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All about Indian Trust Act
Any person can create a trust in India. The trust in general is an arrangement where the owner of the asset/property entrusts such asset/property in the Trust for the benefit of another person. The rules governing the trust in India are handled under the Indian Trust Act, 1882. The provisions of the Act are not applicable to public or private religious or charitable trusts and endowments and also to Mohamaden laws or the relations of the members of an undivided family as determined by any customary or personal laws.
Parties to a Trust
- Settlor/author of the trust: Owner of the asset/property. A settlor vests the property in the trust and conveys legal titles to the trustees.
- Trustee: A trustee is a person appointed under a trust to administer the trust property. A trustee should be capable of holding property and should be competent to contract. There can be more than one trustee in a single trust. A company, being an artificial person can also be a trustee. The trustees hold the legal title to the trust assets and manage the property. It should also be noted that the ultimate decision with respect to any trust matter remains with the trustee only or in some cases with the settlor depending upon the structure of the trust.
- Beneficiaries: Persons for whose benefit the trust is created.
- Protector / Trust Advisor: A person who guides the trustee in the administration of the trust. The recommendations of the protector or the trust advisor are advisory in nature and are not binding on the trustee.
Based on the beneficiaries involved a trust can be classified into two types:
a. Public Trust, and
b. Private Trust
Public Trust is typically opted for religious and charitable purposes, whereas, a Private trust is created for the benefit of small group of people such as family members, employees of business etc. Private trusts are also considered as another type of succession planning apart from Will, for transferring their wealth to the beneficiaries.
Benefits of Trust
- Unlike Will, wherein the assets are only passed to the beneficiaries after the death of the person, when it comes to private trusts the assets can be passed on to the beneficiaries either during the lifetime or after the death of the settlor.
- A trust comes into effect soon after its execution allowing the settlor of the trust to identify and rectify any issues with respect to the management and administration of the assets, thereby providing the settlor with a detailed understanding of how their assets will be managed in their absence. But in the case of Will, since it comes into effect only after the death of the person, it leaves no scope for modification.
- In the event of a dispute, a trust lets the settlor to express and state his/her intentions whereas in a Will, the testator will not be present to justify their intentions thereby reducing the probability of disputes.
- The management and control of the trust is done as per the trust deed for the benefit of the beneficiary.
A trust can be created by a person in respect of any property that they own and has full rights over. It can be established either through an executed trust deed or by way of testamentary document i.e., Will. A trust involving an immovable property will be valid only if the trust deed is made in writing and is registered.
However, the registration is not mandatory if such a trust is created under a Will and if the trust involving settlement is for moveable property only. Though it is statutory and not necessary, the registration of the trust is highly recommended as it can be used as evidence. The registered trust deed can be produced whenever required as lawful evidence of the trust and title to the property, and the registration also helps in effectuating the transfer of ownership of the property.
