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What is a Trust

Trust is defined in section 3 of the Indian Trust Act, 1882 as “an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another or of another and the owner.

In other words, an asset is created by the founder of the trust and managed by the trustees for the benefit of certain People. A trust is legally formed by way of a Trust deed duly executed by the founder and registered before the Registrar office.

Public Trust:

The most common type of trust found in India is Public Trust. Public trust is the one that is created for the benefit of a class or the general public. The general object may be for charity, education, religion, or even scientific purposes.

Private Trust:

Private trusts in India are governed by the Indian Trusts Act, 1882. Private trusts are constituted for the benefit of one or more individuals. The individuals are definite, which means the individuals can be ascertained.

According to Section 7 of the Indian Trusts Act, 1882, a trust may be created by the following persons:

1. An individual who is competent to contract (given in Section 11 of the Indian Contract Act, 1872)

2. By a minor, with the help of a guardian, can create a trust with the permission of a principal civil court

3. HUF (Hindu Undivided Family) can also create a trust

4. Association of Persons together can also create a trust

5. Company registered under the companies act can also form a trust

As per Section 4, all purposes are said to be lawful unless it:

Is forbidden by law

Defeats the provisions of law

Is fraudulent

Involves injury to another person or his property

Immoral or against public policy

Section 2(15)​ of the Income Tax Act defines “charitable purpose" to include relief of the poor, education, medical relief, preservation of the environment (including watersheds, forests, and wildlife), and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility.

Settlor:

The settlor or the founder of the Trust is the one who creates the trust and he is the one who invests his Assets into the trust. A settlor is also called as Author of the trust who executes the trust deed and assigns the assets to the trust.

Trustee:

When the founder of the trust transfers the property, there should be someone to manage and hold the trust and he is called as Trustee.

The trustee has to accept the role of the administrator after fully understanding the terms and contained in the trust deed. A trustee must be at least 18 years old, of sound mind and should not be bankrupt.

Role of the trustee

The Trustee cannot use trust property for his own benefit.

The trustee must consider and treat all the beneficiaries the same.

The trustee must invest the trust property in a proper manner.

The Trustee is responsible for maintaining the accounts and records properly.

Beneficiary:

The beneficiary is the one who is called as the beneficial owner of the property. The trust is created for the complete benefit of the Beneficiary.

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