Indian Trust Act, 1882, Section 3 states that a person (the settlor) places a trust in the hands of another person (Trustee) when an obligation is attached to / owned by the property. In other words, a trust is a legal vehicle that allows a third party, a trustee, to operate and manage assets in a trust fund on behalf of a beneficiary. No matter whether you’re trying to shield your wealth from taxes or pass it on to your children, a trust dramatically expands your options. Learn more about trust registration.
Types of Trust
Public Trust
Trusts that are public trusts are those whose beneficiaries include the general public or a significant portion of it. Public trusts are categorized into:
A public Charitable Trust
Public Religious Trust: Public Trust is a Non-Profit Charitable Organisation or Non-Governmental Organisation (NGO).
Charitable and religious trusts, on the other hand, are governed by the “Charitable and Religious Trusts Act, 1920, the Religious Endowment Act, 1863, the Charitable Endowment Act, 1890, and the Bombay Public Trusts Act, 1950” as the law of public trusts in India.
Reasons for creating Public Trust?
Public trust is built on two types of trust;
- It is relatively easy to register and manage public trusts.
- In accordance with the Income Tax Act, a public trust can claim an exemption from the government.
There are three additional requirements for the charitable trust:
- A declaration of trust made by Settler that binds him,
- A settler separated certain property from himself, depriving himself of ownership, and
- Beneficiaries’ property description of an item.
- Upon transfer to a trust, the property is considered.
An Advocate General or a suit involving two or more persons interested in the trust may institute the following actions in case of a violation of public trust:
- Removing a Trustee,
- Appointment of a new trustee,
- To keep any property in Trustee,
- Instruct the expelled Trustee to occupy the property of any trust,
- Directing the audit also.
Private Trust
An individual or family is the beneficiary of a private trust. Private trusts are divided into three categories: –
- In private special trusts or discretionary trusts, both the beneficiary and the share are determined.
- It is uncertain which of the two beneficiaries will receive what share.
- Faith can, however, be a mixture of both. Such trusts are referred to as public-cum-private trusts.
- Content of a valid Private Trust
Guidelines for creating a private trust are given below.
Some property should be set aside for the beneficiaries by the settlor.
There should be a trustee to manage the property for the benefit of the beneficiaries. A settler may also serve as a trustee.
Beneficiaries should be able to benefit from the colonizer’s property (trust).
Properly delineated trust properties.
A trust must also specify its objects.
What are the reasons for creating a private trust?
In India, private trusts are becoming increasingly popular for succession planning as money asset protection grows. Besides, it allows him to enjoy tax benefits or deductions while securing the property and making the heirs benefit from it. Furthermore, it helps maintain the next generation’s wealth rather than disposing of it shortly.
Insolvency protection and assets of the trust can be used to retain the trustee’s beneficiary or beneficiaries.
Private trusts declared by will do not require registration, even if they include immovable property.
In the case of these trusts, a part of their income is used to promote public welfare, while the other part goes to an individual(s). The part of income going to a person (s) is assessable as private, while the part used to promote public welfare is eligible for tax exemption under section 11. The only condition applicable here is that the trust must have been created before 1-4-1962, that is, before the Income-tax Act, 1961. Public-cum-private trusts created on or after this date are not eligible for this exemption under Section 11.
