A Trust can be created by any person in India who is competent to contract, having in his/her power any property which is transferable. The person creating the Trust is called the Settlor and the person to whom the property is transferred on trust is called a Trustee. The person for whose benefit the property is transferred is called the beneficiary.
If the property to be transferred to the Trust is immovable, then the Trust must be created by the execution of a Trust Deed that is duly registered. In case the Trust is created by the transfer of a movable property, then the Trust can be created by the property owner himself orally or in writing declaring that he would hold the property, not as owner but as a Trustee for the benefit of some other person(s).
Usually the Trust Deed is the document that establishes the registration of the Trust and usually details items such as:
- Name of the Trust
- Place of office of the Trust
- Objects of the Trust
- Number of Trustees
- Term of the Trustees
- Trust Management
- Appointment or Resignation or Termination of Trustees
- Power, Function and Duties of the Trustees
- Application of Trust Property
- Other important matters
The Trust Deed must be executed on Stamp Paper of suitable value, singed by the settlor and two witnesses. Once the Trust Deed is executed, it can be registered with the Local Registrar. The Registrar would then register the Trust, retain photocopy of the Trust deed and return the original registered Trust Deed back to the settlor.
There are different types of Trusts in India. Charitable and religious trusts operate under the Religious Endowment Act of 1863 and the Charitable and Religious Trust Act of 1920. The Bombay Public Trust Act of 1950 governs registered trusts in India. The three main types of trusts registered in India are:
- Public Trust: This is the most common type, focusing on spiritual and benevolent activities. It is established for philanthropic and religious purposes and is not governed by the Indian Trusts Act.
- Private Trust: A private trust is created for personal gain rather than for public or charitable causes. It provides financial support to specific recipients and does not have a charitable purpose. Private trusts are regulated by the Indian Trusts Act, 1882.
- Public cum Private Trusts: These trusts have dual objectives, as the name suggests. They are authorized to utilize their earnings for both private and public purposes. This means that both public and private individuals can be beneficiaries of such a trust.
Benefits of Trust Registration:
- Involvement in Charitable Undertakings: Registering a charitable trust allows individuals to utilize their assets for the benefit of both concerned beneficiaries and a chosen charity, enabling them to contribute to society.
- Tax Exemptions: Registered trusts in India have access to various tax exemptions provided by the Income Tax Department. Unlike profit-oriented organizations, trusts focused on non-profit objectives can enjoy tax relaxations, making it advantageous for tax planning purposes.
- Financial Assistance to the Needy: Registered trusts can provide essential financial aid to economically disadvantaged individuals or communities through their charitable activities, making a positive impact on society.
- Legal Protection: Trusts registered under the Indian Trusts Act, 1882, enjoy comprehensive legal safeguards. This ensures that the trust’s legal standing is protected, minimizing the risk of unnecessary claims or disputes.
- Protection of Family Wealth: Trusts offer a means to allocate specific assets, such as land or interests in family-owned entities, ensuring the preservation and effective management of family wealth.
- Avoidance of Probate Court: Trust registration can be utilized as a mechanism for transferring assets to heirs without the need for a will. By transferring legal title to the trustee during the settlor’s lifetime, trust assets bypass probate, saving time, costs, and potential complications.
- International Mobility: Establishing a trust can be advantageous when an individual and their family relocate to another country. Trusts can help mitigate taxation in the destination country, safeguard family assets, and provide flexibility in asset management.
It is important to consult with legal and tax professionals to understand the specific advantages and implications of trust registration based on individual circumstances and jurisdiction.
To register a trust, the following key documents need to be arranged:
- Identity Proof: Identity documents of the trustor (person creating the trust) and trustee(s) such as Aadhaar Card, Voter ID, Passport, or Driver’s License.
- Address Proof: Documents proving the registered office address of the trust, such as a copy of the property certificate or recent utility bills.
- No Objection Certificate (NOC): If the property where the trust is registered is rented, a NOC from the landlord is required.
- Trust Deed: The trust deed should outline the objectives of the trust and include details about the trustee(s) and settlor(s). It must be prepared on stamp paper of the appropriate value.
- Self-Attested Copies: Self-attested copies of identification and address proofs of the trustee(s) and settlor(s), along with their occupation details.
- Photographs: Recent photographs of the trustee(s) and settlor(s).
- PAN Details: PAN (Permanent Account Number) details of the trust, trustee(s), and settlor(s).
The trust deed must contain the following information:
- Number of trustees
- Registered address of the trust
- Proposed name of the trust
- Proposed rules that will govern the trust
- Presence of the settlor and two witnesses at the time of trust registration
The process of trust registration in India typically involves the following steps:
Step 1: Gather Documents Collect necessary documents like identity and address proofs of trustor and trustee(s), trust deed objectives, and relevant information.
Step 2: Prepare Trust Deed Draft the trust deed with details about trust objectives, trustee(s), settlor(s), rules, and registered address.
Step 3: Submit Application Submit the application for trust registration with the required documents to the local Registrar of Trusts.
Step 4: Obtain Registration Certificate After processing the application, if all requirements are met, the Registrar of Trusts will issue the trust registration certificate.
The key deliverables of trust registration are:
a. Registered Trust Deed: A legally recognized document that outlines the objectives, rules, and other details of the trust. It serves as proof of the trust’s existence and its terms and conditions.
b. Trust Registration Certificate: An official certificate issued by the Registrar of Trusts after successful registration. It confirms that the trust has been legally registered and provides essential information about the trust.
c. Trust PAN: A Permanent Account Number (PAN) is assigned to the trust by the Income Tax Department. It is a unique identification number required for tax-related purposes and financial transactions.