BASIC KNOWLEDGE ABOUT TRUST
Table of Contents
BASIC KNOWLEDGE ABOUT TRUST

A trust is an agreement between people (called trustees) to manage property over which they have control either to benefit other people (called beneficiaries) or for charitable purposes. A groups of trustees may be incorporated as a board under the Charitable Trusts Act 1957 if the objects are charitable.
DEFINITION OF TRUST
Creation of a trust, particularly relating to an immovable property is also a specie of transfer of property. Trust is defined in section 3 of the Trust Act, 1882 as ” an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another or of another and the owner. In simple words it is a transfer of property by the owner to another for the benefit of a third person alongwith or without himself or a declaration by the owner, to hold the property not for himself and another.
AS PER SECTION 3 OF INDIAN TRUST ACT 1882
“A Trust is an obligation annexed to the ownership of the property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner”
HOW TO CREATE/ FORM A TRUST IN INDIA
Trusts are created when the settlor of the property transfers property or provides benefits for the welfare of beneficiaries or for the usage of public purposes.
A trust is a legal document. The rules governing a trust are similar between the states but each state has one or two twists to the rule. As such, you should speak to an attorney if you are interested in establishing one.
Generally speaking, a trust involves three types of parties — the settlor, the trustee, and the beneficiary. The settlor is the person who establishes the trust including determining the original trustee and the beneficiaries, what property is in the trust, and what rules govern the duties of the trustee. The trustee is the person (or persons or company) that manages the trust. The beneficiaries are the people who receive the income (or property) or property from the trust.
Beneficiaries fall into two categories. The first category is income beneficiaries — these are the people who receive the annual income earned by the trust. Depending on the wishes of the settlor that income can be for a certain period of time or for the life of the beneficiary. The second category are the principal (or residual) beneficiaries. These are the people who receive the remaining assets of the trust when it is dissolved (typically by the ending of the last income beneficiary whether through death or the end of the term of years).
It is possible for the settlor to also be a trustee and one of the beneficiaries but not the sole beneficiary.
FOUR ESSENTIAL CONDITIONS ARE NECESSARY TO BRING INTO BEING A VALID TRUST.
- The person who creates a trust (settlor) should make an unequivocal declaration binding on him.
- He must transfer an identifiable property under irrevocable arrangement and totally divest himself of the ownership and the beneficial enjoyment of the income from the property .
- The objects of the trust must be defined and specified.
- The beneficiaries are specified.
WHO CAN CREATE A TRUST
A trustee can be any person that is, an individual or a corporate body or a corporate sole, capable of holding property and competent to contract. and he must accept the trust.
- Trust by an Hindu Undivided Family;
- Trust by a Minor;
- Trust by a Woman;
- Association of Persons;
- Company(eg: Debenture-Redemption FUND Trust for redemption of its debentures);
A Trust can be created by any person competent to contract or even by a manner with the authority of a competent court and respect of any property which is transferable and over which the author of the trust has dispossessing power.
CREATION OF TRUST
A trust of immoveable property can be created by two ways. One by a non-testamentary document and another by a testamentary document such as a will. In other words, a trust regarding a immoveable property cannot be created orally but it must be by a document duly registered. A trust of a moveable property can be created either by a document or delivering the property to the trustee with necessary oral directions. If the directions are given in writing it would amount to a trust by a non-testamentary document which may or may not be registered.
A person who creates a trust is called the settlor, the person to whom the the property is transferred on trust is called a trustee and the person for whose benefit the property is transferred is called the beneficiary or “cestuique trust” .
TRUST, PRIVATE AND PUBLIC
A Trust may be Private and Public.
When the purpose of the trust is to benefit an individual or a group of individuals or his or their descendants for any legal person and who is capable of holding property, it is a private trust.
When the purpose of the trust is to the benefit the public or any section of the public, it is public trust.
FEATURES OF TRUST
Trust’s assets can be used to meet its debts, but if it is incorporated and trustees have acted responsibly, they are unlikely to be personally liable;
Trustees are generally not accountable in specific ways unless the deed specifically set these out;
it can be legally wound up at any time, unless a specific term for its existence has been stipulated in the trust deed (more common in private Trusts);
it needs to be registered separately with the IRD to be exempt from payment of tax.
HOW TO FORM A CHARITABLE TRUST?
A public charitable or religious institution can be formed either as a Trust or as a Society or as a Company registered u/s 25 of the Companies Act.
It generally takes the form of a trust when it is formed primarily by one or more persons.
To form a Society at least seven persons are required. Institutions engaged in promotion of art, culture, commerce etc. are often registered as non-profit companies.
These forms are enumerated as under :
- Charitable Trust settled by a settlor by a Trust Deed or under a Will.
- Charitable or religious institution / association can be formed as a society.
- Charitable institution can be formed by registering as a company u/s. 25 of the Companies Act, 1956, as non profit company (without addition to their name, the word “Limited” or “Private Limited”).
REQUIREMENTS OF A TRUST
A trust is not a contract of agency to hold the property, as in that case there would be no transfer of the property. In trust there is a transfer from the owner to the trustee subject to certain terms and conditions. Bailment is also a kind of trust, but in bailment also there is no transfer of any interest in the property, but only a transfer of possession without ownership. Thereof, a trust is essentially a transfer of property by one to the other to be held by the other for the benefit of some person or for carrying out some object. It is no also a sale because a sale cannot be conditional and in sale there is consideration which is absent in a trust. The purpose of a trust must be lawful, that is,
- It should not be forbidden by law.
- It should not be of such nature that, if permitted it could defeat the provisions of any law.
- It should not be fraudulent.
- It should not involve or imply injury to the person or property of another or It should not be such as would be regarded by a court as immoral or opposed to the public policy.
- Where a trust is created for two purposes one of which is lawful and the other is not and the two purposes cannot be separated, the whole trust is void.
LIST OF DOCUMENTS REQUIRED TO REGISTER A CHARITABLE TRUST
- Original Trust Deed or a certified copy.
- Application for Incorporation of Trustees as a Board The application must be signed by the majority of trustees.
- Statutory Declaration. The statutory declaration states: whether any Trustees hold any property as trustees for other trusts; that at a meeting of the Trust a resolution was passed approving incorporation; and that the person making the Declaration has been approved by the Trustees to make it.
- You also need to provide the Companies Office with a registered office. Your registered address must be a street address. A postal address may be provided in addition to this.
DEED OF TRUST
A trust relating relating to an immoveable property is required to be created by a document and such document must state and contain five essential things with reasonable certainty namely :
- The intention on the part of the author of the trust or settlor to create a trust.
- The purpose of the trust.
- The beneficiary.
- The trust property, and transfer of the property to the trustee.
DECLARATION OF TRUST
A trust can also be created by the author himself declaring that he would hold the property, not as owner, but as a trustee for the benefit of some person or persons including himself and in that case the transfer of property is not necessary as one need not transfer his property but in such a case the declaration of trust is by the owner and he alone should be the trustee. Such a declaration would, however, require registration under the Registration Act.
TESTAMENTARY TRUST
A trust can also be created by a testamentary document that is by Will and the same conditions as mentioned in Section 6 of the Trust Act are required to be fulfilled. such a Will also does not require registration
- A trust is also created :
- By application of employed trust or
- As a constructive trust or as derivative trust.
- But they are created by fiction by of law and cannot be subject matter of conveyancing
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact: info@caindelhiindia.com or call at 011-233 433 33.
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