Understanding Trust

They are Two Type of Trust:

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

  • Three Parties: Author of Trust, Trustee and the beneficiary.
  • Subject matter of the trust
  • Objects of the Trust
  • Trusts Deed

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.

  • The name(s) of the author(s)/settlor(s) of the trust.
  • The name(s) of the trustee(s).
  • The name(s) if any, of the beneficiary/ies or whether it shall be the public at large. 1/17/14 Understanding Trust | Company formation mumbai
  • The name by which the trust shall be known.
  • The name where its principal and/or other offices shall be situated.
  • The property that shall devolve upon the trustee(s) under the trust for the benefit of the beneficiary/ies.
  • An intention to divest the trust property upon the trustee(s).
  • The objects of the trust.
  • The procedure for appointment, removal or replacement of a trustee, their rights, duties and powers etc.
  • The rights and duties of the beneficiary/ies.
  • The mode and method of determination of the trust.

Formation Procedure:
A Trust may be declared either by will or by a non-testamentary instrument called as Trust Deed. A Trust inrelation to immovable property can be created also by transfer of ownership of that property to the trustee. A Trust can be created by any of the following methods:

  • By Trust Deed
  • By Will
  • By Transfer of Ownership

By Trust Deed:
A trust declared inter vivos or by the acts of the parties is to be supported and evidenced by a non testamentaryinstrument in writing and signed by the author of the trust and the trustee (i.e trust deed). There is no prescribedform of a trust Deed. Any words which indicate the intention of the author that the property of which he is thelegal owner, shall beneficially be another as is sufficient. A trust in relation to an immoveable property must besupported by a trust deed, unless it is declared by a will, and must be registered.

A trust declared by a non testamentary instrument comes into effect from the date specified in the instrument orthe date of its execution, where the date is not specified.

Necessity of Trust Deed:
A trust can be created orally but in such cases it is necessary to prove that there was either an expressdeclaration as to the trust or that there is evidence of language or expressions used by or facts and conduct of theowner of the property to indicate with reasonable certainty that trust was created. In order to remove ambiguityand disputes, it is always advisable to create a trust by a written trust deed.

Registration of Trust Deed:
As Trust deed is non mandatory requirement, the registration so is not statutorily required but it is alwaysdesired. A registered trust deed has the following advantage

A registered trust deed is an official document enforceable by law.

A registered deed effectuates transmutation of possession. The registration of trust deed, in the absenceof an intention to the contrary, is enough to convey the title to the trust property to the trustee even if thetrust deed is not delivered to the trustee.

A conveyance of the trust property to the trustee, under a registered deed is generally, not open to 1/17/14 Understanding Trust | Company formation Mumbai challenge, except where there is no intention to act upon the deed.

By Will:
A person may declare his intention to create a trust in respect of his property or any part thereof by way of awill. A will according to the Indian Succession Act must be in writing and signed thereof by all testators inpresence of two witnesses. A trust declared under will, shall came into existence

By Transfer of Ownership:
A trust in relation to moveable property can be formed also by mere of ownership of the property or the trusteewith a direction that the property be held under trust for the benefit of the beneficiary. The ownership of amoveable property can be transferred by physical act of handing over the possession of the property.

In case where the author himself is the trustee, transfer of possession is neither necessary nor possible and meredeclaration of the author that he holds the property under trust would be sufficient to constitute a trust.

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