Creation of Trust

1. Introduction

A trust is a lawful entity with distinct and certain privileges, like an individual or company. In a trust, an entity known as a trustor gives another entity, the trustee, the right to hold title and oversee property or resources to support a third entity, the beneficiary.

To ensure that the trustor's assets are distributed according to their wishes, trusts can be established to provide legal protection for those assets. Furthermore, trusts can save time, lessen desk work, and decrease inheritance or estate taxes.

2. Types of Trusts [1]

A few kinds of trusts are designed to serve certain needs and address specific issues. Trusts are legal strategies where one party (Trustee) holds and oversees resources to support another party (the beneficiary). Here are a few normal sorts of trusts:

1. Revocable Living Trust:

Permits the grantor (the individual making the trust) to maintain control over the resources during their lifetime.

Can be changed or renounced by the grantor whenever.

2. Irrevocable Living Trust:

When laid out, the provisions of this trust by and large can't be changed or renounced without the consent of the beneficiaries.

Offers potential tax benefits and asset protection.

3. Charitable Remainder Trust (CRT):

Permits a person to give assets to a charitable organization while retaining income from those resources during their lifetime.

After the donor's passing, the remaining assets go to the assigned foundation.

4. Charitable Lead Trust (CLT):

Turns out revenue to a charitable organization for a particular period, after which the remaining resources go to the grantor's beneficiaries.

5. Special Needs Trust (SNT):

Made to offer monetary help for people with disabilities without endangering their qualification for government help programs.

6. Testamentary Trust:

Laid out through a will and just happen upon the death of the grantor.

Takes into consideration the distribution of resources over time or under specific conditions.

7. Irrevocable Life Insurance Trust (ILIT):

Eliminates life insurance proceeds from the taxable estate, possibly decreasing estate taxes.

8. Qualified Personal Residence Trust (QPRT):

Permits a person to move their main living place or getaway home to an irrevocable trust, holding the option to reside in it for a specific period.

9. Family Limited Partnership (FLP) or Family Limited Liability Company (LLC):

Frequently used for family-run companies or investment management, giving control and continuity across generations.

10. Bypass Trust (Credit Shelter Trust):

Intended to maximize the use of every spouse's estate tax exemption, guaranteeing that the most maximum amount passes to heirs tax-free.

11. Dynasty Trust:

Made to accommodate numerous generations, allowing assets to grow and pass down without being dependent upon estate taxes.

3. Creation of Trusts according to Indian Law [2]

A. Indian Trusts Act 1882

The Indian Trusts Act, of 1882, oversees the law connected with trusts in India. This act gives a legal structure to the creation, operation, and dissolution of trusts. Here are a few vital points about the Indian Trusts Act:

1. Definition of Trust (Section 3): The act defines trust as an obligation added to the ownership of property and emerging out of a certainty rested in and acknowledged by the owner or declared and acknowledged by him to help another or of another and the owner.

2. Essential Components of a Trust (Section 4): For the making of a trust, the accompanying components are essential:

A competent owner of the property.

intention to make a trust.

The purpose behind the trust.

The beneficiary.

Transfer of property to the trustee.

3. Parties to a Trust:

Creator of the Trust: The individual who makes the trust.

Trustee: The individual who holds the property in trust.

Beneficiary: The individual for whose benefit the trust is made.

4. Rights and Duties of Trustee (Sections 11-17): The act frames the powers, duties, and liabilities of the trustee. It underlines the duty of the trustee to act sincerely and with good intentions to support the beneficiaries.

5. Rights and Duties of Beneficiaries (Sections 18-20): Beneficiaries reserve the right to implement the trust and can also inspect and take copies of the trust documents.

6. Variation of Trusts (Sections 21-23): The act accommodates the variation of trusts by the court in specific conditions, including changes for the satisfaction of the trust's objects or difficulty in accomplishing the trust's purpose.

7. Rights of Transferor or Creator of the Trust (Section 81): The individual who makes the trust can disavow or modify it except if an alternate intention is conveyed in the instrument of trust.

8. Termination of Trusts (Section 77): Trusts might be ended under particular conditions, like the satisfaction of the trust's purpose, the impossibility of fulfillment, or the consent of the beneficiaries.

9. Charitable Trusts (sections 6, 20, 92, 94): The act recognizes and accommodates charitable trusts, and certain provisions apply specifically to them.

10. Public Trusts: Along with the Indian Trusts Act, many states in India have laws governing public trusts. For instance, the Bombay Public Trusts Act is applicable in the state of Maharashtra.

B. Formation of Trusts

Creating a trust in India includes a few steps, and it's important to stick to the legal requirements highlighted in the Indian Trusts Act, of 1882. Here is a general guide on how to make a trust observing Indian law:

1. Settlement of Property:

Selection of Property: The settlor (the individual making the trust) should settle on the property to be included in the trust.

Transfer of Property: The settlor officially transfers responsibility for the chosen property to the trustee. This transfer can be through a deed of trust or some other legally recognized method.

2. Identification of Trust Purpose:

Define the reason or targets of the trust. The reason must be legal and not against the public policy.

3. Selection of Trustee:

Pick a Trustee who will oversee and regulate the trust. The legal administrator should be fit to hold property and should consent to act within the specified limit.

4. identification of Beneficiaries:

identify the beneficiaries who will gain from the trust. Their interests and rights should be stated.

5. Drafting the Trust Deed:

Set up a trust deed that incorporates every fundamental detail:

Settlor's details (name, address, etc.).

Legal administrator's subtleties (name, address, etc.).

Beneficiaries' details.

Description of the trust property.

Trust's goals and purposes.

Terms of the trust.

Powers and duties of the Trustee.

Provisions for the appointment of a replacement trustee, if needed.

Some other relevant details.

6. Execution of the Trust Deed:

The trust deed should be executed by the settlor and the trustee(s) within the presence of two witnesses.

Each page of the trust deed should be signed by the settlor and the observers.

7. Registration of Trust Deed:

While registration of a trust deed isn't compulsory, enrolling it with the nearby sub-registrar office is advised. this gives extra legal validity and evidentiary worth to the trust deed.

8. Handover of Property to Trustee:

The settlor should surrender ownership of the trust property to the trustee. This is a pivotal move toward the creation of a trust.

9. Compliance with Legal Requirements:

Guarantee that the trust deed complies with the provisions of the Indian Trusts Act, of 1882, and some other relevant guidelines.

10. Fulfilment of Stamp Duty:

Pay the applicable stamp duty on the trust deed.

11. Trustees Acknowledgment:

The Trustee should officially acknowledge the duties given in the trust deed.

12. Notification to Beneficiaries:

Inform the beneficiaries about the creation of the trust, their inclusion, and any significant intricacies.

13. Safeguarding of Trust Documents:

Securely safeguard the executed trust deed and any related documents.

4. Conclusion

In conclusion, trusts are legal entities where a trustor authorizes a trustee to manage resources for the benefit of a beneficiary. They offer advantages such as asset protection and potential tax reduction. Various trust types, from Revocable Living Trusts to Charitable Remainder Trusts, provide to specific requirements. Establishing a trust in India involves careful steps, including property settlement and drafting a comprehensive trust deed.

5. References

1. Understanding the Different Types of Trusts, Western Southern Financial Group, available at: https://www.westernsouthern.com/retirement/what-are-the-different-types-of-trusts (last visited on 16 January 2024)

2. Purpose Creation of a Trust Under Indian Trusts Act, 1882, Vakil Search, available at: https://vakilsearch.com/blog/purpose-creation-of-a-trust-under-indian-trusts-act-1882/#:~:text=The%20Indian%20Trusts%20Act%2C%201882%2C%20provides%20a%20legal%20framework%20for,asset%20protection%2C%20and%20philanthropic%20endeavours (last visited on 16 January 2024)