1. Meaning of a ‘Trust’ ?
A ”Trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.
A trust is a convenient method whereby a limited number of persons may hold property on behalf of other persons, who may be a large or fluctuating body or who may include persons not yet born. Once the property has been vested in the trustees, they own the property, but they are compelled by law to exercise their ownership for the benefit of the beneficiaries and for them only. It means that legal ownership vests in the trustee or trustees but beneficiaries have defacto ownership.
• Author of Trust : The person who reposes or declares the confidence is called “the Author of the trust”
• Trustee : The person who accepts the confidence is called the “Trustee”.
• Beneficiaries : The person for whose benefit the confidence is accepted is called the “Beneficiaries”.
• Trust Property : The subject matter of trust is called “Trust Property” or “Trust Money”.
• Instrument of Trust: The instrument, if any, by which the trust is declared is called the “Instrument of Trust”.
2. Types of Trusts
1. Charitable or Public Trusts
2. Erivate Trusts
A public or charitable trust is one which benefits the public at large, or some considerable portion of it. But in the case of private trusts, the beneficiaries are individuals or families and they are ascertained.
3. Constitution of Charitable and Religious Trust
Law to be taken care of in this respect is contained in the Indian Trust Act, 1882 and the Income Tax Act, 1961. It may be noted that the provisions of the Indian Trusts Act, 1882 do not apply to public trusts. However, the certainties (given below) are also required to be present for the creation of a public trust as held by the Supreme Court in CIT vs. Thakur Das Bhargava (1960)40 ITR 301 (SC) : TC 38R.759.
4. Requisites for Creation of a Trust
(i) There is a founder/settler/author of trust;
(ii) there should be person called trustee/trustees;
(iii) there is a property of the trust which the settlor gives;
(iv) there is a person capable to enforce that obligation called cestuique trust;
(v) there are beneficiaries who will enjoy benefits out of that property,
(vi) an intention of the author or founder to create a trust;
(vii) the purpose of the trust;
(viii) transfer of the property to the trustees.
5. Conditions for Creation of a Trust
(i) The settlor has to give up ownership and all beneficial interests in the property,
(ii) the property should be clearly described,
(iii) the objects or purposes for creation of trust should be clearly indicated,
(iv) formal deed or any other writing not required - intention to create a trust may be shown through words. However, it is advisable to have a written trust deed for all practical purposes.
(v) The settlor must be a person competent to contract.,
(vi) The trust property must be properly transferable to the beneficiary. It must not be a merely beneficial interest.
6. Who may Create Trust?
As a general rule, any person, who has power of disposition over a property, has capacity to create a trust over such property.
As regards, ‘power of disposition over property’, according to section 7 of the Transfer of Property Act, 1882, a person who is competent to contract and entitled to transferable property or authorised to dispose of transferable property not his own, is competent to transfer such property either wholly or in part and either absolutely or conditionally.
Thus, two basic things are required for being capable of forming a trust —
(i) power of disposition over property; and
(ii) competence to contract.
It may be recalled that the Indian Trust Act does not apply to public trusts which can be created by any person under general law. Under the Hindu law, any Hindu can create a Hindu endowment and under the Muslim law, any Muslim can create a public WAKF But public trusts, whether endowment or wakfs, which are essentially of charitable or religious nature, can be constituted by any person without any distinction of caste or creed.
Besides individuals, a body of individuals or an artificial person such as an association ofpersons, an institution, a limited company, all Hindu Undivided Family through its Karta, can also form a trust.
Trust by an HUF
A karta of a joint Hindu family can create a charitable trust in relation to the family property, for the benefit of the family or if it is necessary to fulfill the religious or charitable obligations of the family. (Sri Thakurfi vs. Nand Ahir ILR 43 All. 560. Also see, Gangi Reddi vs. Tami Reddi. AIR 1927 PC 80; Narasimhaswami vs. Venkattalingam. AIR 1927 Mad. 636 (FB); S. Devraj vs. CWT(l973) 90 ITR 400 (Mad.).
7. Who may be a Trustee?
Every person capable of holding property may be a trustee; but, where the trust involves the exercise of discretion, he cannot execute it unless he is competent to contract. No one is bound to accept a trust. Any number of persons may be appointed as trustees. However, no trust is defeated for want of a trustee. Where there is no trustee in existence, an official trustee may be appointed by the court and the trust can be administered.
Based on the above analogy, following may also be trustee(s):
- A Government, a corporation or a limited company can be a trustee.
- A woman can also be a trustee.
- Minor: Even a minor can be appointed as a trustee, if he is to be only a passive trustee, not required to exercise discretion.
- Beneficiary may also be a trustee.
- Author as trustee: The author or settler of a trust may appoint! constitute himself as the sole trustee or as one of the several trustees.
8. Beneficiary Under Trust
The person or persons for whose benefit, a trust has been created, is called the beneficiary or beneficiaries, as the case may be. While the trustees hold the legal title in the trust property the beneficiaries hold the beneficial interest in the property.
Who may be a beneficiary?
Evey person capable of holding property may be a beneficiary. Beneficiary may be any person, so specified by the author of the trust; a beneficiary may be a near or distant relative of the author or a person not related to the author at all or general public or a class thereof.
A minor, a woman and even an unborn person can also be a beneficiary. A trustee can also be one of the several beneficiaries under the same trust.
A proposed beneficiary may renounce his interest under the trust by disclaimer addressed to the trustee, or by setting up, with notice of the trust, a claim inconsistent therewith.
9. Creation of a Public Charitable or Religious Trust
A public trust (intended to be created otherwise than by a will), whether relating to movable or immovable property, may be created by mere delivery of possession with a direction that the property is to be held under trust. However, a written instrument of trust signed by the author and registered, is always desirable.