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How To Create A Trust in India?

A Trust is a relationship in which a person or entity holds a valid legal title to a certain property which is known as the Trust property, but is bound by a fiduciary duty to exercise that legal title for the benefit of any one or more individuals or group of individuals or organisations, who are known as the Beneficiaries. The Trust shall be always governed by the terms of the Written Trust agreement.

Trust formation

Settlor – The individual or entity who creates the Trust is known as the Settlor, Trustor or Grantor.

A Trust involves duplicate ownership: The Trust-property is owned by two persons at the same time. The Trustee and the Beneficiary are the two owners.

Trustee – The owner who is under an obligation to use his ownership for the benefit of the other owner. The Trustee cannot enjoy the Trust-property for his own use.

Beneficiary – The owner who enjoys the benefit of the Trust -property is the Beneficiary.

A Trust must essentially have these:

  • A written Trust instrument or document signed by the Settlor and the Trustee.
  • Something of value or money is transferred to the Trustee
  • a clear purpose that can be carried out

Types of Trusts

There are different types of Trusts in India. The main types are –

  • Simple Trust – In this, the Trustee is just a passive depository of the Trust property. There are no active duties expected from the Trustee and no directions given to him.
  • Special Trust – In this, the Trustee is active and acts as an agent to execute the Grantor’s wishes. This Trust is operative.
  • Private Trust – In this, the Settlor creates a Trust primarily for the benefit of one or more particular individuals as its Beneficiary
  • Public Trust – In this, the beneficiaries are the general public or a class as a whole. It has some charitable end as its Beneficiary.
  • Express Trust – In this, the Settlor consciously decides to create a Trust over his assets either now or upon his death. It can be either a will or Trust deed.
  • Implied Trust – an implied Trust is created where some legal requirements for an Express Trust are not met, but an intention on behalf of the parties to create a Trust is presumed to exist.

There are many more depending on the type of object.

Purpose of Trusts

A Trust should be created for any lawful purpose. The purpose of a Trust SHOULD NOT be forbidden by law, be fraudulent, cause injury to any person or property or defeat the provisions of any law.

Any competent individual can create a Trust for any of these common legal purposes:

  • Charity– All charities must take the form of Trusts to make it legally valid and also to get Tax benefits. Charitable Trusts are public Trusts and must have certain purposes as its object such as alleviating poverty, providing education, carrying out some religious purpose etc.
  • Asset Protection– When a person wants to divorce himself from his own assets with an intention to protect his assets from future creditors, he can create a discretionary Trust of which the Settlor may become the protector and a Beneficiary. But he cannot become the Trustee or sole Beneficiary. Hence the Settlor can benefit from the Trust assets without owning them. His creditors cannot attack his assets.
  • Corporate Structures– Many business arrangements like in finance and  insurance sectors use Trusts in their structure. Eg. Corporations
  • Will– When a minor is the Beneficiary in a Will, a Trust comes into existence automatically till the minor attains the age of 18.
  • Privacy– Trusts are created sometimes just for privacy. The terms of the Will is usually public. but the terms of the Trust is not.
  • Spendthrift Protection– An individual who is a spendthrift and does not have the ability to handle money can create an inter vivos Trust with a corporate Trustee who shall disburse the funds only for causes mentioned in the Trust deed.
  • Tax Benefits– Trusts are very useful if you are looking to avoid paying huge taxes.

A Trust becomes illegal and void on these basis:

Trust that is

  • in restraint of marriage
  • designed to induce separation of husband and wife or parent and child
  • concerning illegitimate children
  • followed by total failure of objects

How To Make A Trust In India?

A Trust can be created by any person over 18 years of age and mentally sound and capable to understand.

To create a Trust these steps are to be followed:

  1. Draft the Trust deed
  2. Mention the name of the Settlor, the Trustees, the Beneficiaries without any mistakes
  3. Clearly mention the details of the Trust property
  4. Provide details of the object and purpose of the Trust. It should not be for unlawful purpose.
  5. Signature of Settlor, Trustees and Witnesses at the appropriate places
  6. Print on stamp paper of due value
  7. Register the deed in a Sub-Registrar office paying registration charges.

How To Make It Legally Valid?

If you have decided to make a Trust for any purposes mentioned above then follow these essential steps to make it legally valid:

  • Draft the Trust deed with caution and shrewd mind. The terms and wordings of the Trust deed should be clear and correct without any ambiguity or confusion.
  • There should be at least two Trustees.
  • Print on a Stamp paper of appropriate value.
  • Signature of the Settlor on all pages and two Trustees has to put in the end of the deed
  • Two Witnesses should also sign and attest the deed.
  • Register the deed in the Sub-Registrar office paying appropriate registration charges.

What Are The Essential Requirements Of A Trust?

A trust should include the following details:

  1. A valid name for the Trust
  2. A valid address for the Trust
  3. Name of the Settlor
  4. Name of two Trustees minimum
  5. Property of the Trust – movable or immovable. Initially it is better to start with a small amount of money to avoid huge Stamp duty.
  6. The purpose of the Trust clearly mentioning its objectives. The purpose should be legal and not unlawful.

Create Your Own Trust Deed

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