In this article, we'll discuss the importance of trust as well as how one can transfer a Property through Trust.
A Trust is a legal arrangement in which the property is transferred to a Trustee by the owner, Trust, or Trustees. property is transferred for the gain of a third party.
The property is given to the Trustee by the Trust or by a proclamation that it shall be retained by the Trustee on behalf of the beneficiaries of the Trust. The Indian Trust Act of 1882 established the country’s legal foundation for trust. In order to gain the benefits, trust registration is recommended in India.
There are two categories in which Trust is classified in India;
Public Trust – The public is one of the beneficiaries of public trust. In India, there are two different categories of public trusts:
- Public charitable trusts
- Public religious trusts.
Private Trust – A private trust in India is one that receives beneficiaries who are either individuals or families. A Private Trust can also be categorised into the following groups in India:
- A private Trust whose beneficiaries and necessary shares can be easily determined.
- A private Trust whose beneficiaries or necessary shares are both difficult to determine.
Beneficiaries and Trustees India does not view trust as a separate legal entity. A trust is defined as a legal obligation associated with the ownership of property that results from the settlor’s confidence in the trustee on behalf of the beneficiaries (as determined by the settlor), or the beneficiaries and the settlor.
Such trust property is legally owned by the trustee, but the beneficiaries are entitled to a beneficial interest in it. Because a Private Trust mechanism offers better legal protection, clarity, and flexibility, it is frequently used to transfer assets. It is a recognised method of carrying out succession planning because a Private Trust mechanism offers better legal protection, clarity, and flexibility. It is a recognised method of carrying out succession planning as a practice. To transfer property or Land Registration through trust one needs to fulfill many criteria.
Transferring Assets
- Transfer of immovable or movables property to Trust anytime during lifetime as per the wishes of Trust Creator / Author / Settlor
- Transfer of immovable or immovable property after demise via Will wishes
- Trust deeds require trustees to work and manage the trust in accordance with the terms and conditions laid out in the trust deed. It is done by transferring identified property to the trustees and imposing other obligations on them.
Who Can Be Appointed As A Trustee?
A trustee can be someone who is capable of managing property. A person is not obligated to take responsibility as a trustee, Since it is the responsibility of the trustee to fulfill the objective of the fund, he or she must make clear what that aim is in both words and actions. The trustees are not permitted to act in any way that exceeds the trust deed’s specified scope of authority.
A trust can be further defined as discretionary and non-discretionary. A discretionary trust is one that has been established for the benefit of one or more beneficiaries, but the trustee has complete discretion over the timing and kind of distributions.
It is not considered to be a part of the beneficiaries’ estates and neither do they belong to the trust’s beneficiaries. A non-discretionary trust is a trust in which the trustee is prohibited from making investment choices regarding the trust’s assets and/or from controlling when and how the funds are delivered to the beneficiary. In a non-discretionary trust, the trustee only ensures that the grantor’s instructions are followed.
Revocable Trust
A trust can be cancelled at any time during this life by the trust’s creator. Trusts that are irrevocable remain in effect until their terms or purposes have been achieved. A private (non-testamentary) trust, whether specific or discretionary depending on the settlor’s intentions and executed while the settlor is still alive, is typically used for succession planning.
Advantages of Trust Registration
- Through charity functions, the registered Trust provides much-needed financial aid to needy people.
- For ensuring capital and income tax benefits, trusts are very advantageous. For the settler, beneficiaries, and Trust assets, the Trust might offer a stronger defense against stricter tax rules.
- The Trust is given legal protection under the Indian Trusts Act of 1882. it also prohibits any third party from bringing a baseless lawsuit that would endanger the Trust’s legal standing.
- A Trust should be established as soon as a person and his or her family move to another nation in order to avoid paying taxes in the new country, secure the family’s assets, and provide for more organisational flexibility.
How Trust Can Be Formed?
Any person who is able to enter into a legal contract, meaning they are at least 18 years old, of sound mind, and not disqualified by the law, can create trust. Also, can transfer a property through trust. Anyone can establish their own Trust for themselves and their families in the following ways:
- Anytime during life, create a private or family trust for yourself and your family. It is not a charitable or public trust
- No legal authorization or procedures with the Charity Commissioner’s office are necessary.
- Establish a private trust with a specific goal in mind such as supporting special children,
- Young children,
- Efficient business empire,
- Aging parents, or oneself.
- Creation of Trust after death by writing a Will and annexing a Draft Trust Deed
Penalties For Violating Trust
If any person violates the regulation of trust registration then it results in
Civil and Criminal Penalties
The defaulters face both legal and criminal penalties for breaking the trust deed’s terms. The provisions relating to the criminal breach of trust are described in Sections 405 to Section 409 of the IPC 1860.
Application for Tax Deduction Account number
As soon as the Trust or Institution is registered, it should formally request the allocation of a tax deduction account number before the Assessing Officer. Trust may utilise the form-49B provided by the IT division for this objective.
Failure to Furnish the Return of Income
The Act imposes severe penalties for failure to facilitate the restoration of revenue. If the TDS certificate is absent from the income return due to the taxpayer’s failure to furnish it, The absence of the certificate will not render the return of income invalid. Within two years following the conclusion of the assessment year, the taxpayers are required to present this certificate.
Conclusion:-
We hope that after reading the information above, you have understood the process how you can transfer a property through trust and also how it is formed. However, Transferring property through trust can be a cumbersome process for some.
But it is a necessary step that you will have to take no matter what. Our experienced team of legal experts at Vakilsearch is committed to making your property transfer process easier with our online services. Visit our website today to start planning now before it’s too late!
