Trusts, be they Public or Private, are made to provide a legal shield for the assets entrusted by the Trustor. The primary goal of a Trust, regardless of its public or private nature, is to guarantee that the assets find their way to the intended beneficiaries according to the Trustor’s desires. As contemporary life unfolds with conflicts bubbling up among family members, relatives, and friends over property distribution, establishing a Private Trust becomes not just a choice but a necessity. In this blog, we shall learn about Private Trust Registration in India with the benefits that come with it.
Understanding Trust According to the Indian Trusts Act, 1882
In accordance with Section 8 of the Indian Trusts Act, 1882, the term “Trust” is defined as a legal instrument employed to protect the interests of the Settlor, as well as the welfare of beneficiaries, particularly minors and individuals incapable of safeguarding their own interests.
Key Elements of Trust
A trust consists of four fundamental elements:
1. Settlor: The individual responsible for establishing the Trust.
2. Trustee: The person entrusted with holding the property for the benefit of another.
3. Beneficiary: The recipient who receives assistance from the Trust.
4. Trust Property: The property involved in the trust transaction.
Understanding Private Trust Registration in India
A private trust in India is created with the primary objective of benefiting one or more individuals who are either already identified or can be definitively ascertained within a specified timeframe.
Purpose and Beneficiaries of Private Trusts
Private trusts are typically established for:
- Family Members
- Relatives
- Friends, etc.
Registering a private trust in India provides the transaction with a legal foundation. This ensures that the funds are utilized exclusively for the benefit of the designated family members and in accordance with the preferences outlined by the trustee.
Establishment of Private Trusts in India
Established and regulated under the Indian Trusts Act of 1882, a private trust registration in India serves the purpose of managing specific trust properties for either private or public goals. It’s crucial to understand that a private trust doesn’t reap the perks and tax advantages accessible to public trusts. In private trusts, the beneficiaries usually consist of individuals, relatives, or families.
Characteristics of Private Trusts
In private trusts:
- The creator/author, trustee, and beneficiaries can be readily identified.
- The private trust serves as the original and straightforward form of trust arrangement.
Benefits of Establishing Private Trust Registration in India
The establishment of private trust registration in India offers several advantages:
1. Systematic Well-being:
Allows the settler to fulfil responsibilities for the well-being of family, relatives, and friends in a systematic and controlled manner.
2. Efficient Asset Management:
Provides an effective means of managing and passing on family assets, ensuring a structured approach to asset distribution and preservation.
3. Interest Safeguarding:
Enables the creation of a private trust to safeguard the interests of family members and relatives, ensuring their financial and other concerns are addressed.
4. Conflict Avoidance:
Helps in avoiding potential family conflicts by clearly defining the terms of asset distribution and management, reducing the likelihood of disputes.
5. Wish Fulfilment:
Facilitates the attainment and fulfilment of the author’s wishes regarding the handling and distribution of assets, providing a legal framework for executing their intentions.
Purposes of Private Trust Registration in India
Private trusts can be instituted with the intent of fulfilling one or more of the following objectives:
1. Welfare of Family Members and Dependents:
Private trusts are often created to ensure the well-being of family members and dependents who rely on the settlor. This involves providing financial support, care, and assistance as outlined in the trust.
2. Exemption under the Income Tax Act, 1961:
Establishing a private trust may serve the purpose of claiming exemptions under the Income Tax Act of 1961. This strategic financial planning can lead to tax benefits for the trust and its beneficiaries.
3. Management and Protection of Property:
Private trusts are formed for the efficient management and protection of property owned by the trust.
Required Documents for Private Trust Registration in India
To facilitate the registration of a private trust in India, the following documents are necessary:
1. Author’s Documents:
Identification and address proof of the author.
Passport-size photograph of the author.
2. Trustees’ Documents:
- Identification and address proof of two trustees.
- Passport-size photograph of each trustee.
3. Witnesses’ Documents:
- Identification and address proof of two witnesses.
- Passport-size photograph of each witness.
4. Non-Testamentary Instrument:
The non-testamentary instrument must be signed by the author.
5. Trustees’ Particulars:
Details of all trustees, including their identification and address proof.
6. Registration Certificate:
Verified original copies of the registration certificate.
7. Income Tax Registration Certificate:
Photocopy of the income tax registration certificate.
8. Trust Deed:
Original copy of the trust deed.
Ensuring the submission of these documents is essential to complete the private trust registration process in India.
Types of Private Trust Registration in India
Private trust registration in India is classified into three main types:
1. Revocable Trust:
An alternative to a will, a revocable trust does not provide protection for assets, as they can be withdrawn from the trust. In this type of trust, assets are not considered given away, and they are taxed in the hands of the settlor at the applicable slab rate.
2. Irrevocable Non-Discretionary Trust:
Assets cannot be withdrawn from an irrevocable non-discretionary trust. The settlor retains complete control over trust norms, determining which beneficiary secures which asset and in what ratio. If the settlor is the primary beneficiary, they are taxed at the slab rate. Such trusts may be established to support disabled children and ensure their proper care.
3. Irrevocable Discretionary Trust:
In an irrevocable discretionary trust, the settlor allows the trustee to decide the proportion and share of respective beneficiaries. The settlor only determines the beneficiaries, and the beneficial interest in the trust is not predetermined for identified beneficiaries.
A well-prepared discretionary trust grants the trustee flexibility to add or exclude beneficiaries, providing adaptability to changing circumstances. Beneficiaries cannot compel the trustee to utilize any property registered under the trust for their benefit. Discretionary trusts are more prevalent than non-discretionary trusts, with many family trusts adopting this structure for greater flexibility.
Final Thoughts
Private trust registration in India offers a structured legal framework for individuals seeking to manage and distribute assets for the benefit of family, relatives, or specific beneficiaries. The three distinct types of trusts, revocable, irrevocable non-discretionary, and irrevocable discretionary, provide varying degrees of control and flexibility for settlors. Beyond facilitating the fulfilment of the settlor’s wishes and efficient asset management, private trusts contribute to conflict avoidance and the safeguarding of family interests. The registration process, requiring essential documents, ensures compliance with legal norms. Overall, private trust registration stands as a valuable tool for those aiming to secure the well-being of their loved ones while directing the complexities of asset distribution and management.
