A trust refers to the fiduciary relationship wherein an individual, termed the trustor or settlor, confers the title of their property or assets upon another person, known as the trustee, for the benefit of a third party, referred to as the beneficiary. This arrangement ensures legal protection for the author’s property. Trusts are established through a trust deed or instrument and must always serve a lawful purpose.
Two distinct categories of trusts exist i.e. public and private trusts. The primary points of difference between public trust and private trusts is in their nature and scope. The creating of a trust, whether public or private, involves a careful legal framework that safeguards the interests of all involved parties. In this blog, we see the main point of difference between public and private trust.
What is Trust Registration?
Before going into the difference between public trust and private trusts, let us understand what is trust registration. A trust, as given in section 3 of the Indian Trusts Registration Act, 1882, is a legal obligation intricately linked to the possession of assets, arising from a trust instilled in and acknowledged by the proprietor or explicitly declared and accepted by the proprietor.
This obligation is established for the advantage of either a specified individual or entities, including both another individual and the proprietor himself. Essentially, it involves the conveyance of property from one party, denoted as the Settlor, to another, referred to as the “trustee,” who assumes the responsibility of managing said property for the well-being of a designated beneficiary or beneficiaries.
A main point is that the Settlor must officially and legally relinquish ownership of the assets in question to the trustee of the Trust. In the legal regulations of India, the trust structure emerges as the second most prevalent modality of registration, providing a framework wherein property is effectively administered for the ultimate benefit of identified individuals or entities.
Parties in a Trust
The parties in a trust are:
| Role | Description |
| Author/Settlor/Trustor/Donor | The individual who wants to pass his property and places his confidence in someone for the formation of the trust. |
| Trustee | The person who accepts the confidence to produce the trust. |
| Beneficiary | Who will benefit from this trust in the future. |
Understanding Public Trust
Public trust is established for the larger community or the general public, serving a specific purpose. It caters to the needs and welfare of the broader populace.
Types of Public Trust
A private trust is categorised into two types: charitable public trust and religious public trust. The charitable public trust is been created for benevolent causes, and the religious public trust is instituted for religious purposes only. It is also possible to have a public trust that combines both charitable and religious objectives.
Understanding Private Trusts
Before going into the difference between public trust and Private Trusts, it is essential to comprehend the concept of a private trust.
Definition of Private Trust
A private trust is established for the exclusive benefits of one or more individuals, and its enforceability lies with designated third parties known as beneficiaries. The specific of private trust deeds explicitly state the identified beneficiaries and ensure that the designated property serves the intented purpose, extending benefits solely to those individuals enumerated in the deed.
Types of Private Trust
Private trusts fall into two most important types: revocable trusts and irrevocable trusts.
1. Revocable Trusts
Revocable trusts supply to the person creating the trust, called the trustor, with the power to exchange the terms or stop the trust after it’s set up.
2. Irrevocable Trusts
Irrevocable trusts can be splitted into types: Irrevocable Non-discretionary Trusts and Irrevocable Discretionary Trusts.
Irrevocable Non-discretionary Trusts: In this type, the trustor maintains complete control over the trust rules.
Irrevocable Discretionary Trusts: On the other side, in an irrevocable discretionary trust, the trustee has the authority to include or exclude beneficiaries as wished.
Difference Between Public Trust and Private Trust
Given below are the main point of difference between private trust and public trust :
| Aspect | Public Trust | Private Trust |
| Legislative Governance | Governed by laws enacted by the state where established. | Governed by the Indian Trust Act, 1882. |
| Beneficiaries | Uncertain, many, and not specifically known. | Known and specific beneficiaries, generally relatives, friends, or family of the trustor. |
| Trusteeship | Managed by a board of trustees. | Administered by a limited number of appointed or managing trustees. |
| Duration and Preference | Generally more permanent and given preference over private trusts. | Generally of a more temporary nature. |
| Registration Requirements | Mandatory registration for immovable property; desirable for movable property for tax exemptions. | Registration is not needed, even for immovable property. |
| Types of Trusts | Charitable and Religious. | Revocable, Irrevocable Discretionary, and Irrevocable Non-discretionary. |
| Distribution of Assets After Death | Assets do not automatically pass to other entities; dependent on legal documents like wills. | Assets pass to heirs in the absence of a will. |
| Purpose and Scope | Created for the benefit of the public as a whole. | Established for the benefit of private individuals. |
| Transparency and Inspection | Open for inspection; anyone can scrutinise the management and purpose. | Norms are private; only beneficiaries, lawyers, and the trustor have access. |
Final Thoughts
The difference between public trust and private trusts are vital in shaping their legal frameworks and operational functions. While public trusts, governed by state laws, are for uncertain and no. of beneficiaries with transparency and permanence; private trusts, regulated by the Indian Trust Act, have known beneficiaries, specific trustees, and a more private nature.
The duration, registration requirements, and distribution of assets after death further delineate the distinct functions and purposes of these trusts. Understanding the difference between private and public trust is essential for individuals to know complexities of trust establishment and management, ensuring alignment with their intended goals and legal obligations.
FAQs
What makes a private trust distinct from a public trust?
Whereas public trusts offer uncertain and many beneficiaries with honesty and permanence, private trusts are defined by the Indian Trust Act and have known beneficiaries, particular trustees, and are more private.
Is a private trust an NGO?
In India a Voluntary Organization/Non Governmental Organization could be registered as Trusts, Societies or a private limited nonprofit Company under section-25 of the Indian Companies Act, 1956.
Is private trust taxable?
In case the trust income includes and includes earnings and gains of business, income tax is due by the trustee on the total earnings at the top marginal rate.
What are the benefits from public trust?
A public trust is a trust for individuals that are beneficiaries and also that does charity work like offering aid to the poor, funding health and education services, along with other services to members of society.
