Under law, a trust is a structured agreement where the proprietor transfers assets to another party i.e., the trustee for the benefit of a designated group known as beneficiaries. Essential to this establishment is the acquisition of a trust deed by the involved parties, the trustor and the trustee. This document serves as a regulatory guide, defining the boundaries of authority bestowed upon the trustee responsible for overseeing the assets entrusted by the settlor. In this blog, we shall see the advantages of trust registration in India.
Understanding Trust Formation
Setting up a trust is a straightforward process that requires only two individuals to establish its foundation. The key steps involve preparing a trust deed on a non-judicial stamp paper. Following this, the individuals must seek legal authorisation from the relevant authorities, such as the charities commissioner in Gujarat and Maharashtra or the registrar in other states.
Role of Trust Deed and Legal Authorisation
The trust deed, a crucial document, encompasses essential details, including the trust’s objectives, aims, and the roles and responsibilities of its active members. Legal authorisation is obtained through the Charitable Trust Registration process, which adheres to guidelines outlined in the Trust Act. Trust deed registration is a mandatory step for the establishment of every charitable trust.
As of now, there are over seven hundred thousand legally registered NGOs operating in the country. However, a significant number of them lack official seals. The trustees must rely on the trust deed for cross-referencing actions within the trust, emphasising the importance of trust registration as a vital advantage.
Advantages of Trust Registration in India
The major advantages of trust registration in India include:
Autonomous Control in Trust Management
One of the major advantages of trust registration in India is that in the context of trust registration in India, the trustor and the trustee play distinct roles in managing the trust. The trustee is required to maintain autonomy and exercise accurate control over the trust’s assets or properties. Legal validity of a trust is compromised if settlors attempt to control trust activities beyond the terms specified in the trust deed.
Benefits for Heirs and Successors
Charitable trusts in India are often established by individuals seeking engagement in charitable activities while also securing benefits for their heirs and successors. Additionally, trusts may be set up to avail tax exemptions, with non-profit organisations serving as examples. However, these advantages of trust registration in India are only accessible when the charitable trust acts as a legal entity, highlighting the primary advantage of trust registration.
Legal Roadmap for Charitable Entities
Both the Central and State Law Departments in India have established a legal roadmap to guide charitable entities and individuals. This process is designed to assist help seekers, especially donors, in transferring their assets to trusts for additional tax benefits. The legal framework aids in saving substantial amounts of money that can be transferred to legal heirs and emerges as one of the major advantages of trust registration in India.
Long-Term Taxation Benefits
One of the key advantages of trust registration in India lies in the long-term taxation benefits it offers. Donors can benefit from continual donations to reputable trust organisations. To facilitate this, individuals need to acquire essential information about setting up a new trust, with both state and federal authorities providing legal frameworks. The Trust Act of 1882 is a specific law established to encourage and regulate the registration process.
Statutory Rights in Charitable Trusts
The authority granting charitable trust registration typically exercises statutory rights and common regulations to enforce compliance among charitable trusts. It’s crucial to note that nearly all charitable NGOs are required to register under the relevant authorities to ensure legal standing and adherence to regulations and to avail the other advantages of registration in India.
Key Points Regarding Trust Registration
Some important points regarding trust registration are mentioned below:
1. Compliance and Regulations for Trustees
Trustees are obligated to exercise their powers in accordance with the regulations outlined in the relevant law. Violation of the trust deed by trustees is strictly prohibited under any circumstances.
2. Priority of Beneficiary and Settlor Interests
Trustees are bound to prioritise the interests of beneficiaries and the settlor, ensuring that their actions do not conflict with the best interests of these parties.
3. Prohibition of Regulations Improvisation
Trustees are not allowed to improvise regulations that compromise the integrity of the trust fund. Such actions are strictly prohibited, even in the absence of remuneration for the trustees.
4. Compensation for Violations
Trustees are liable to compensate for any violation of regulations associated with the trust. This may extend to investigations into the activities of the company in which the trustee holds a prominent position.
5. Stability of Private and Public Trusts
Private trusts are noted to be comparatively less stable than public trusts. Public charitable trusts possess a legal status, while most private trusts operate autonomously without legal obligations. Notably, in the transfer of immovable properties, a private trust loses its status as an independent entity due to legal interference.
6. Limited Scope for Amalgamation/Merger in Private Trusts
Private trusts have a restricted scope for amalgamation or merger, whereas public charitable trusts can merge with other trusts sharing similar goals. Public trusts thus have greater flexibility in terms of consolidation.
Final Thoughts
There are many major advantages of trust registration in India. The autonomy granted to trustees ensures efficient management, while prioritising the interests of beneficiaries and settlors. Legal frameworks provide a clear roadmap, guiding charitable entities and donors, promoting transparency. The long-term taxation benefits encourage sustained philanthropy, fostering a culture of giving. Additionally, the legal status conferred upon public charitable trusts enhances stability and credibility. Private trusts, though autonomous, face limitations, especially in the transfer of immovable properties. Despite these distinctions, both private and public trusts play vital roles, contributing to social welfare and community development through structured and regulated avenues.
