Private Trust Registration in India: Requirements and Procedure

Trust is an instrument used to secure the interest of a settlor so that the future of his beneficiaries regarding the property remains secure. These beneficiaries are usually minors who can’t look after and protect their interests. in this blog we discuss Private Trust Registration.

Constituents of a Trust:

There are four parts of a trust these are:

• The settlor: A settlor is a person who is responsible for the creation of the trust
• Trustee:  is a person who is appointed to look after the property for other’s benefit,
• Beneficiary: Is the person for whose welfare the trust is established
• Trust Property: The property on which the entire transaction is based on.

What is a private trust?

Before we begin with what is a Private Trust Registration lets learn what a private trust is.

The private trust is created for the benefit of one/many individuals who shall be within a given time may be definitely ascertained. If the trust is created for the welfare of relatives, friends or family members etc., such trusts are called Private trusts.

When a trust is created, it ensures that the money/property is used only for the purpose stated i.e the wellbeing of the settlor’s family and in the manner trustee deems it fit to be handled.

Who can create a private trust?

A trust can be created by:

• A person who is competent to enter into a contract as specified under the Indian Contracts Act^[1].
• The Authorization of a competent court with respect to the transfer of property, usually on behalf of a minor.

Benefits of Private trust registration

There are many reasons why people prefer Private trust registration; a few are enlisted below:

Protection of assets: Creditors cannot claim a property that falls under Private trust ownership. If a property falls under the purview of “Private trust ownership, ” creditors cannot lay a claim over it. However, if the trust is deliberately created to evade creditors, the courts can intervene and attach the disputed property in question. In case a person wants to create a trust to safeguard the interest of his wife and children, then he can purchase an insurance policy under the Married Women Property Act (MWPA) scheme.

Assists in the management of Assets: Assets involved in the private trust shall be regulated as per the directions mentioned in the trust deed. The asset management aspect of the private trust is beneficial when circumstances like age, health and mental wellbeing of the person can hamper the maintenance of the asset in question. Nowadays, these services are rendered by companies, corporates, banks and other trusteeship services.

Helps prevent family disputes: When the assets are handed over to the trusts, they are governed by the objectives mentioned in the trust deed. These objectives dictate issues like- how the property must be divided, amongst whom it must be divided and in what portion. Once the deeds are clearly defined, it streamlines the process, thereby preventing any possible family disputes.

Doesn’t require Courts intervention: The creation of trusts helps the trustee define how the property is to be utilized easily, which can be done without any intervention from the courts. However, courts tend to oversee the developments in situations where a will is involved.

Fulfils settlor’s wishes: Trust allows the settlor to add in terms and conditions that he seems necessary. By doing so, the settlor can make sure his wishes relating to the property can be carried out even after his death.

Types of Private Trusts:

Private Trust can be divided into two categories; these are:

• Revocable trusts:

Revocable trusts are private trusts that give the settlor authority to alter the terms or terminate the trust once it has been created. These kinds of trust cannot safeguard a property as the properties under this trust can be taken away from them. It is like an alternative to will as properties in these trusts are not given away, and later they can be taxed on the settler’s behalf.

• Irrevocable Trusts:

Irrevocable trusts can be classified into two categories; these are:

Non-Discretionary Trust:

In this kind of trust, the settlor has total control over the terms/ norms of the trust. He has the power to decide which beneficiary gets the benefit and the quantum of this benefit. If the settlor himself turns out to be the primary beneficiary, then the settlor will be the one who is taxed.

 Discretionary Trust:

A discretionary trust is a type of private trust that is the opposite of a non-discretionary one. In such trusts, the trustee has the authority to decide on asset size and proportion that shall be given out to the beneficiary. In this case, the settlor shall provide the trustee with the list of beneficiaries only, i.e. He shall not be involved in the distribution of property.

Before the private trust registration, the settlor must specify the type of trust in the deed.

Requirements for Private Trust Registration

The following things are necessary for the registration of Private Trust Registration;

• One must have the trust deed drafted on stamp paper.
• A copy of identity proof and a passport photo of all the trustees involved.
• A copy of identity proof and a passport photo of the settlor.
• Signature of two witnesses and their photo and id-proof.
• The settlor must sign all the pages of the deed.
• A copy of income tax registration is also required.
• Audit reports of Income and expenditure and balance sheet for the past three years.

Points to be kept in mind while drafting a Private trust deed:

For Private Trust Registration, a person must create a trust deed. Certain points need to be kept in mind these are:

• The trust deed must specify the Intention and objective to create the trust.
• The beneficiaries of the trusts should also be listed in the deed.
• The deed must define the trust property to be transferred by the settlor unless it is stated under the will.
• If trust is created during the settlor’s lifetime, more properties can be added to it.
• The trust should also mention whether the trust in question is to be made Revocable/ irrevocable or discretionary (a system where the trustee’s decision is final), Non-discretionary (where the settlor decides who the property is devolved to).

Process of Registration:

Following is the procedure for Private Trust Registration:

• Once the trust deed is drafted, it must be executed on a stamp paper of appropriate value.
• The settlor and the witnesses must sign the trust deed.
• When the trust deed is finally executed, it must be registered with a Local Registrar.
• After registration, the registrar will keep a photocopy of the deed and hand the original trust deed back to the settlor.

Conclusion:

To sum up, a person creates a private trust to devolve his property amongst his beneficiaries, including friends, family and relatives during or after his lifetime. It helps manage and distribute the settlor’s property in a simple and conflict-less manner. The process of Private trust registration is relatively straightforward and can be done easily throughout the country.