Understand the private trust registration. The blog outlines the steps, to ensuring a smooth process for legal recognition and benefits in India
Trusts are created to provide the trustor’s Asset with legal protection. Whether a trust is public or private, it aids in ensuring that the assets are dispersed in accordance with the trustor’s wishes. It is crucial to establish a private trust in the current situation when disagreements over property distribution produce problems between families, relatives, and acquaintances. We will outline the steps necessary to register a private trust in India in this blog.
What is a Private Trust?
A private trust is established for the benefit of one or more people who can be positively identified now or in the near future. A private trust is one that is created for close friends, family members, or other individuals.
The establishment of a private trust gives this transaction a legal structure and ensures that funds are exclusively used for the benefit of the trustee’s family and in the manner the trustee specifies.
The Indian Trusts Act of 1882, the Income Tax Act, its Rules and Regulations, and other relevant legislation must all be complied with by private trusts.
Example of a Private Trust
Ajay transfers Rs 10 lakhs to a newly created private trust for the benefit of his family. He names his brother as a secondary trustee and himself as a trustee for the duration of his life. In the event of Ajay’s death, his brother shall manage the trust assets in accordance with the trust deed.
What One Must Know Before Creating a Private Trust
Any individual who is legally capable of entering into a contract under the Indian Contracts Act may establish a trust. It may even be established in relation to any transferable property with the consent of any competent court. Because the property is not transferred in that scenario, it is not an agency contract. However, in this situation, the trustee is genuinely given the property for the benefit of another person, and he is not permitted to exploit it for his own gain. And that is the primary distinction between a public trust and a private trust.
The general public as well as a set of people who fit into a specific category can both be beneficiaries of the beneficial endowments, which will have an unpredictable and variable nature. Beneficiaries, however, are closed and definite for private trusts. Additionally, only private trusts are covered by the Indian Trust Act; public trusts are not. Public trusts, which are often of a religious and charitable character, are free from taxation under Section 10(23C) of the Income Tax Act of 1961, which is another significant distinction. Private trusts, however, are not free from this rule. It is also important to keep in mind that registering the trust with the Commissioner of Income Tax in accordance with Section 12A of the Act is required by law.
Types of Private Trusts
- Revocable Trust: In this kind of trust, the settlor has the easy option to change or dissolve it after it has been established. Because this form of trust may be broken, properties are not protected. Properties are taxed by the settler’s side at the slab rate since they are not regarded as gifts in this country. It is only a will’s alternative.
- Irrevocable Non-Discretionary Trust: In this type of trust, the assets cannot be withdrawn, but the settlor retains full control over the trust’s rules by determining which beneficiaries get which assets and to what extent. The settlor will be subject to tax at the slab rate if they are the major beneficiary.
For instance, the settlor may allocate 40% of the trust’s benefits to the second child and 60% of the trust’s advantages to the first child. A trust may be established for a child with physical disabilities to guarantee that he or she is appropriately cared for in the event that the child’s parents or guardians pass away.
3. Irrevocable Discretionary Trust: In this situation, the trustee will determine which beneficiary will receive each asset and in what percentage. The beneficiary list will be decided only by the settlor. In other words, the settlor will disclose the beneficiaries individually, not their share. The trustee will divide the amount among the beneficiaries.
A properly written discretionary trust gives the trustee the freedom to make decisions based on the situation by allowing the trustee to include or remove beneficiaries from the class. The trustee cannot be forced or persuaded to utilize any of the assets for the benefit of the beneficiaries.
The Benefits of a Private Trust
- A trust can be created to enable the settler to carry out their duties for the welfare of their family, friends, and relatives in an organized and regulated manner.
- A successful method of handling and transferring family assets.
- To protect the interests of family members and relatives, a private trust might be established.
- It aids in preventing domestic disputes.
- Realization and execution of the author’s intentions
How to register a Private Trust in India
Documents required to register a Private Trust
- ID and Address Proof and the Author’s Passport-Sized Photo ID and Address Proof and the Photographs of the Two Trustees
- Proof of identity and address, as well as two witnesses’ passport-sized photos.
- The author must sign any document that is not testamentary.
- Information on each trustee, including proof of identification and address.
- original registration certificates that have been verified.
- Income tax return registration certificate in Xerox format.
- Original trust deed copy.
Procedure to Register a private trust in India
- A trust deed has to be written on stamp paper worth the required amount.
- The name of the trust, trust address, trust type—movable or immovable property—two trustees, the settlor’s name, and the trust’s character—charitable or religious—must all be disclosed in the trust document.
- If you transfer property to a trust while still alive, stamp duty must be paid and the transaction must be registered in accordance with the Indian Registration Act.
If your property is given to the trust through your will, no stamp duty is required to be paid when the property is given to the trust.
Private Trust Deed
If you want to form a private trust during your lifetime, you must sign a document called a trust deed registration. You can also create trust through your will. To manage the trust, trustees must also be named.
The following aspects should be mentioned in the trust agreement or will:
- The purpose of building trust
- The intention behind the creation of the trust
- Names of beneficiaries
Unless the trust is indicated in a will, in which case the asset will be transferred to the trust at the time of your passing, the trust property is to be transferred by the settlor to the trust during the establishment of the trust.
If the trust was established during your lifetime, additional assets may be transferred to it as well, even through your Will.
Additionally, it is wise to determine the type of private trust mentioned above.
Conclusion
In India, creating a private trust has shown to be a successful method of succession and state planning. The Act has sufficient provisions to establish and even run a trust. Property management through a trust is relatively doable since it establishes an appropriate legal framework to safeguard assets while also taking into account the interests of family members or beneficiaries. Through the Act, it is also simpler to pass on the trust’s advantages to future generations.
You may register a private trust in India with the assistance of Vakilsearch. We guarantee a smooth interaction with the government by taking care of all the paperwork. To help people have reasonable expectations, we give clarity on the registration procedure. With the help of our technological resources and the experience of our team of legal experts, we can register online as well. Experience comfort and convenience by choosing Vakilsearch.
FAQ
Do private trusts need to be registered?
Registration isn't mandatory, but it provides legal recognition and certain benefits
How much does it cost to set up a private trust in India?
Costs vary; legal fees, stamp duty, and registration charges contribute to the overall expense.
What is the difference between a trust and a private trust?
A private trust is for specific individuals, while a trust can have a broader purpose or public benefit.
What are the disadvantages of a private trust?
Limited flexibility, potential family disputes, and challenges in altering trust terms
Is a private trust taxable?
Yes, private trusts are subject to taxation on their income, like any legal entity.
What is the purpose of a private trust?
Typically, it's to manage and safeguard assets for the benefit of specific individuals or families.
How do I set up a private family trust?
Consult a legal professional, draft a trust deed, identify beneficiaries, and transfer assets to the trust.
Can private trust property be sold?
Yes, trustees have the authority to sell trust property as specified in the trust deed.
Is a private trust a legal entity?
Yes, a private trust is a separate legal entity distinct from its trustees and beneficiaries.
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