Top Differences between Public vs Private Trust
Ganesh Nair | Updated: Aug 02, 2022 | Category: Trust
Trust is a type of fiduciary relationship created between two parties i.e. the trustor and the trustee. The trustee holds the property till the time the beneficiary becomes eligible to have possession of that property. The trusts are set up with an objective to safeguard the trustor’s assets. The creation of trust ensures that the trustor’s assets are distributed according to his wishes. Creating a trust saves a lot of time, it puts an end to unnecessary disputes, reduces paperwork and helps with proper management of the trustor’s assets. In this blog, we shall highlight the Top Differences between Public vs Private Trust.
Table of Contents
What is a Private Trust?
Before we begin with the differences between Public vs Private Trust, let’s learn what a private trust is. A private trust is made for the benefit of one/more individuals. These trusts are enforceable by a third party called the beneficiaries. This type of trust is created for the benefit of the trustor’s family, friends and relatives. The private trust deeds clearly mention the number of specific beneficiaries and their names. It ensures that the property mentioned in the trust deed is utilised only for the purpose the trust has been created for, and this benefit shall only be extended to the beneficiaries listed in the deed.
The Private trust can be divided into two categories. These are revocable trusts and irrevocable trusts. Revocable trusts are the ones in which the trustor has the power to alter the terms or terminate them post its formation. An irrevocable trust can be further sub-divided into two categories- (Irrevocable Non-discretionary trust) and (irrevocable discretionary trust[1]). In an Irrevocable non-discretionary trust, the trustor has complete control over the norms of the trust. In contrast, in an irrevocable discretionary trust, the trustee has the power to include or exclude beneficiaries.
What is Public Trust?
Public trust is created for the public at large. Public trusts are created for charitable activities like uplifting the poor, education purposes, food donations, medical relief, etc. The idea is that the benefit of such should apply to the public at large and should not be limited to individuals or a specific association. Public trusts can be categorised into charitable trusts, which are created to facilitate charity, and Religious trusts, which are created to contribute to religious tasks. A public trust can be created, which can make to suit both purposes.
As the meaning of both trusts is clear, let’s look at the differences between public vs private trust.
| BASIS | Private Trust | Public Trust |
| Meaning | Trust created for the benefit of individuals | Trust is created with an intention to serve the public or a charitable cause Statutes |
| Statutes | Private trusts function as per the laws laid by the Indian Trust Act, 1882. | Public Trust function on the basis of Laws laid down by the state they may include: The religious Endowments Act, 1863 Charitable Endowments Act, 1890 Charitable and Religious Trust Act, 1920, Societies Registration Act, 1860. |
| Beneficiaries | The beneficiaries under the private trusts are specified in the trust deed, and they include members of family, relatives or friends. I.e. beneficiaries are clearly defined. | The Beneficiaries under the Public trust is that they are not known as this trust is created for the public at large. Therefore they are uncertain and unknown. |
| Number of trustees | The number of trustees in a Private trust is often few as They have to look after the property for a fixed number of beneficiaries. That’s why only a fixed number of trustees are present. | A public trust, as it has to cater to numerous beneficiaries, tends to have a large number of beneficiaries. Generally, the public trusts have a board of trustees to look after them. |
| Longevity | Private trusts are created for a specific time period, on the completion of which the private trust will get dissolved. | Public trusts, as they are made for a large group of beneficiaries, remain functional for a longer period of time. |
| Registration | Getting a private trust is not mandatory, but it is highly recommended in both cases regarding the movable and immovable property. | In Public trusts, it is mandatory that the trust is registered for immovable property, and it is desirable to get the trust registered for movable property as well. |
| Types | Types of Private trust are of two types these include revocable trust and irrevocable trust (this includes discretionary and non-discretionary). | Types of Public trusts are also of two types. These include Charitable trusts and Religious trusts. |
| Devolution of property | In the case of private trusts, the property and monies will go to the beneficiaries or heirs declared in the trust deed and to no one else. | In public trusts, the asset can be given to any individual or any other entity unless it has been expressly mentioned in the deed. |
| Scrutiny | Terms of Private trusts are only to be seen by the stakeholders who are involved in it, such as (trustors, trustees, beneficiaries and lawyers). People who are not involved in it are not supposed to go through it. | Public trusts have to maintain transparency as they are created for the benefit of the public. Hence it is open for inspection. People can scrutinise its processes and question its management as well. |
| Number of beneficiaries | Private trusts are created by the trustee keeping in mind the benefit of a “private person”( which can comprise of family members, friends, etc. or other predefined entities)- The number of beneficiaries is limited under private trust. | Public trusts are created for the benefit of large groups of people. There are multiple beneficiaries under a public trust. The number of beneficiaries are many as they can’t be predetermined. |
Conclusion:
Trust is created so that the assets can be transferred from one person to another. The trusts are of two kinds private trusts and public trusts. Public trusts are created to foster charitable acts and are beneficial for the public at large. Private trusts are created for the benefit of individuals who are mentioned in the trust deed by the trustor. If we are to look at the difference between public vs private trusts, there are various aspects which make them distinct. A person should be well aware of these differences when studying trusts in India and their applicability.
