Updated on: Oct 17th, 2023
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10 min read
Anyone can create a trust in India. The Indian Trust Act, 1882 ('Act') governs the private trusts established in India. This Act is applicable to the whole of India. But, it does not apply to the Waqf, mutual relations of the members of an undivided family determined by any customary or personal law and religious or charitable endowments. Public Trusts in India are usually governed by state-specific legislation, such as The Maharashtra Public Trust Act, 1950.
Let’s understand the concept of trust with the help of an example:
Mr X wants to pass his bungalow (property) to Mr Y for the benefit of his minor granddaughter. Mr X passes his property to Mr Y, because he reposes (has) confidence on Mr Y. This is nothing but the essence of a trust.
In simple words, a trust is nothing but a transfer of property by the owner (Mr X) to another person in whom the owner has confidence (Mr Y) for the benefit of a third person (Granddaughter of X).
The property doesn’t just mean real estate. It could be cash, shares or any other valuable asset. Further, the instrument by which this entire trust is declared/created is called “the instrument of trust” or the “trust deed”.
The main objective is that the trust should be created for a lawful purpose. For example, if Mr X had stolen money from a bank and given it to Mr Y with the intention of giving the money to poor children then, in this case the trust itself is void as the very main purpose is unlawful.
So how do we actually understand as to whether the purpose is lawful or unlawful? The answer to it lies in Section 4 of the Act. As per Section 4, all purposes are said to be lawful unless it:
A trust may be created by:
Further, it also depends on the law in force that is prevailing at that particular point of time and the extent to which the author of the trust may intend to dispose of his property.
Section 5 of the Act states that with respect to:
From the purpose of income tax, private trusts can be categorized into two types.
Note 1:
Note 2:
In general, trusts can be established to fulfil either or more of the following purposes:
Any person capable of managing property can be appointed as a trustee. However, a person is not obliged to accept responsibility as a trustee. He/she must declare his/her purpose in words and deeds since it is the duty of the trustee to achieve the purpose of the fund.
Yes. A trust can be established for various purposes including, providing medical assistance to the author or providing for the welfare of the child, and so on. However, the Indian Trusts Act, 1882, states that a trust cannot be created for any unlawful purposes.
A trust deed has many clauses such as a name clause, registered office clause, duties and liabilities of a trustee and other rules and regulations.
The requirements to register a trust deed are as follows:
The following are the advantages of establishing a trust:
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The Indian Trust Act, 1882 governs private trusts in India. Trusts can be created for various lawful purposes and involve parties like the author, trustee, and beneficiary. The Act stipulates requirements for registration and taxation of private trusts. Trusts can be public or private, and individuals competent to enter into contracts can create them. Trust deeds outline important clauses and must fulfill specific requirements for registration.