How to Register a Trust
How to Register a Trust
Income Tax Act, 1961, defines a Trust as “An arrangement by which property is handed over to or vested in a person, to use and dispose off for the benefit of another person”. Creation of a Trust can be broadly classified into two methods namely private trust formation and public trust formation. In this article, we look at how to register a Trust in India in detail.
Private Trust Formation
A private trust may be created either inter vivos or by will. Creation of Trusts are subject to the provisions of Indian Succession Act, 1925.
Prerequisites for Formation of Private Trust
The following are the pre-requisites for the creation of a private Trust.
- The existence of the author/settlor of the Trust or someone at whose instance the Trust comes into existence and the settlor to make an unequivocal declaration which is binding on him.
- There must be a transfer of the ownership by the author of the trust in favour of the trustee, where the beneficiary gains.
- A Trust property.
- The objects of the Trust must be precise and clearly specified.
- The beneficiary of the Trust may be a particular person or persons.
Validation of a Private Trust
For valid constitution of a Trust, the author must indicate with reasonable certainty:
- The intention on his part to create a Trust.
- The purpose of the Trust.
- The beneficiaries and the certainty revolving the beneficiary. An alternative beneficiary must be nominated.
- The Trust property.
- Transfer of property to the Trust.
Public Trust Formation
Similar to private trusts, public trusts may be created either inter vivos or by will.
Pre-Requisition for Formation of Public Trust
- A declaration of Trust which is binding on settlor.
- Setting apart definite property and the settlor relinquishing himself of the ownership thereof.
- A statement of the objects for which the property is hereon held.
- The settlor or the author of the Trust, and the Trustees must be competent to contract.
- After formation of the Trust, the Trust shall not be revoked, barring a few exemptions where the Trust contract contains any clause.
Book-Entry for Trust Formation
Book entries for Trust formation can be of two types, which we’ll explain in brief:
Entries made by the Donor in his own Books
The basic requisite to make a declaration of trust valid is that the donor should have absolutely parted with that interest which was owned by him at the time of the declaration. If there is no setting apart of ascertained property and no disinvestment on the part of the settlor of the ownership thereof, mere book-entry cannot result in an effective trust.
Entries made on Debtors Books
If a credit entry is made in the books of the debtor in favor of a trustee displaying an interest in the creation of a trust rather than in the books of a donor, such an entry would amount to a specific appropriation for the trust.
FAQs on Trust Registration
Is it mandatory to have Trust deed?
A deed isn’t mandatory for the formation of a trust. A trust can be formed by a deed or a mere oral agreement. However, it is advisable for charitable trusts and trusts with immovable property to have a trust deed. In some cases where trust deed is not available, documents such as revenue records for lands, property tax receipts, affidavits and other such documents, may be accepted in the place of a formal trust deed.
Know more about charitable trust registration.
How are public Trusts controlled?
A trust can be public even if the control of the trust property was not vested in the public but was retained by the settlors, provided that the funds are utilized for the welfare of the public, which makes it clear that the public trust can be headed and controlled by a private entity.