The Indian Trust Act governs private trustees and Indian trustees. State-specific laws are typically used to regulate public trusts. The Act outlines how the trust's creator could set up a trust, name trustees, and designate his financial assets to be managed by the trust.
There is a widespread belief that the most affluent members of society can only form trusts. That is not true, though! Even common people can establish a trust. Only private trusts are governed by the terms of the Indian Trust Act of 1882 (referred to as “The Act” in this article). For instance, the 1950 Maharashtra Public Trust Act. India is covered under the Indian Trust Act, except Jammu & Kashmir and the Andaman and Nicobar Islands. Furthermore, the Waqf (Islamic relief) and a few other entities are exempt from this act.
What is a Trust?
Let’s use an illustration to assist you in comprehending this.
For the benefit of his little granddaughter, Mr. X intends to leave Mr Y the bungalow (property). Because of his confidence in Mr Y, Mr. X transfers his property to him. This is the very foundation of trust. A trust, put simply, is nothing more than the transfer of property from the owner (Mr X) to a second party (Mr Y), in which the owner has faith, for the benefit of a third party (Granddaughter of X). Property refers to more than just real estate. It might be money, stocks, or any other valued item. The “instrument of trust” is the document’s name that declares the full trust.
Parties in a Trust
- Author/ Donor/ Trustee (Mr. X): The individual putting their trust in another to transfer their property and establish the trust
- Trustee (Mr. Y): The individual who consents to establish the trust
- Beneficiary: The individual who will soon gain something from the trust (Mr. X’s grandchild).
Objectives of an Indian Trust in General
The trust should be established for a legitimate purpose, according to the main goal. For instance, the trust would be null and void if Mr. X had robbed a bank and given the money to Mr. Y to give it to less fortunate kids.
So how can we truly determine whether the goal is legal or illegal? Section 4 of the Act has the answer. According to Section 4, all purposes are considered legal unless they: Legally prohibited; violate legal requirements; are dishonest; involve harm to another person or his property; are immoral or against public policy.
Who Can Create Trust?
Anyone with the legal capacity to enter into contracts, such as an individual, an AOP, a HUF, a firm, etc., may establish a trust. If a trust is to be established by a minor or on their behalf, the original jurisdiction of a Principal Civil Court must grant its approval. It also depends on the laws in force and the extent of the trust’s creator’s intended property dispositions.
Types of Trusts
- Private trust: A closed group is the target audience for a private trust. In other words, it is possible to identify the recipients. For instance, trust is established for the author’s friends and family
- Public Trusts: A public trust is established to benefit a sizable population, i.e., the general public, philanthropic organisations run by non-profit groups, for example.
Registration Mandates for a Private Trust
According to Section 5 of the Act,
- For immovable property: The trust creator or the trustee must sign the non-testamentary document, and it must be registered. Registration is not required, though, if a will produced the non-testamentary instrument
- Moveable property: A trust relating to the movable property may be established in the same manner as in the case of immovable property, or the trustee may be given ownership of the property. As a result, registration is not required.
What Are the Purposes for which a Trust can be Created?
Generally speaking, trusts can be designed to serve one or more of the following objectives:
- To fulfil the charitable or religious intentions of the trust’s creator in a way that ensures the general welfare
- To qualify for an exemption from income tax under Sections 10 or 11 of the Income Tax Act of 1961 about income used for charitable or religious purposes
- For the sake of the relatives or other family members who depend on the trust settler.
- For the efficient management and defence of property
- To administer a provident fund, superannuation fund, gratuity fund, or any other fund set up by an individual for the benefit of their employees.
Who can be Appointed as a Trustee?
A trustee can be someone competent to manage assets. A person is not required to take up the role of trustee, though. Since it is the trustee’s responsibility to carry out the fund’s purpose, they must clearly define that aim in both words and deeds.
Can a trust be established to provide for the medical assistance of the author of the trust?
Yes. A trust can be created for various reasons, such as helping the author pay for medical care or looking out for the kid’s wellbeing. However, a trust cannot be established for any illegal objectives, according to the Indian Trusts Act of 1882.
What does a trust deed contain?
The name clause, registered office clause, and other terms and conditions are just a few of the clauses that make up a trust deed.
What are the requirements to register a trust deed?
The following are the prerequisites for registering a trust deed:
- A trust deed on stamp paper with the relevant stamp duty
- A passport-size photo and identification proving your address
- Identification proving the identities of both trustees
- Passport dimensions and two witnesses’ identification documents.
What are the advantages of creating trust?
The benefits of creating a trust are as follows:
- A trust can be created to allow the settler to express their feelings for charitable or religious goals, such as reducing human suffering, promoting philanthropy, advancing science, etc., in a proper and controlled manner
- A charitable or religious trust is eligible for several tax breaks and benefits
- Donations made to organisations that qualify as charitable institutions are tax-deductible by the donor
- To ensure the well-being of family members and relatives dependent on the settler, a trust can be established
- By establishing a trust, the settlor can prevent the transfer and partition of their property to third parties.
India has a statute governing private trusts and trustees known as the Indian Trusts Act 1882. The Act defines what is legally referred to as a trust and specifies who is eligible to serve as its trustees. The Act was revised by the Indian Trusts Amendment Bill of 2015, which also lifted various limits on the trust’s ability to invest its financial assets in particular types of investments. However, it also allowed the government to examine the trusts’ investments randomly. Vakilsearch also provides assistance and knowledge regarding Indian Trust Act, its registration and the taxation process.