Know Your Trust – Trust Registration

In this blog, we will mention a few things you must know about the trust registration process in India. For instance, did you know that you can register your trust in India online as well.

Trusts are a crucial driver of intergovernmental relations in the Indian context. In India, trusts engage in philanthropic activities connected to public welfare, such as giving medical assistance, education, and other basic necessities to the impoverished, among other things. Below lets have a look at Know your trust.

The Finance Act of 2020 has released specific new compliance responsibilities on Charitable Trusts and all Exempted Institutions. Requirements of registration under section 12AA or section 12A will become redundant, and new section 12AB will come into force. All the prevailing registered trusts under the preceding section 12A or section 12AA would transfer to the new provision under section 12AB.

What is trust?

The Indian Trust Act of 1882 defines a ‘Trust’ as an arrangement where the trustee or the owner transfers property to somebody else (the trustee) to benefit a third party, called the beneficiary. 

In India trusts are divided into two types:

• Public trust– In such a trust, the public is the prime beneficiary. These trusts can be classified further into Public Religious Trusts and Public Charitable Trusts.
• Private Trust– The beneficiaries of such trust mainly include individuals or families.

Trust Registration: An Overview 

In today’s world, social and rural entrepreneurship is on the rise and socio-economic disadvantages are getting more and more attention. As a result, the entire nonprofit ecosystem currently prevailing in India is heading for a complete overhaul. Trusts are viewed as crucial catalysts for driving sustainable development in India, and registered trusts receive a variety of governmental as well as legal benefits. Therefore, one must register their trust so that you can unlock these benefits. 

Furthermore, before registering your trust, you should be clear on the following points

• The name of the trust– The name of your trust should comply with the provisions mentioned in the Emblems and Names Act of 1950.
• The objective of the trust– You must be clear on whether the objective of your trust is religious or charitable.
• Formation of the trust– A minimum of two trustees are required to form a trust. No restriction is imposed on the maximum number of trustees. However, all trustees should be over 18 years of age with valid ID proofs.

Drafting of Trust Deed and Memorandum of Association (MOA) for your Trust 

The MOA specifies the relationship between the Trustor and the Trustees and emphasizes the goals of the trust. All members’ names, occupations, addresses, and signatures should be included in the MOA. The trust deed, on the other hand, comprises the trust’s rules and regulations and serves as legal proof of the trust’s existence. This paper also includes information about trustee additions/deletions, if any.  Two witnesses must be present when the Trust Deed is signed.

Register Your Trust

A trust deed should also contain the below-mentioned information

• Specific clauses related to the Trustees and the Settlers, Object and beneficiaries, General Body Members, and the Registered Office
• Details of the bank account associated with your trust
• Date of execution of the Deed
• Schedule of meetings to be organized every year.

Parties involved in the Trust Registration Process: How many members required for trust registration?

In the establishment of a trust, several key parties play distinct roles, each contributing to the overall structure and functioning of the trust. In the scenario described:

1. Author/Settlor/Trustor/Donor (Mr. X):

   – This individual, referred to by different names, is the originator of the trust. Mr. X is the one who desires to transfer his property and places confidence in another party for the creation of the trust. As the settlor, trustor, or donor, Mr. X initiates the trust arrangement.

2. Trustee (Mr. Y):

   – Mr. Y is the trustee, the individual who willingly accepts the responsibility and confidence bestowed upon him by Mr. X to create and manage the trust. The trustee is entrusted with the fiduciary duty to administer the trust in accordance with its terms and for the benefit of the designated beneficiary.

3. Beneficiary (Mr. X’s Granddaughter):

   – The beneficiary is the individual who stands to benefit from the trust. In this case, Mr. X’s granddaughter is the intended recipient of the trust’s provisions and assets in the foreseeable future. The trustee is obligated to manage the trust assets for the well-being and advantage of the beneficiary.

Understanding the roles of these parties is essential for comprehending the dynamics of a trust arrangement. The author or settlor initiates the trust, the trustee administers it, and the beneficiary is the ultimate recipient of the trust’s benefits.

Reasons for Trust Registration

Trust registration is essential for several reasons, encompassing legal compliance, financial benefits, and the promotion of societal well-being. Here are the key reasons for trust registration:

1. Regulation and Compliance:

   – Trust registration ensures that trust activities are properly regulated, and the trust complies with the relevant laws and regulations governing charitable organizations.

2. Promotion of Non-Commercial Activities:

   – Trusts often focus on non-commercial activities in areas such as arts, science, education, and the environment. Registration provides a formal platform for these endeavors, contributing to the betterment of society.

3. Income Tax Benefits:

   – Registered trusts can avail themselves of income tax benefits under sections 12A and 80G of the Income Tax Act. This encourages individuals and organizations to make donations to trusts, supporting their philanthropic initiatives.

4. Public Interest and Accountability:

   – Public trusts serve the general public, and registration ensures that these trusts operate in the best interests of the public. It enhances accountability and transparency in the trust’s functioning.

5. Legal License for Trust-Related Businesses:

   – Trust registration provides a legal license for conducting trust-related businesses. This legal recognition is crucial for engaging in various activities, including fundraising, receiving donations, and managing trust assets.

6. Contribution to Social Development:

   – Trusts play a vital role in the development of sectors such as education, healthcare, social welfare, and the environment. Registration enables trusts to operate effectively and make a positive impact on society.

7. Fulfillment of Objectives:

   – Through registration, trusts formalize their objectives, ensuring clarity and coherence in their mission. It provides legal recognition to the trust’s goals and activities.

8. Access to Government Benefits:

   – Registered trusts can access government benefits and opportunities available to charitable organizations. This may include grants, subsidies, and other forms of support.

Benefits of Trust Registration

The registration of a trust offers various benefits, especially when it comes to charitable activities and managing assets. Here are the key advantages of trust registration:

1. Involvement in Charitable Undertakings:

   – Trust registration allows individuals to set up assets to benefit both themselves, designated beneficiaries, and charitable causes simultaneously. This structure is particularly useful for those looking to contribute non-essential assets like stocks or real estate to society.

2. Accessibility to Tax Exemptions:

   – Registered trusts in India enjoy tax exemptions provided by the Income-tax department. As charitable trusts focus on non-profit objectives, they are eligible for various tax relaxations. However, these benefits are only accessible to trusts with a registered deed.

3. Financial Aid to the Needy:

   – A registered trust facilitates financial aid to economically disadvantaged individuals and the broader community through charitable activities.

4. Minimal Legal Hindrances:

   – The Indian Trusts Act, 1882, provides comprehensive legal protection for trusts, preventing unnecessary claims by third parties that could jeopardize the trust’s legal standing.

5. Legal Coverage for Family Wealth:

   – Trusts can be instrumental in allocating specific family assets, such as land or interests in family-owned entities, which might be impractical for a trustor to divide among individuals.

6. Avoidance of Probate Court:

   – Trust registration serves as a tool for transferring assets to heirs without the need for probate court. The legal title of assets transfers from the settlor to the trustee upon settlement, avoiding changes in ownership after the settlor’s demise and the requirement for probate.

7. Facilitation of Immigration/Emigration:

   – Establishing a trust during a family’s move to another country can help eliminate taxation in the destination country, safeguard family assets, and provide organizational flexibility.

Requirements for Trust Registration

For a trust to be eligible for registration, it must adhere to specific requirements outlined by the Indian Trusts Act of 1882. Here are the key criteria that must be met:

1. Minimum Members in Trust: 

   – A trust must be formed by at least two or more individuals. This collective effort ensures collaborative decision-making and responsible governance.

2. Compliance with Indian Trusts Act, 1882:

   – The trust must be established in accordance with the provisions outlined in the Indian Trusts Act of 1882. Adherence to this legal framework ensures the proper formation and functioning of the trust.

3. Disqualification Criteria:

   – None of the parties involved in forming the trust should be disqualified under any prevailing law in India. Ensuring the eligibility of individuals involved contributes to the trust’s integrity.

4. Alignment with Legal Objectives:

   – The objectives of the trust must not contravene any existing laws in India. The trust’s goals should be lawful and aligned with the legal framework of the country.

5. Fair and Just Conduct by Trustees:

   – The trustee, or trustees, must conduct their activities in a fair and just manner. This ethical responsibility ensures the equitable management of trust affairs.

6. Consistency with Public Interest:

   – The formation of the trust should not be contrary to public interest or any other applicable laws. Trust activities should contribute positively to the welfare of society.

7. No Harmful Activities:

   – The activities carried out by the trust must not cause harm to any individual. Trust operations should prioritize the well-being and safety of all involved parties.

8. Alignment with Stated Objectives:

   – The trust activities should align with the objectives stated in the trust deed. This alignment ensures that the trust operates consistently with its intended purpose.

9. Appropriate Drafting of Trust Deed:

   – The trust deed must be drafted appropriately, reflecting the genuine interests of the parties involved in forming the trust. The trust deed serves as a foundational document outlining the trust’s objectives, structure, and terms.

10. Validity of Multiple Purposes:

    – If the trust has more than two purposes, all purposes must be valid. If one goal is reasonable and the other is invalid, the trust cannot be formed. Ensuring the validity of all stated purposes enhances the trust’s legitimacy.

Meeting these requirements is crucial for the successful registration and lawful operation of a trust in India.

Documents Required for Trust Registration

• Stamp paper – The value of the stamp paper is usually a certain percentage of the total property value belonging to the trust. The percentage differs from one state to another.
• Proof of Identity– Self-attested copies of ID proofs of the Trustor and the Trustees ( passport/voter ID/Aadhar card/driving license )
• Address Proof of Registered office– Property registration certificate or copy of utility bill ( water bill/electricity bill)
• No Objection Certificate (NOC) from the property owner – For rented property
• Passport-sized photographs of the Trustor, the Trustees, and the witnesses present while signing the Deed.

Do note that, you will need to pay ₹1100 at the time of registration. The payment for retaining your Trust Deed copy with the sub-registrar is ₹1,000, and the official registration fee is ₹100. After submitting the paperwork, you will be able to pick up a certified copy of your Trust Deed at the Office of the Registrar within a week. You can then send it to the local registrar, along with attested photocopies. The registrar will then keep the copies and return the original registered Trust Deed to you. The formal trust registration certificate would be handed over to you after a minimum of seven working days, subject to the completion of requirements. So also be mindful of the fact that authorized government officials may pay you an unannounced visit during the next 7 days to verify your trust address.

The Takeaway

When it comes to succession and property planning, trust registration has become a useful conduit in India. Moreover, when compared to other nations, the procedure of registering a trust in India is very simple and involves less documentation. To know your trust and more about the procedure for trust registration, you can get in touch with a Vakilsearch expert for a free consultation. 

Also, Read:

• What Is Trust Registration in India?
• Documents Required for the Registration of a Trust