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Understanding Trust

What Is Understanding Trust?

A Trust is formed when a trustee holds the assets and runs the business, distributes incomes to beneficiaries, and follows the provisions in the trust deed. Consider a Trust if more than one family is involved in running the business.

Understanding Trust:

For Formation of trust it is necessary to understand the following elements essential to form a trust:

Three Parties :

Author, Trustee and beneficiary are essential to form a trust. There should be person to repose or declareconfidence, known as author of the trust. Another person should accept the confidence as reposed in him by theauthor, called the trustee. When the author declares and accepts the confidence himself he becomes a trusteealso. The person creating the trust should of age 18 or above and sound mind, for the purpose of eligible for creatingthe trust. Beside the trust and trustee there should be third person for whose benefit the confidence is reposed by theauthor and accepted by the trustee, called as beneficiary. In some cases the author of the trust may himself be thebeneficiary.

Subject Matter:

The subject matter of the trust is the property in respect of which the trust has been created. For creating a validtrust, the subject matter should be defined with certainty and such property should be capable of disposition. Theword property is very wide and includes any property which a person can in law transfer or assign or disposes of inter vivos or under a will except for any rights or interests which are purely of personal nature.


The Trust must be formed for charitable purpose. Charitable purpose have been defined to include relief ofpoverty, advancement of education, advancement of religion and other purpose beneficial to the community notfailing under any of these preceding heads.A charitable trust in order to be charity in the legal sense, will have to be for purpose of a public nature in otherwords for the benefit of the community or some part of it. When the beneficiaries of a trust constitute generalpublic or a section of public, as distinguished from private individuals and when the trust is meant to perform apublic charity, it is public charitable trust.

Trust Deed:

The instrument by which trust is created is called as Trust Deed. Although it is not mandatory for trusts to enterinto such deed agreement, as trusts can be formed even by oral communication except in case of private trust inrelation of immoveable property which is required to be created by a non - testamentary instrument in writing.No written agreement is compulsory required for the formation of trust but the same is needed to get the trustregistered under the Income Tax Act for availing the exemptions and more over a deed is a prima facie evidenceof the existence of a trust.

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Understanding Trust

Understanding Trust

Author of Trust, Trustee and the beneficiary.

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