Oct 5, 2017
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Indian Trust Act

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Indian Trust Act

The Indian Trust Act article below helps to easily understand the basic concepts regarding the creation of a private Trusts in India under the Indian Trust Act, 1882 only (Amendment 2016).

The Indian Trust Act, 1882 is applicable only to the creation of private trust.

Referring to the Official Act that governs all private trusts in India, with respect to its creation, types of trust, parties to a trust and the dissolution of trusts.

1. Why is a trust created?

When one person (settlor/trustor) places his trust (confidence) in another person (trustee) as regards to his money and property, for the benefit of a third person (beneficiary), it leads to the creation of a trust.

A trust is mainly created because it helps the author to manage his property and nominate his property for the benefit of a third person in comparison to creating a Will, as it does not require probate and hence there is no delay in legal consent.

Other reasons being;

  • Charitable and/or religious sentiments of settler of the trust, ensuring public benefit.
  • Claiming Income tax exemption under section 10 or 11, applied to income from charitable or religious purposes.
  • For the welfare of family members and/or other relatives dependent on the settler of the trust;
  • Proper management and preservation of property;
  • Moreover, for regulating the affairs of a provident fund,superannuation fund or gratuity fund or any other fund constituted for the welfare of employees.

2.Parties to a trust?

i.Who is a settlor/trustor/author of the trust?

 Person who transfers his property or money towards the creation of a trust. create a trust.

ii.Who can be appointed as a trustee?

A person competent to contract upon whom the settlor has transferred his property but such person does not include a minor, insane or insolvent person.

A trustee has the right to reject the trusteeship but if the trustee accepts the trusteeship, he assumes all rights, duties and liabilities of a trustee.

iii.Who is the beneficiary of a trust?

The person who will benefit from the trust in near future known as the beneficiary of the trust, which means every person who can hold property, and also includes a company, corporation and even an unborn person.

A beneficiary has the rights to receive rent and profits of the trust as mentioned in the instrument/deed, file for execution of trust in absence of death of trustee and no subordinate trustee being appointed.

Additionally, a beneficiary can also compel a trustee to do or not to do a particular act in order to prevent breach of trust.

3.What is trust property?

“Trust property or trust money” means any property, document, or money transferred in the hands of the trustee for the use of the beneficiary.

Property here also includes assets like machinery, shares, debentures etc.

4. Meaning of a lawful trust?

According to Section 4 of the Indian Trust Act, 1882, a lawful trust is one that is:

i) Permitted by law,

ii) Does not defeat the provisions of any law,

iii) Is not fraudulent,

iv) Additionally, it should not involve or imply injury to the person or property of another, or,

v) The court does not regard it as immoral or opposed to public policy.

5.Who can create a trust?

According to Section. 7 of the Indian Trust Act, 1882:

(a) Any person who is competent to contract, which also goes to include HUF, a woman, association of persons.

(b) Any person on behalf of a minor, seeking permission of the highest civil court of original jurisdiction,

However, it also depends on the law presently being force in accordance to the circumstances and extent to which the trustor disposes of his property.

6.Types of Trust?

The reason of creating a trust is very important to know what types of trust to create, whether private or public trust. If private trust then, whether revocable or irrevocable and the type of trust registration.

7.How does a trust end?

According to Section.77 of the Indian Trust Act, 1882, a trust comes to an end:

a) Its purpose has been achieved,

b) Due to some reason it has become unlawful or,

c) Its purpose cannot be fulfilled due destruction of the property or otherwise or,

d) When revoked/cancelled by trustor.

Article Categories:
Wills And Trust

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