Anyone can create a trust in India.

The Indian Trust Act, 1882 ('Act') governs the private

trusts established in India. This Act is applicable to the whole of India. But, it does not apply
to the Waqf, mutual relations of the members of an undivided family determined by any
customary or personal law and religious or charitable endowments. Public Trusts in India are
usually governed by state-specific legislation, such as The Maharashtra Public Trust Act,
1950.

What is a Trust?
Let’s understand the concept of trust with the help of an example:

Mr X wants to pass his bungalow (property) to Mr Y for the benefit of his minor
granddaughter. Mr X passes his property to Mr Y, because he reposes (has) confidence on Mr
Y. This is nothing but the essence of a trust.

In simple words, a trust is nothing but a transfer of property by the owner (Mr X) to another
person in whom the owner has confidence (Mr Y) for the benefit of a third person
(Granddaughter of X).
The 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”.

Parties in a Trust
Author/Settlor/Trustor/Donor (Mr X): The person who wants to transfer his property and
reposes confidence on another for the creation of the trust.
Trustee (Mr Y): The person who accepts the confidence for the creation of the trust
Beneficiary (Mr X’s granddaughter): The person who will benefit from the trust in the near
future.
Objectives of a Trust in General
The main objective is that the trust should be created for a lawful purpose. For example, if
Mr X had stolen money from a bank and given it to Mr Y with the intention of giving the
money to poor children then, in this case the trust itself is void as the very main purpose is
unlawful.

So how do we actually understand as to whether the purpose is lawful or unlawful? The

answer to it lies in Section 4 of the Act. 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
Who can create a Trust?
A trust may be created by:

Every person who is competent to enter into 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.

Types of Trusts
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, i.e. the public in large. Eg: Non-Profit
NGO’s Charitable Institutions for the general public.
Registration Mandates for a Private Trust
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.
Movable property: A trust in relation to movable property can be declared as in the case of
immovable property or by transferring the ownership of the property to the trustee. Hence,
registration is not mandatory.

(What is non testamentary document meaning in law? Documents that are unrelated to a
last will and testament are referred to as non-testamentary documents. The term
“testamentary document” refers to a last will and testament or another document that
satisfies the legal standards for a will.)

Taxation of Private Trusts

From the purpose of income tax, private trusts can be categorized into two types.
Note 1:

Exception: In the following case, individuals tax rates are applicable when:
Trust is exclusively for the benefit of a dependent relative
It is the only trust declared by the author
Note 2:

Exception: In the following case, individuals tax rates are applicable when:
None of the beneficiaries’ income exceed the basic exemption limit
Beneficiaries are not a beneficiary under any other trust

Frequently Asked Questions

1. What are the purposes for which a trust can be created?
In general, trusts can be established to fulfil either or more of the following purposes:
For the discharge of the author of the trust’s charitable or religious feelings, in a way that
guarantees public benefit.
In order to claim an exemption under Section 10 or 11 of the Income Tax Act, 1961, in
relation to income for charitable or religious reasons.
For the well-being of family members or other relatives who are relying on the trust settler
For the proper administration and protection of property
In order to manage the affairs of a provident fund, superannuation fund, gratuity fund or any
other fund established for the welfare of its workers by a person
2. Who can be appointed as a trustee?
Any person capable of managing property can be appointed as a trustee. However, a person
is not obliged to accept responsibility as a trustee. He/she must declare his/her purpose in
words and deeds since it is the duty of the trustee to achieve the purpose of the fund.

3. Can a trust be established to provide for the medical assistance of the author of the
trust?
Yes. A trust can be established for various purposes including, providing medical assistance
to the author or providing for the welfare of the child, and so on. However, the Indian Trusts
Act, 1882, states that a trust cannot be created for any unlawful purposes.

4. What are the contents of a trust deed?

A trust deed has many clauses such as a name clause, registered office clause, duties and
liabilities of a trustee and other rules and regulations.

5. What are the requirements to register a trust deed?

The requirements to register a trust deed are as follows:
Trust deed on stamp paper with the required stamp duty
Passport size photo and proof of residence ID
Passport size photo and proof of identity of two trustees
Passport size and proof of identity of two witnesses
6. What are the advantages of creating trust?
The following are the advantages of establishing a trust:

A trust can be established for allowing the settler to discharge his/her feelings for
charitable/religious purposes of improvement of human misery, public benevolence,
development of science, etc., in a proper and controlled way.
A charitable or religious trust enjoys various tax exemptions and incentives.
Donations to the qualifying charitable establishments are deductible from the donor’s
taxable profits.
A trust can be created to look after the welfare of family members and relative’s dependent
on the settler.
A trust allows the settlor to protect his/her property from transfer and division to outsiders.

CHAPTER III
OF THE DUTIES AND LIABILITIES OF TRUSTEES (Section 11 to Section 30)
Trustee to execute trust
Trustee to inform himself of state of trust-property
Trustee to protect title to trust-property.
Trustee not to set up title adverse to beneficiary.
Care required from trustee
Conversion of perishable property
Trustee to be impartial
Trustee to prevent waste
Accounts and information
Investment of trust-money
Mortgage of land pledged to Government under Act 26 of 1871. Deposit in Government
Savings Bank
Sale by trustee directed to sell within specified time
Liability for breach of trust
A trustee committing a breach of trust is not liable to pay interest except in the following
cases:—
(a) where he has actually received interest;
(b) where the breach consists in unreasonable delay in paying trust-money to the
beneficiary;
(c) where the trustee ought to have received interest, but has not done so;
(d) where he may be fairly presumed to have received interest;
No set-off allowed to trustee
Non-liability for predecessor’s default
Non-liability for co-trustee’s default
Several liability of co-trustees
Non-liability of trustee paying without notice of transfer by beneficiary
Liability of trustee where beneficiary’s interest is forfeited to the Government
Indemnity of trustees