As per the Indian Trust Act 1882, a Trust is an arrangement where the owner (trustor) transfers the property to someone else (trustee) for the benefit of a third person (beneficiary). Such a property is transferred by the trustor to the trustee along with a proclamation that the trustee should hold the property for the beneficiaries of the Trust.
Property doesn’t just mean real estate. It could be cash, shares or any other valuable asset.
Further, the instrument by which this entire trust is declared/created is called “the instrument of trust” or the “trust deed”.
A Trust can be a private or public Trust depending upon the class of people that receive benefits. Furthermore, the main intent of running a Trust is to transfer the property to the beneficiary.
Author/Settlor/Trustor/Donor: The person who wants to transfer his property and reposes confidence on another for the creation of the trust.
Trustee: The person who accepts the confidence for the creation of the trust
Beneficiary: The person who will benefit from the trust in the near future.
What are the objectives of a trust in general?
As per Section 4, all purposes are said to be lawful unless it:
• Is forbidden by law
• Defeats the provisions of law
• Is fraudulent
• Involves injury to another person or his property
• Immoral or against to public policy
A trust may be created by:
• Every person who is competent to contracts: This includes an individual, AOP, HUF, company, etc.
• If a trust is to be created by on or behalf of a minor, then the permission of a Principal Civil Court of original jurisdiction is required.
• Further, it also depends on the law in force that is prevailing at that particular point of time and the extent to which the author of the trust may intend to dispose of his property.
Private Trusts: A private trust is for a closed group. In other words, the beneficiaries can be identified. Eg: A trust created for the relatives and friends of the author.
Public Trusts: A public trust is created for a large group ie. the public in large. Eg: Non-Profit NGO’s Charitable Institutions for the general public.
Section 5 of the Act states that with respect to:
•Immovable property: A private trust must be created by a non-testamentary instrument in writing. Further, the non-testamentary instrument needs to be signed by the author of the trust or the trustee and has to be registered. However, if the non-testamentary instrument is created by a will, registration is not necessary.
Step – 1: Selection of Name
First thing is to select a unique name of your trust, the name should not violate or infringes someone else name or trademark.
Step – 2: Drafting Of Deed
The trust deed needs to be drafted wherein the parties to the deed shall be settlor (author of the trust deed), the trustee and the beneficiary. The trust deed is to be executed on appropriate non-judicial stamp paper; the rate of stamp duty differs from state to state.
Step – 3: Trust Registration
The next step is to seek an appointment with the sub-registrar office having jurisdiction based on the registered office of the trust, and the government registration fee is to be paid after that. On the appointed date the trust deed is presented before the sub-registrar where all trustees need to be present along with two witnesses. The registration process is then undertaken by the office of the sub-registrar, and the registered deed can be collected after a week time.
Step – 4: PAN, TAN and Bank A/C
After registration of the trust, the next step is to apply for allotment of PAN Number and TAN and thereafter opening of a bank A/c.
There is no upper limit for the trustees in a trust, but a minimum of two trustees are always required for registration. The trust deed should have provision concerning the management of the trust along with the procedure of appointing or removing the members.
The trust deed is the most important instrument in a trust; it prescribes the main objectives for which the trust is set up. Apart from the main objects of the trust, it defines its beneficiary and the powers of the trustee. The deed is signed in presence of two witnesses.
Documentation of the Trust & Trustee:
• Trust Deed on Proper Stamp Value
• Two Photographs of Partners
• PAN Card of Each Partner
• Identity Proof of each Partner
• Address Proof of Partner
• Signed Declaration (s) from Partners
• Proof of Registered Office
• Utility Bill as proof must be Latest
• NOC from the owner of premises.
A Trust or an NGO can acquire 12A certificate from the Income Tax Department. Thus, a Trust acquiring such a certificate is exempted to pay income tax for the entire lifetime on its surplus income.
Also, an NGO must obtain 80G certificate. This certificate allows donors, that is persons or organizations making donations to an 80G certified NGO, to avail deduction. Thus, such a deduction is given to the donors under section 80G of the Income Tax Act.
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