Biswajit Sarkar Blog >Civil Law> FORMATION OF A TRUST


Trust is a financial vehicle which helps to transfer property from its owner to a third person usually called the beneficiary for a lawful purpose. It is a easy way to transfer than making a will. It is basically a confidence which is reposed in some other by conveying him a legal title to hold the property for the benefit of others. It is an instrument to safeguard the beneficiaries especially when they are minors and are not capable enough to hold the property.

Few Terms for better understanding:
• Author : One who reposes or declares the confidence
• Trustee : One who accepts the confidence
• Beneficiary : One for whose the confidence the trust is created
• Trust Money : Subject matter of the trust
• Trust Deed : Instrument by which the terms of the trust are declared
• Trust property: Includes both immovable and movable properties used for the benefits of the trust.
Trustee’s Responsibility is three fold in nature :
• Protect the rightful ownership of the trust property
• Preserve the rightful use of the trust property
• Channelize the income created out of the trust property in accordance with the terms of the creator.

It can be created by execution of a trust deed. It is one of the most essential document since it prescribes the main objectives for which the trust is created and also sets out the power regime of the trustees and the role of beneficiaries .It is usually signed in the presence of two witnesses. A Trust Deed is desirable when a private trust pertains to an immovable property and shall also required to be registered except where the Trust is created by a will. A written deed is desirable when it comes to immovable property held for public trust. In relation to Trusts for movable property (public or private), a simple delivery of possession with a direction that the property be held under Trust, is sufficient; no further documentation is required.
The trusts are regulated by the Indian Trusts Act, 1882 which governs and regulates the administration of the trusts, private and public via general law except in few cases where public trust are governed like in the state of Maharashtra and Gujarat by the Bombay Public Trusts Act, 1950.
There are usually two types of trust: Public and Private Trust. When it is created for the benefit of the general public, it is known as a public trust and on the other hand when it is created for the benefit of a group of individuals, it is called private trust.
Certain Privileges and tax benefits that are enjoyed by the public trusts or non governmental organizations are not enjoyable by the private trusts.

• the settler has to renounce his ownership and all beneficial interests in the property,
• the property should be clearly stated
• the objects for creation of trust should be clearly indicated,
• it is desirable to have a written trust deed for all practical purposes,
• the settler must be a person competent to contract in terms of law,
• the trust property must be transferable to the beneficiary. It must not be a merely beneficial interest.

Procedure for forming a Private Charitable Trust
A person who is a major, not of unsound mind, solvent can be a settlor and create a trust. A minor can also create a trust with the permission of the court.
For creating a private Trust, the Author must express with certainty by use of words or acts, or an intention on his part to form a Trust. Thus, a Trust may be declared either by words, written or spoken or by acts of the parties. Where a Trust is created by words it must be clear to derive the intention of the parties regarding formation of trust. No formal language is required to constitute a Trust, but however the language used must make it certain that the author intended to:
• constitute a Trust binding in law on himself or the person to whom the property was given.
• Bind definite property by the Trust.
• benefit a definite person or group of persons in a definite way.
Documents Required for formation of trust:
• Detail of all members or trustees of the trust with their address and PAN card no.
• Certified true copies of the Institution’s Registration Certificate
• Certified true copies of Laws & bye-laws of the Institute
• Copy of income tax registration certificate.
• Audited Balance Sheet and Income & Expenditure account with Audit Report of last three years
• The original copy of Trust Deed evidencing the formation of the Trust.

Procedure for forming a Public Charitable Trust

Step 1:  Selection of name of the trust.
It should not resemble to any kind of patronage by the Government of India or any state should be taken care that it also doesn’t fall within the list of restricted terms under the Emblems and Names Act ,1950. However there is no restriction to use a name similar to what is already registered to in the registrar office. In-spite of care being taken, the registrar refuses to grant the name then complaint can be filed to higher authorities and appropriate steps will be taken.
Step 2:  Determine the author and trustee of the trust
Minimum Two trustees are necessary and there is no maximum limit. No educational qualifications is required to become a trustee. However the age limit of 18 years in females and 19 years in males is considered and sometimes the average between the two is considered. He must be a resident of republic of India. Foreigners, OCI member holders and NRIs residing abroad for more than six months cannot become a member of the trust.
Step 3:  Creation of a trust deed
It is the legal evidence of the formation of the trust which contains various clauses such as:
• Name clause
• Author and trustee clause
• Registered office clause
• Objects clause and beneficiaries
• General body member clause
Clear intention of the parties must be stated in brief terms.
Create Bye-laws that will regulate the trust:
• Which section of income tax shall be applicable
• Others law which shall be applicable to the management and running of the trust
• Rules to open and operate the bank account of the trust
• Changes or additions in trustees

Step 4: Documents required for creating a trust
Trust deed: Following elements should be present:
• Name and address of the author the trust
• Name and addresses of the trustees
• Name of the trust
• Minimum and Maximum no. of Trustees and their tenure
• Address of the registered office
• Main purpose and objectives relating to formation of trust
• Rules and regulations of the trust
• Details of the bank account , bank and its branch details
• Designations of trustees, if any
• Remuneration in the form of any compensation if any to be given to any trustee for their services rendered
• Date of execution of trust deed
• Details regarding the trust fund and the trust property and how will the income be utilized out of the trust property
• Rights and duties and the limitations on the power of trustees
• Procedure to vary or alter any clause in the trust deed
• Conditions for dissolution of trust
• Number of meetings and their provisions
Trust deed must be prepared on a stamp paper of requisite value depending upon a particular percentage of the trust property. Such percentage varies from state to state.
Documents required:
• Two passport size photograph and self-attested copy of proof of identity of the author
• Two Passport size photograph of each trustee and their self-attested respective id proof
• Signature of author on all pages of trust deed
• Mandatory requirement of PAN card in some states like Rajasthan and Madhya Pradesh and other if trust property values more than rs.20000
• Proof of registered office of the trust which may include any utility bills
• Documents relating to registration of property in trust’s name and subsequent proof to it and related documents
• Government registration fee is evaluated as per revenue tax rules of respective states to be known only at the time of registration the requisite amount to be payable.
• Aims and objectives regarding creation of trust
• Area of operation
Step 5: Submission of trust deed to local registrar
In the presence of the author and two witnesses whether physically or through written consent with id proofs need to be present at the time of registration as per the respective state laws
Step 6: Copy of trust deed
Registrar will retain the copy of the trust deed and return the original copy back
Step 7: Registration Certificate
Generally issued after 7 days after inspection if so desired by the registrar of the address of the registered office of the trust.

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