A trust is a relationship in which a person or entity is bound by a fiduciary relationship to exercise that legal rights over the trust property for the benefits of any one or more individuals known as beneficiaries. The trust shall be governed by a set of written terms and conditions known as a trust deed.
According to Section 3 of the Indian trust Act,1882, trust is defined as an obligation annexed to the ownership of the property, arising out of a confidence reposed in, accepted by the owner, or declared and accepted by him, for the benefits of another or of another and the owner.
TYPES OF TRUST
The trust has been broadly classified as
1. Public trust: The trust which is created for the benefit of public at large or where the beneficiary is incapable of ascertainment is known as public trust. These trusts are essentially governed by the charitable and religious trust act,1920, the religious endowments act, 1963, the societies registration act,1860, etc. But not governed by the Indian Trust Act, 1882.
2. Private trust: The trust created for the benefits of one or more individuals that can be particularly ascertained. These trusts are accustomed to act as per the provision of the Indian trust Act, 1882.
WHO CAN FORM A TRUST
Any person who is competent to hold property can form a trust. This may include
- Association of persons
- Legal guardian on behalf of the minor with permission of the civil court.
PROCEDURE OF CREATION OF A TRUST DEED
- Creation of trust deed: To register a trust, proper deed should be created on a stamp paper of the expected value of the trust.
- Submit the trust deed along with the photocopy of the deed to the local registrar for registration
- At the time of registration, the settler and the two witness must be present along with the original identity proof.
- The registrar retains the photocopy of the trust deed and returns the original registered copy of the trust deed.
DOCUMENTS REQUIRED FOR REGISTERING THE TRUST DEED
1. Aadhar and Pan card (original with the self-attested copies)
2. Water, Electricity bills with their own name if the property is self-occupied
3. Rent agreement along with NOC from the owner of the property in case of rented property
4. Trust deed to be signed and submitted in sub-registrar office under revenue department act of the concerned district court of respective area or district.
FILING FORM 12A
12A registration is granted by Income tax department to trust and other non-profit organizations for a period of 5 years which enable them to claim exemptions under the income tax act over their surplus incomes. In order to claim exemption under 12A the trust should able to meet the definition of charitable purposes as defined in Income Tax Act, 1981
ESSENTIAL RECITALS OF TRUST DEED
A trust deed may be created using any language sufficient to show the intention. A trust deed should have
- Name of the trust
- Name of the author/ settler of the trust
- Name of the trustee
- Name of the beneficiary whether individual or public at large
- Objects and purpose of the trust
- Property that shall devolve
- Place of principal or other offices of the trust
- Procedure for appointment, removal or replacement of a trustee, their rights, duties and powers etc.
- Rights and duties of the beneficiaries
- Mode and methods of dissolution of trusts
BENEFITS OF FORMING A TRUST
- To avoid probate in substantial savings in time, legal fees and paperwork
- Trust gives greater protection against a legal action who is unhappy with the dissolution of the trust property
- Reduces estate taxes which are to be paid while transferring property after death
- Trust can be used to claim exemption of any income that are arising out of profits and gains from business and professions
- Trust provides a greater confidentiality to the dissolution of property which can reduces the risks of interfamily conflicts
Authored by Vinit Ugale
Tags :income tax