What is Trust and how it is created?

The word trust indicates the confidence that one holds in another. This idea is the basis of whole trust concept. The concept of trust generally comes into picture where someone is willing to protect some property in favour of their relatives or their known ones or public at large. In India Trusts are governed by The Indian Trust Act, 1882.

There are two types of Trust :

  • Public/ Chartiable Trust
  • Private trust

Public trust are those trust benefits of which are reaped by general public like trust created by temples to serve the poor and needy people.

Lets say Mr. A has some estate and he wants the income to be distributed for the betterment of society. He assigns Mr. B as trustee to manage his estate and to deploy the income for charitable purpose.

In the above example there are three are parties involved:

Author of Trust: the person who reposes or declares the confidence is called the “author of the trust”. Mr. A is here Author of the Trust

Trustee: the person who accepts the confidence is called the “trustee”. Mr. B is trustee

Beneficiary: The person for whose benefit the confidence is accepted is called the “beneficiary”. Here beneficiary is General Public.

Private trust on the other hand is limited to the benefits of individual or group of people.

Let’s say Mr. A has some farmhouse across the city and he wants to secure them for his daughters’ Ms. X marriage. Mr. A may create one trust whereby he assigns to Mr. B the responsibility of managing the farmhouse and retain the money till the time of his daughter marriage.

In the above example there are three are parties involved:

Author of Trust: the person who reposes or declares the confidence is called the “author of the trust”. Mr. A is here Author of the Trust

Trustee: the person who accepts the confidence is called the “trustee”. Mr. B is trustee

Beneficiary: The person for whose benefit the confidence is accepted is called the “beneficiary”. Here beneficiary is Ms. X.

There are some other terms which are given below:

  • The subject-matter of the trust is called “trust-property” or “trust-money”
  • The “beneficial interest” or “interest” of the beneficiary is his right against the trustee as owner of the trust-property
  • The instrument, if any, by which the trust is declared is called the “instrument of trust”
  • A breach of any duty imposed on a trustee, as such, by any law for the time being in force, is called a “breach of trust

All these terminologies are given under the interpretation clause of The Indian Trust Act, 1882 (“Act”).

What should be the Intent of Trust?

Trust cannot be created for any random purpose. One cannot create trust for any illegal activity. It is strictly prohibited under the Act.

Act defines conditions where trust cannot be created in below given manner:

The purpose of a trust is lawful unless it :

  • Is forbidden by law,
  • is of such a nature that, if permitted, it would defeat the provisions of any law,
  • is fraudulent
  • involves or implies injury to the person or property of another
  • the Court regards it as immoral or opposed to public policy

Every trust which the purpose is unlawful is void and where a trust is created for two purposes, of which one is lawful and the other unlawful, and the two purposes cannot be separated, the whole trust is void.

For example:A bequeaths property to B in trust to employ it in carrying on a smuggling business, and out of the profits thereof to support A’s children. The trust is void.

How Trust is created?

A trust is created when the author of the trust indicates with reasonable certainty by any words or acts:

  • an intention on his part to create there by a trust
  • the purpose of the trust
  • the beneficiary
  • the trust property and (unless the trust is declared by will or the author of the trust is himself to be the trustee) transfers the trust-property to the trustee.

For example: A bequeaths certain property to B, “having the fullest confidence that he will dispose of it for the benefit of C. This creates a trust so far as regards A and C.

A bequeaths certain property to B, requesting him to distribute it amongst such members of C ’s family as B should think most deserving. This does not create a trust, for the beneficiaries are not indicated with reasonable certainty.

Who can create Trust?

A trust may be created by:

  • every person competent to contracts
  • the permission of a principal Civil Court of original jurisdiction, by or on behalf of a minor;

Who can be a Beneficiary?

Every person capable of holding property may be a beneficiary. A proposed beneficiary may also renounce his interest under the trust.

Who can be 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.

But proposed trustee is not bound to accept the trust. Instead of accepting a trust, the intended trustee may, within a reasonable period, disclaim it, and such disclaimer shall prevent the trust-property from vesting in him.

A trust is accepted by any words or acts of the trustee indicating with reasonable certainty such acceptance.

For example: A bequeaths a lakh of rupees to B upon certain trusts and appoints him his executor. B severs the lakh from the general assets and appropriates it to the specific purpose. This is an acceptance of the trust.

A bequeaths certain property to B and C, his executors, as trustees for D. B and C prove A’s will. This is in itself an acceptance of the trust, and B and C hold the property in trust for D.

How to create Trust on Movable and Immovable Property?

Trust on immovable property is valid only when declared by a non-testamentary instrument in writing signed by the author of the trust or the trustee and registered, or by the will of the author of the trust or of the trustee.

Since the trust has gained popularity in our society it is necessary to the understand the above said  basics concept of trusts which one should keep in mind while creation of trust.

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