How to Start a Trust? What is Trust? Trust Registration Process, Check Complete Details Here!

There are several questions in our thought about Trust. If anybody desires to start a Trust, then what they do, how to start, so here is the solution we share regarding Trust. Let’s begin basically; A trust is a legal relationship in which the legal title to property is committed to a person or legal entity with a fiduciary duty to hold and use it for another’s an advantage. Through this article, we provide complete information about the “Trust registration process“. You should know about the Trust and Public Charitable Trusts, What is Trust, how they work, the Trust registration process etc.

[TABLE OF CONTENT]
What is Trust?
Charitable Purpose
Types of Trust
Role of Trustee
Trust Registration Process (Flow Chart)
Trust Registration Process
What are the Benefits of Trust Registration?

What is Trust?

According to Section 3 of the Indian Trust Act, 1882, trust means that when an obligation is attached to / owned by the property, a person (the settlor) puts the trust in the hands of another person (trustee) ( Third-party beneficiary). 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. A trust dramatically increases your choices about controlling your assets, whether you’re trying to shield your wealth from taxes or pass it on to your kids.

Charitable Purpose

In the amendment, the expression “Charitable Purpose” Act under section 2 (15) is included in:

  • Relief of the poor,
  • Education,
  • Medical Relief
  • Advancement of any other object of general public utility.

Types of Trust

Trusts are classified into two categories:

  1. Public
  2. Private

Public Trust

Public trust is the one whose beneficiaries include the general public at large or a sizeable portion. Public trust is further categorized into:

  • A public Charitable Trust
  • Public Religious Trust

Public Trust is known as Non-Profit Charitable Organisation or Non-Governmental Organisation (NGO).

However, charitable and religious trusts fall under the rule of “Charitable and Religious Trusts Act, 1920, Religious Endowment Act, 1863, Charitable Endowments Act, 1890, Bombay Public Trusts Act, 1950” as the law of public trusts in India Are listed.

Note: The Central Act does not apply to public trusts. However, various states have passed their terms and their functions for administration.

Reasons for creating Public Trust?

The main reason for building public trust from two types of trust is;

  • Public trusts are relatively popular because they are straightforward to register and manage.
  • A public trust can avail exemption from the government under the Income Tax Act.

In addition, the charitable trust has three requirements:

  1. Declaration of trust made by Settler which is binding on him,
  2. Separation of certain property by the settler and thereby deprive himself of ownership, and
  3. Description of an item, what will be the property of the beneficiaries.

The property is considered once transferred to a trust.

Further, in case of violation of public trust, either the Advocate General or a suit regarding two or more persons interested in the trust may institute:
1. Removing a Trustee,
2. Appointment of a new trustee,
3. To keep any property in trustee,
4. Instruct the expelled trustee to occupy the property of any trust,
5. Directing the audit also.

Private Trust

A private trust is one whose beneficiaries are individuals or families. A private trust is further classified into: –

  • Private Special Trust / Private Discretionary Trust: In this case, both the beneficiary and the share are determined.
  • Where either of the two beneficiaries and their share is uncertain.

However, faith can be a mixture of both. Such trusts are called public-cum-private trusts.

Content of a valid Private Trust

Guidelines for creating a private trust are given below.

  1. The settlor of the property should declare some property set aside for the benefit of the beneficiaries.
  2. According to the trust deed, there should be a trustee to manage the property for the benefit of the beneficiaries. A settler may also be a trustee of the same trust.
  3. There should be a beneficiary or beneficiary who benefits from the property of the colonizer (trust).
  4. Trust properties properly demarcated.
  5. Besides, the objects of the trust must be clearly specified.

Reasons for creating a Private Trust?

The private trust route of succession planning is gaining popularity in India, as money asset protection is growing rapidly. It helps in securing the property while the heirs can benefit from it. Furthermore, it helps to maintain the next generation of wealth rather than dispose of it shortly. Besides, he can enjoy tax benefits or deductions.

  • Private trusts help in applying the trust’s assets and insolvency protection to retain the trustee’s beneficiary or beneficiary.
  • A private trust declared by will, registration would not be necessary, even if it included an 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 an individual(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 over here is that the trust must have been created before 1-4-1962, that is, before the commencement of the Income-tax Act, 1961. Public-cum-private trusts created on or after this date are not eligible for this exemption under Section 11.

This article is to guide you in registering a charitable trust. It is an attempt to remove all doubts, questions and confusion related to it. Before getting the registration and going for the trust registration, you should know the basic concept behind the trust and some terms related to it.

Role of Trustee

Let’s have a look important role of Trustee.

Author of Trust

A person who repeats or declares the trust is called the “author of the trust”.

According to the Indian Trust Act, any person permitted by contract or a minor person in the principal civil court of original jurisdiction can form a trust. But in each case, according to the law for the circumstances and the time limit on which the author of the trust can dispose of the trust property.

Trustee

A person who accepts a faith revoked or declared by the author / settler is called a “trustee”.

According to the Indian Trust Act following can be a trustee:

  • A person capable of holding property; But, where the trust involves the exercise of discretion, it cannot proceed until it is competent to contract.
  • The trust is not obliged to accept.
  • A sign of acceptance with reasonable certainty by any words or acts of the trustee.
  • Instead of accepting a trust, the expected trustee can reject it within a reasonable time. Such rejection prevents the trust property from being vested therein.
  • Disclaimer by two or more co-trustees to reject the trust-property in one or the other and form the sole trustee or trustee from the date of creating the trust.
  • A trustee has to fulfil the purpose of the trust while following the Settler’s instructions given at the time of its creation, amended with the consent of all other trustees.
  • A trustee has the right to work, reimbursement expenses, settlement of accounts, decree etc. However, a trustee cannot relinquish after approving, nor can he use the trust property for his own benefit. He cannot delegate or work in private.

Beneficiaries

Those who benefit from the confidence accepted by the author / settler and trustee are called “beneficiaries”.

According to the Indian Trust Act, any person who is a beneficiary can keep the property. A proposed beneficiary may relinquish his or her interest to the trustee subject to the trustee with a claim inconsistent with the disclaimer or notice of the trust. Beneficiaries have the right to rent, benefits and specific execution, seeking copies of the trust’s instruments, forcing them to do any work, etc.

Trust property

The subject of trust is called “trust property” or “trust money”—an Instrument of Trust – “Instrument of Trust” The instrument by which trust is declared.

Trust Registration Process (Flow Chart)

Here we are providing the information about Trust Registration Process, follow these easy steps to start a Trust. Let’s see.

NOTE: To read the complete details you can check the below in this article let’s have a look.

Trust Registration Process

1.  Before registering your trust, you must make the following decisions:

  • Name of the Trust
  • Address of the Trust
  • Objects of the Trust (charitable or Religious Trust)
  • One Settler of the Trust
  • Two Trustees of the Trust
  • Trust property movable or immovable property (To save on stamp duty, a small amount of cash/check is usually given to be the initial property of the trust).

2.  Prepare a trust deed on stamp paper of expected value (8% of the value of the trust’s property in Delhi. This rate varies from state to state)

3.  Registration requirement of the trust deed with the local registrar under the Indian Trust Act, 1882:

  • Trust deed on stamp paper of expected value (as stated at point 2 above)
  • A passport size photograph and a copy of the settler’s identity
  • One passport size photograph and a copy of proof of identity of each of the two trustees.
  • A passport size photograph and a copy of the proof of identity of each of the two witnesses.
  • Signature of settler on all pages of a Trust Deed.
  • Witness by two persons on the trust deed.

4. Go to the local registrar and submit a trust deed along with a photocopy for registration. The photocopy of the deed must also contain the signature of the settler on all pages. At the time of registration, the Settler and two witnesses must be present in person along with their identity proof in the original.

5. The registrar retains the photocopy and returns the original registered copy of the trust deed.

It is an essential instrument of trust. It contains a declaration of the aims, objectives and modes of management (of the trust). Trust deed proves the legal status and is mandatory if a property is involved, especially land and building, to provide “A Prima Facie” evidence.

The appointment and removal procedures are outlined in the trust deed to eliminate any opportunity for future discrepancy. In the case of a change of trustees or their number or registered address for the trustor aims and objectives of the trust, a new trust deed should be prepared after this one must be registered at the Registrar’s Office. Without a well-crafted fiduciary trust, there is a greater likelihood of confusion, issues and disputes in the future. Your trust will face many problems in purchasing projects or raising funds. If not prepared properly, the trust deed becomes useless and is akin to working without registration.

Some people mistake mimicking trusts of existing trusts which is again a big mess because every trust is different and the memorandum should be prepared specifically targeting their special needs. Thus, it is advisable to hire a consultant, as they are experienced in formulating trusts that meet specific needs. Their main function is to prepare a trust deed.

What are the Benefits of Trust Registration?

Here in this section, we provide information about some major topic like What are the Benefits of Trust Registration?. Let’s have a look one by one.

  • To Include in Charitable Activities
  • Registered Trust Avails Tax Exemptions
  • Gives Benefits To Poor People
  • Compliance With Law
  • Preservation Of Family Wealth
  • Avoid Probate Court
  • Immigration Of Family
  • Forced Heirship
  • Tax Mitigation & Managing Assets

For other registration-related questions, you can comment on the box below. Our top experts will provide you with the best possible solution.

Best of Luck!!!

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5 thoughts on “How to Start a Trust? What is Trust? Trust Registration Process, Check Complete Details Here!”

  1. Can a settler be one of those trustees in the trust?? Is it mandatory of having atleast 2 trustees??? I want to run the trust only with a settler and a chairperson…. Is it possible sir/mam?? Awaiting your reply….

    Reply
  2. I am disable in ortho. I registered trust for intellectual challenged. I am in vellore district. To whom i want to inform and start the same. Please help to us. Thanks.

    Reply

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