Trust is a type of NGO recognized under the Indian Trusts Act,1882. All the activities regarding trust registration have been governed and regulated by this legislation. It is a very old legislation that developed through the time. Trusts are nonprofit organizations that generally work for the benefit of beneficiaries. In a trust, there are three parties: trustee, trustee, and beneficiary. Trust registration is a complex process as it needs judicial approval for its registration. Hence it is always suggested to take the advice of experts while doing Trust Registration. Purpose and creation of a trust both are given under the Indian Trust Act. The current blog will discuss both the purpose and creation of a trust in detail.
Meaning of a Trust
Under Section 3 of India Trusts Act, 1882 definition of trust has been mentioned. As per this section, trust is an obligation attached to the ownership of property that can be movable or immovable. Trust arises out of a confidence accepted by the owner of the property, or declared and accepted by him, for the benefit of another, who is known as the beneficiary. In a trust there are a total of three parties, the author of the trust, the trustee, and the beneficiary. The author with respect to the trust is the person who declares or reposes the confidence. On the other hand, one who accepts the confidence is called the “trustee” of the trust. An individual for whose benefit the confidence is accepted by the trustee is called the “beneficiary”. There are certain technical words described under the Trust Act that are given below:
- “Trust-property” or “trust-money” which means subject matter of the trust
- “Beneficial interest” or “interest” is the right of the beneficiary against the trustee
- “Instrument of trust” is that document by which the trust is declared to be a trust
Governing Law Regarding Trust Registration
The Indian Trusts Act, 1882 governs everything regarding trust like establishment, operation, termination, and purpose and creation of a trust in India. It applies to both domestic as well as foreign trusts. It provides guidelines and regulations for domestic and foreign trust formation. The purpose and creation of a trust can be for various things which include but are not limited to estate planning, charitable endeavors, and business management. The Indian Trusts Act of 1882 also highlights the key responsibilities and powers of trustees. Protection of trustees from personal liability and the entitlements of beneficiaries has been given under the same legislation.
Purpose and Creation of a Trust in India
Chapter 2 of the Trust Act talks about the creation of trust. In the same chapter provision regarding purpose is also given. In this chapter, there are a total of 7 sections out of which section 4 and section 6 talk about purpose and creation of a trust respectively. Given below both the purpose and creation of a trust are discussed in detail:
Purpose of Trust
As per section 4 of the India Trust Act, a trust may be created for any lawful purpose. The purpose of a trust is lawful if it will be out of the scope of the following points:
- Something that is against the law or forbidden by law
- Nature of things is like if permitted, they would definitely defeat the provisions of any law
- Something that is fraudulent in nature
- Involves or implies any kind of injury to the person or property of another
- Something that was declared immoral or opposed to public policy by the court of law
Every trust with an unlawful purpose is void. A trust can be formed for more than one purpose. Any of the purposes must not be against the law. If a trust is created for more than one purpose or for two purposes. Out of which one purpose is lawful and the other one is unlawful. In that scenario the two purposes cannot be separated, hence it will make the entire trust void. For example, A conveys property to B in trust to apply the profits to the nurture of female foundlings to be trained up as prostitutes. The trust is void.
Creation of Trust
Under the Indian Trusts Act, a trust can be created through a written document, an oral declaration, or even by the operation of law. However, it is suggested to register a trust through a written instrument for clarity and evidentiary purposes. The key elements necessary for the creation of a trust include clear intention, transfer of ownership of property, one trustee, and beneficiary.
As per section 6 of the Indian Trust Act, a trust is created when the author of the trust firmly indicates by any words or action an intention to create a trust. Also, the purpose of the trust, the beneficiary, and the trust property transfers the trust property to the trustee. For example, N bequeaths certain property to D, “having the confidence that he will dispose of it for the benefit of E”. This creates trust so far as regards N and E.
As per section 7 of the Indian Trust Act, a trust may be created by every person competent to contract with the permission of a principal Civil Court of original jurisdiction, by or on behalf of a minor; but subject in each case to the law for the time being in force as to the circumstances and extent in and to the author of the trust who may dispose of the trust-property.
Registration and Stamping
Registration provides legal recognition and clarity and helps protect the interests of the beneficiaries. One can register with the help of the competent authority by submitting an application with all the required documents. Documents include a trust deed as well. As per the value of the trust deed, stamp duty needs to be paid. Rates of stamp duty vary from one state to another state. Proper stamping of the trust deed ensures its validity and admissibility as evidence in a court of law. Although registration of trust is not mandatory it is always suggested to do registration of the trust which includes immovable property.
Conclusion
The Indian Trusts Act, 1882, provides a robust legal framework regarding the purpose and creation of a trust in India. By understanding the purpose and creation of a trust, individuals can effectively utilize this powerful tool for estate planning, asset protection, and philanthropic endeavors. Indian Trusts Act is the guiding legislation for establishing and managing trusts in India. It defines trusts as obligations based on confidence for the benefit of others. Trusts can be created for lawful purposes, but not if they violate the law or are fraudulent, immoral, or against public policy. This Act provides the necessary legal foundation for legitimate trusts in India.
