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Meaning
A trust is based on the fiduciary relationship between two parties. In the Indian legal system the term “trust” refers to an arrangement in which a person or a group of people (who are referred to as “trustees“) retain and administer property or assets for the benefit of another individual or group of individuals (who are referred to as “beneficiaries“). The Indian Trusts Act of 1882 is the legislation that governs trusts in India.
Essential Information under Trust
- Trust Deed: The creation of a trust is accomplished through a formal instrument known as a trust deed. The objective of the trust, the assets or property that are going to be held by the trustees, as well as the rights and obligations of both the trustees and the beneficiaries, are all outlined in the trust deed.
- Participating Parties: A trust is comprised of the following three primary parties:
- a) Settlor: The person who establishes the trust and gives its assets to the trustees is referred to as the settlor.
- b) Trustees: Trustees are individuals or entities that are accountable for managing the assets of the trust and administering the trust in accordance with the terms that it stipulates.
- c) Beneficiaries: Beneficiaries are the individuals or organisations that are entitled to receive the benefits or revenue from the trust assets. Beneficiaries can be individuals or groups.
- Objectives: In India, trusts can be established for a variety of objectives, including those related to philanthropy, religion, education, healthcare and social welfare. The terms of the trust are outlined in the trust deed.
- Trust Property: The person who creates the trust is responsible for transferring real estate, financial assets or monies into the trust. The trustees are responsible for maintaining these assets and managing the funds for the benefit of the beneficiaries. The term “trust property” refers to immovable property, movable property such as personal belongings ,investments or any other type of assets.
- Trustee Duties: The duties of a trustee are to act in the best interests of the beneficiaries and to manage the trust property in a fiduciary manner They are obligated to operate with loyalty and care whil avoiding conflicts of interest, complying with the provisions of the trust deed and exercising due diligence.
- Dissolving a Trust: Trusts can be dissolved or terminated under particular conditions, as indicated in the trust deed or as per the requirements of the Indian Trusts Act. Dissolving a trust can also be referred to as “terminating” a trust. This might take place when the goals of the trust are accomplished, when the allotted time for the trust runs out, or other cause that satisfy the requirements of the law.
Key Points when Registering Trust
- Preparation of a Trust Deed: Before beginning the process of registering a business, it is necessary to first prepare a trust deed. The trust deed is a legal document that explains the goals of the trust, the laws and regulations that govern it, as well as the duties and obligations of the trustees and the beneficiaries.
- The procedure of registering a trust is typically handled at the local level, with the office of the Sub-Registrar of Trusts being the applicable authority to work with. The particular authority may be different in various states and unions, as that is where the trust is physically located.
- Required Documents: The registration of a trust often necessitates the submission of the following documents:
- a) Written declaration of trust on official stamp paper, officially signed by the settlor as well as the trustees.
- b) Documentation of the settlor’s and trustees’ identities and addresses are required.
- c) Pictures of the settlor and trustees at the size required by passports.
- d) Documentation demonstrating the address of the trust’s registered office.
- The Process of Registration: The following activities are often included in the procedures required for registration:
- a) The submission of the appropriate documents along with the prescribed fees.
- b) The Sub-Registrar of Trusts shall conduct verification of the documents.
- c) The issuance of the registration certificate, also referred to as the Trust Registration Certificate.
- Post-Registration Compliance: Once the trust has been established, various compliance requirements must be satisfied. These requirements include things like maintaining accurate books of accounts, filing annual income tax reports and adhering to any other regulatory duties that may be applicable.
Different Types
- Public Charitable Trust: Public charitable trusts are created to support philanthropic endeavours and the general public. They work on initiatives and projects that support charity causes like education, healthcare, eradicating poverty and disaster relief.
- Private Charitable Trust: Private charitable trusts are run on a smaller scale and serve a more narrowly defined community. These organizations often begin with individuals or families driven by a passion for making a positive impact on a specific segment of society.
- Religious Trust: Religious trusts are created for the management and promotion of religious activities, the upkeep of religious institutions, and conducting of projects pertaining to religious practises, rites and the welfare of the particular religion’s adherents.
- Educational Trust: The purpose of educational trusts is to fund educational institutions like schools, colleges, universities and vocational training facilities. They want to encourage access to high-quality education and support the growth of the education industry.
- Trusts for the Welfare of People with Disabilities: These trusts were created with the intention of empowering and assisting people with disabilities. They engage in activities aimed at raising their standard of living, offering rehabilitation, education, skill development, and advancing their general wellbeing.
- Trusts for the Welfare of Women and Children: Organisations that are committed to the welfare of women and children concentrate on projects that promote women’s empowerment, gender equality, the defence of children’s rights, as well as help for the weaker members of society.
Benefits
- Legal Recognition: By registering a trust, you give it legal standing as a distinct legal person. This raises the trust’s legitimacy and offers a strong legal foundation for its operations.
- Credibility and Dependability: Trust registration fosters dependability and confidence among contributors, recipients and other stakeholders. It proves the trust’s dedication to openness, responsibility and compliance with the law.
- Enhanced Fundraising: Donations and money from people, groups and governmental organisations are more likely to be attracted to registered trusts, as they guarantee conformity with the law and use donations Donors frequently feel better at ease making contributions to them.
- Tax Exemptions and Benefits: Under the Income Tax Act of 1961, registered trusts, particularly those involved in charity and religious activities, may qualify for tax exemptions and benefits. Tax reductions for donors and exemptions on the income and assets of the trust are just two examples of these advantages.
- Opening a Bank Account: Registered trusts are permitted to create a bank account in their own name, allowing for efficient management of assets, contributions and outlays. A specialised bank account helps the trust’s financial operations and offers transparency.
- Ownership and Control: By registering a trust, the trustees are given formal ownership and management of the trust’s assets. It guarantees distinct and unmistakable ownership rights, which is important for efficiently using and administering trust assets.
- Asset Protection: Registration provides the trust’s assets with defence against disagreements, demands and unauthorised transfers. By creating the trust as a distinct legal body, it protects the assets of the trust and limits the personal liability of the trustees.
- Government Recognition: Registered trusts are more likely to receive recognition and support from departments, agencies and organisations working in fields related to the trust’s operations. Access to government funding or programmes as well as collaborations and partnerships may be made easier as a result.
- Regulatory Compliance: Registration involves adherence to legal and regulatory standards, including upholding reporting duties, maintaining accurate accounting records, and filing annual returns. This guarantees accountability, transparency and good governance of the trust’s operations.
What is included in this
FAQs
A trust deed, which describes the goals, guidelines and rules of the trust, must be prepared in order to register a trust. The trust deed must be delivered to the appropriate authorities, typically the Sub-Registrar of Trusts office, together with the necessary documents and costs. A certificate of registration, often called a trust registration certificate, is issued upon verification.
A trust often cannot be registered retrospectively. The trust cannot begin its operations or engage in any transactions until the registration process is finished. To understand any particular terms or exceptions that may apply, it is advised to speak with legal experts.
After registration, the name of the trust can be changed, but this requires amending the trust deed and receiving subsequent approval from the relevant authorities. Depending on the state or union territory, there may be differences in the name change procedure and regulations.
Registered trusts do have some compliance requirements. These could include keeping accurate books of accounts, submitting yearly tax returns, abiding by tax rules, and completing reporting obligations in accordance with relevant laws and regulations.
A registered trust may conduct business in many Indian states. However, it might have to adhere to the particular laws and procedures of each state where it conducts business, such as getting required authorizations or approvals.
A registered trust may be terminated or dissolved under specific conditions outlined in the trust deed or in accordance with the Indian Trusts Act, 1882. The procedures indicated in the trust deed must be followed, and any outstanding debts must be paid, during the dissolution process.
A revocable trust can be changed or terminated by the trustor during that person’s lifetime.
An irrevocable trust, as the name implies, cannot be changed once it’s established.
