Formation of a trust under the Indian Trust Act

The Indian Trust Act, 1882, governs the creation and maintenance of private trust in India. A trust is created when a person gives out his property to someone for the benefit of a third party. There are three parties involved in the transaction these are i) Author- the person who shall hand over the property, ii) Trustee- The person who shall look after the property, iii) Beneficiary- he is the person who shall get the benefits generated from the trusts. In this blog, we shall have an in-depth study of the formation of a trust under the Indian Trust Act.

What are the various reasons for the formation of a trust?

A person can create a private trust for the following reasons:

• To Secure the assets from the claims of the creditors, in many cases it happens when an individual faces losses in business, the property that falls under the trust cannot be used to settle claims
• Keep the property aside for a specific purpose. For example, a grandfather may create a trust for the benefit of his grandchild.
• Some people create trusts to ensure that the property is used for the welfare of their children and not their partners.
• To ward off unwanted claims that might arise on the estate when a person dies.
• To ensure that the property is preserved and managed after the author’s death.

People eligible for the formation of a trust

Any person who is eligible to contract and in the case of minors, if permitted by a court with appropriate jurisdiction, shall be eligible to form a trust as per section 7 of the Indian trust act^[1]. This shall include trusts created by Hindu undivided families, minors, women, association of persons and companies.

Perquisites for the formation of a trust

The following things must be kept in mind before the formation of a trust;

• The author must be sure that the declaration will be binding on him.
• The items for which the trust is created must be clearly specified.
• The beneficiaries for whom the trust is being made for should be mentioned in the deed.
• The author should transfer the asset mentioned in the deed through an immovable order and distance himself from the ownership/ enjoyment of the revenue from the said asset.

Procedure for the formation of a trust

• STEP 1– Creation of a trust deed: An author must create a trust deed. The trust deed must clearly specify what the author wants to do with his property. It should state the trustees who shall be in charge of the estate, and finally, it should also mention the name of the beneficiaries as well. All of this must be created on a stamp paper of appropriate value.
• STEP 2– Registration of trust: The trust deed is registered with the registrar. The author needs to register this document with the local registrar and submit relevant photocopies wherever applicable.
• STEP 3– Witnesses: A minimum of two witnesses must be present and their original identity proof to sign the document while registering the trust deed.
• STEP 4– Once all the formalities are completed, the registrar shall keep the certified copy of the deed and return the original registered copy to the concerned parties.

Documents required for formation of trust

• Trust deed to be prepared on a stamp paper of requisite value.
• Id proof and a passport photo of the author.
• If the property is self-occupied, a copy of the water and electricity bills must be attached. And if the property is taken on rent, then the rent agreement must be attached.
• ID proof and a passport photo of the two witnesses.
• Author’s signature on all the pages of a trust deed.
• Signature of the two witnesses on the trust deed.

How can trust be extinguished?

• The law can end the trust in the following circumstances:
• When the purpose of the trust has been fulfilled.
• If the purpose for which the trust was created has been deemed unlawful.
• For any reason, fulfilling the trust’s purpose has now become impossible. For example, the property of the trust has been destroyed.
• If the trust has been revoked
• If the purpose of the trust is modified by all the competent beneficiaries.

Conclusion:

The author creates trust for the welfare of the beneficiaries. Indian Trusts Act 1882 lays down the regulations for creating trusts in India. A person who wants to create a trust deed must be in accordance with the act.

Read our Article:Top Differences between Public vs Private Trust