decides which law governs the trust. Section 1 of the Indian Trusts Act, 1882 itself excludes public or private religious and charitable endowments from its scope. Private trusts are therefore governed by the Indian Trusts Act, 1882, while public trusts fall under State legislation — such as the Maharashtra Public Trusts Act, 1950, applicable in Maharashtra and, until recently, Gujarat — or, in States without a dedicated public trust statute, under the Charitable and Religious Trusts Act, 1920, general civil law and applicable personal law.
4. Who Can Create a Trust, and What Can Be Settled Upon It
Under Section 7, any person competent to contract, and who owns transferable property, may create a trust. This includes individuals, Hindu Undivided Families, companies and other juristic persons. The subject-matter of the trust — the trust property — must itself be transferable. It may consist of immovable property such as land, buildings or agricultural holdings, or movable property such as cash, bank deposits, shares, jewellery, or intellectual property rights. Once validly transferred, the property ceases to be the personal property of the settlor and is impressed with the character of trust property.
5. How Is a Trust Actually Formed and Registered?
Movable Property
Under Section 5 of the Act, a trust of movable property is valid either where it is declared by a written and signed instrument, or where the ownership of the property is actually transferred to the trustee — for instance, by physical delivery, endorsement, or a formal assignment. No compulsory registration is prescribed for a trust confined to movable property alone, though registration is invariably advisable for evidentiary purposes.
Immovable Property
Where the trust property includes immovable property, Section 5 requires that the trust be declared by a non-testamentary instrument in writing, signed by the author or the trustee, and registered. This registration is carried out under the Registration Act, 1908, before the jurisdictional Sub-Registrar, and attracts stamp duty calculated under the applicable State Stamp Act. Failure to register a trust deed covering immovable property renders the transfer of that property to the trust legally ineffective, even if the deed itself has been duly executed.
Registration for Tax Purposes — A Separate Step
It is important not to confuse registration of the trust deed under the Registration Act with registration of the trust under the Income-tax Act, 1961. A public charitable or religious trust seeking income-tax exemption must separately obtain registration under Section 12AB, and, where it wishes to enable donors to claim deduction, under Section 80G. These are distinct regulatory approvals, each with its own procedure, and neither is a substitute for the other.
6. Creating a Trust Through a Will — The Testamentary Route
A trust need not be created only during the settlor’s lifetime. Section 5 also recognises a trust declared by the will of the author or the trustee. Such a testamentary trust does not take effect on the date the will is signed; it comes into existence only upon the death of the testator. Until then, the testator retains full ownership and remains free to alter or revoke the will at any time. For such a trust to withstand challenge, three certainties must be satisfied: certainty of intention (the language must impose a binding obligation, not a mere wish), certainty of subject-matter (the property must be clearly identified), and certainty of the beneficiaries or objects. In the presidency towns of Mumbai, Kolkata and Chennai, obtaining probate of the will is a mandatory precondition before immovable property can be mutated in the name of the trust.
7. The Trust Deed — The Document That Really Matters
A trust deed typically records the objects of the trust, details of the trustees and the manner of their appointment and removal, their powers and restrictions, the rights of beneficiaries, provisions for investment and application of income, and, where relevant, the process for amendment or dissolution. In my experience advising on both banking documentation and trust structures, the majority of disputes that later reach court trace back not to any defect in the concept of a trust, but to ambiguity left in the trust deed itself — unclear objects, undefined succession of trustees, or silence on what happens if a beneficiary predeceases the settlor. Time spent on precise drafting at the outset is rarely wasted.
8. Trustees — Custodians, Not Owners
Chapter III of the Indian Trusts Act, 1882 casts several duties upon a trustee: to execute the trust faithfully, to protect the title to trust property, to act with the care of a person of ordinary prudence, to be impartial between beneficiaries, and to maintain clear and accurate accounts. A trustee holds legal title to the property, but only in a fiduciary capacity; he cannot use trust property for personal profit, nor set up a title adverse to the beneficiary. Where a trustee commits a breach of this obligation, Section 23 makes him personally liable to make good the resulting loss.
The fiduciary character of this role is not confined to trusts formally registered under the 1882 Act. In Operation ASHA v. Shelly Batra & Ors. (Civil Appeal No. 10048 of 2025, decided on 5 August 2025), the Hon’ble Supreme Court held that even a society registered under the Societies Registration Act, 1860, could be treated as a constructive trust for the purpose of Section 92 of the Code of Civil Procedure, where its properties and donor funds were held and managed for a public charitable purpose. The Court reiterated that fiduciary obligation flows from the function and purpose an institution serves, and not merely from the label under which it is registered — a principle equally relevant to trustees of formally constituted trusts.
9. Rights of Beneficiaries
Beneficiaries are not passive recipients. Chapter VI of the Act gives them the right to the rents and profits of the trust property, the right to inspect the instrument of trust and the accounts, the right to require proper administration, and the right to approach a court where the trust is being mismanaged or a trustee is in breach of duty. These rights function as a practical check on the conduct of trustees and are frequently invoked where governance has broken down.
10. Trust, Society or Section 8 Company — A Quick Recap
Readers of my earlier article on this comparison will recall that the appropriate structure depends on the nature of the objective and the degree of formality desired. A trust suits a situation where property is to be permanently dedicated to a purpose, or where a settlor wishes to retain a defined, drafted role for named trustees, with comparatively limited external interference beyond the trust deed and applicable State law. A society, by contrast, is a membership-based association governed democratically through a general body and an elected governing council, and tends to suit situations calling for broader participation. A Section 8 Company, incorporated under the Companies Act, 2013, offers a full corporate structure with limited liability, but carries correspondingly higher statutory compliance. None of the three structures is inherently superior; the choice should follow the objective, the expected scale of operations, and the level of formal governance the founders are prepared to sustain over time.
11. Public Trusts — State Laws and Regulatory Compliance
Once a public charitable or religious trust is formed, its compliance obligations do not end with registration of the trust deed. Depending on the State in which the trust is situated, it may need to register with, and report periodically to, a Charity Commissioner or equivalent authority under the applicable State Public Trusts Act. Where no such State legislation exists, oversight is exercised through the civil courts under the Charitable and Religious Trusts Act, 1920 and general principles of personal law. Separately, as noted earlier, income-tax registration under Sections 12AB and 80G is necessary for tax exemption and donor deduction, and any trust intending to receive foreign contributions must register under the Foreign Contribution (Regulation) Act, 2010. Maintaining segregated accounts, holding regular trustee meetings, and keeping proper minutes are not mere formalities — they are what regulators and courts look for when assessing whether a trust has, in substance, been honestly administered.
12. Common Mistakes in Formation and Registration
- Treating the trust deed as a formality and leaving key clauses — succession of trustees, dissolution, amendment — vague or unaddressed.
- Failing to register the trust deed for immovable property, under the mistaken belief that execution alone completes the transfer.
- Confusing registration of the trust deed with registration under the Income-tax Act for exemption purposes.
- Mixing trust funds or property with the personal assets of trustees, which weakens the very asset-protection the trust structure is meant to provide.
- Choosing the trust structure without comparing it against a society or a Section 8 Company for the specific objective at hand.
- Overlooking the probate requirement for testamentary trusts where immovable property is situated in a presidency town.
13. A Practical Checklist Before Creating a Trust
- Decide, at the outset, whether the trust should be private or public, based on who the intended beneficiaries actually are.
- Identify competent, reliable trustees and settle, in writing, how successors will be appointed.
- Draft the trust deed with precision, and have it reviewed by a professional before execution.
- Complete registration formalities for immovable property without delay, including payment of applicable stamp duty.
- Plan separately for tax registration under Sections 12AB and 80G, where exemption is intended.
- Keep trust accounts entirely distinct from the personal finances of the settlor and trustees.
14. Conclusion
A trust remains one of the most adaptable instruments available under Indian law, equally suited to protecting a family’s assets and to sustaining a public charitable cause across generations. Its strength, however, does not lie in the property it holds, but in the precision with which it is created and the discipline with which it is governed thereafter. Getting the formation and registration right at the outset — choosing the correct classification, transferring property in the manner the law requires, and drafting a clear trust deed — prevents the great majority of disputes that otherwise surface years later.
15. Message to Readers
This article has attempted to explain the formation and registration of trusts in a manner that is accessible without sacrificing legal accuracy. If you are considering setting up a trust — whether for family succession or for a charitable purpose — treat the drafting of the trust deed and the completion of registration formalities as the two steps that deserve the most careful professional attention. I would be glad to hear from readers with questions or with practical experiences of their own on this subject.
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About the Author: Ashok Kakkar is an Advocate, Insolvency Professional, and former Banker, with qualifications of M.Com, LLB, LLM and CAIIB. Drawing on decades of experience spanning banking, credit, recovery laws, insolvency and legal practice, he writes to make banking, finance and legal concepts more accessible to professionals, entrepreneurs and students.
Disclaimer: This article is intended solely for general awareness and educational purposes. It is based on the broad statutory framework governing trusts in India, together with select judicial decisions cited for illustration, and does not purport to be an exhaustive statement of the law. It does not constitute legal, tax or professional advice, and should not be relied upon as a substitute for advice from a qualified professional in relation to the specific facts of any case. Readers are advised to consult a qualified advocate or chartered accountant before taking any action based on the contents of this article.
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