TRUSTS IN INDIA

I. TYPES OF TRUSTS IN INDIA

a) Public Trust
A public trust is created primarily for the benefit of the public
at large. The beneficiaries are usually an indeterminate group of
people. Public Trusts are governed by state specific statutes.

b) Private Trust
A private trust is established under the Indian Trusts Act, 1882
for a specific purpose and terminates on expiry of the
purpose of the trust or happening of any event identified
under the instrument of trust.

II. LAW APPLICABLE ON PRIVATE TRUSTS

Private trusts in India are primarily governed by the Indian Trusts
Act, 18821. The preamble of the Indian Trusts Act, 1882 provides
“An Act to define and amend the law relating to Private Trusts
and Trustees.” It extends to the whole of India. Trust may be
created for any lawful purpose.
If the trust consists of an immovable property, then a written trust
deed becomes mandatory which must be signed by the trustee and
registered under the Registration Act, 1908.

Indian Trusts Act, 1882 is applicable to Family Welfare trusts, as was

also observed in the case of Vimal Kishor Shah & Ors. v. Jayesh
Dinesh Shah & Ors.2, wherein a family trust deed, formed out of
love and affection in favour of minors with two persons as managing
trustees, was governed by the Indian Trusts Act, 1882. Therefore,
Private Family Trusts can be set up to manage and protect family
assets and benefit the family members or future generations.

1
Came into force on 01.03.1882
2
AIR 2016 SC 3889.

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III. BASIC TERMINOLOGY

As per the Interpretation Clause provided under Section 3 of the

Indian Trusts Act, 1882

 "trust” - A "trust" is an obligation annexed to the ownership of

property, and arising out of a confidence reposed in and
accepted by the owner, or declared and accepted by him, for the
benefit of another, or of another and the owner.
 Trustee - The person who accepts the confidence is called the
"trustee".
 Beneficiary - The person for whose benefit the confidence is
accepted is called the "beneficiary".
 Trust Property/Trust Money - The subject-matter of the trust is
called "trust-property" or "trust-money".
 Beneficial Interest - the "beneficial interest" or "interest" of the
beneficiary is his right against the trustee as owner of the trust-
property.
 Instrument of Trust - the instrument, if any, by which the trust is
declared is called the “instrument of trust”.

IV. PROPERTIES INVOLVED IN PRIVATE TRUSTS

 Immovable Property
No trust in relation to immovable property is valid unless
declared by a non-testamentary instrument in writing
signed by the author of the trust or the trustee and
registered, or by will of the author of the trust or trustee3.
However, if the non-testamentary instrument is created by a will,
registration is not necessary.
 Movable Property

3
Section 5 of the Indian Trusts Act, 1882.

2
 No trust in relation to movable property is valid unless declared
as aforesaid or unless the ownership of the property is
transferred to the trustee4. Hence, registration is not mandatory.

V. CREATION OF TRUST
As per Section 6 of the Act, trust is created when the author of the
trust indicates with reasonable certainty by words or acts-
(a) an intention on his part to create thereby a trust,
(b)the purpose of the trust,
(c) the beneficiary, and
(d)the trust-property,
(e) and (unless the trust is declared by will or the author of the
trust is himself to be the trustee) transfers the Trust -
property to the trustee.

VI. PARTIES INVOLVED IN PRIVATE TRUSTS

 Author of Trust - A private trust can be created by any
competent person5 who is of the age of majority and is of
sound mind, and is not disqualified by any law. Author
of the trust may also be the trustee 6, wherein there is no
formal transfer but there is deemed transfer for the purpose of
taxation. Moreover, if a trust is created by or on behalf of a
minor, then the permission of a Principal Civil Court of
Original Jurisdiction is required.7

 Trustee – Every person capable of holding property may be a

trustee; but, where the trust involves the exercise of
discretion, he cannot execute it unless he is competent to
contract. Instead of accepting a trust, the intended trustee
may, within a reasonable period, disclaim it, and such

4
Section 5 of the Indian Trusts Act, 1882.
5
Section 7 of the Indian Trusts Act, 1882.
6
A.V. Reddy Trust & Ors. v. Commissioner of Wealth Tax, AIR 1999 SC 3352
7
Supra note 3.

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 disclaimer shall prevent the trust-property from vesting in
him.8 The Indian Trusts Act, 1882 is silent with respect to the
maximum number of trustees in a trust. As per Section 46 of
the Indian Trusts Act, 1882, a trustee who has accepted the
trust cannot afterwards renounce it except

(a) with the permission of a principal Civil Court of

original jurisdiction, or
(b)if the beneficiary is competent to contract, with his
consent, or
(c) by virtue of a special power in the instrument of trust.

 Beneficiaries - Every person capable of holding property may

be a beneficiary. A proposed beneficiary may renounce his
interest under the trust by disclaimer addressed to the
trustee, or by setting up, with notice of the trust, a claim
inconsistent therewith.9

VII. PURPOSE OF CREATING A PRIVATE TRUST

Private Trust must be formed for a lawful purpose10 and should
not be against the public policy of India or any other
applicable laws. It can be created for the welfare of the
beneficiaries, including maintenance, education or advancement in
life of the beneficiaries as was the case in A.V. Reddy Trust & Ors.

8
Section 10 of the Indian Trusts Act, 1882.
9
Section 9 of the Indian Trusts Act, 1882.
10
Section 4 of the Indian Trusts Act, 1882
4. Lawful purpose.—A trust may be created for any lawful purpose. The purpose of
a trust is lawful unless it is
(a) forbidden by law, or
(b) is of such a nature that, if permitted, it would defeat the provisions of any law, or
(c) is fraudulent, or
(d) involves or implies injury to the person or property of another, or
(e) the Court regards it as immoral or opposed to public policy. Every trust of which
the purpose is unlawful is void. And where a trust is created for two purposes, of
which one is lawful and the other unlawful, and the two purposes cannot be
separated, the whole trust is void.
Explanation.—In this section the expression “law” includes, where the trust-
property is immoveable and situate in a foreign country, the law of such country.

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 v. Commissioner of Wealth Tax, AIR 1999 SC 3352, which
contained the following terms:
“18. The Trustee for the time being may at his discretion
apply the whole or any portion of the income of the
Trust Fund for the maintenance education or
advancement in life of the Beneficiary and shall
accumulate all the residue by investing the same in the
aforesaid manner.

20. On the Beneficiary completing the age of 25 years

the trustee shall transfer and make over to be
beneficiary all the trust funds and on so transferring
this Trust deed shall stand cancelled and be of no
effect.

21. If the object for which the Trust has been created
fails and cannot be fulfilled, the Trustee for the time
being shall be at liberty to apply the trust property to
the benefit of the other sons, daughters of my last
daughter Mrs. Margaret Anne Reddy.”

The subject matter11 of a trust must be property

transferable to the beneficiary and it must not be merely
beneficial interest under a subsisting trust. Trust must be
accepted by any words or acts of the trustee indicating with
reasonable certainty of such acceptance.

VIII. OBLIGATIONS/DUTIES OF A TRUSTEE

 Section 11 - Trustee to execute trust
The trustee is bound to fulfill the purpose of the trust,
and to obey the directions of the author of the trust
given at the time of its creation, except as modified by the
consent of all the beneficiaries being competent to contract.
Where the beneficiary is incompetent to contract, his
consent may, for the purposes of this section, be
given by a principal civil court of original jurisdiction.
Nothing in this section shall be deemed to require a trustee
to obey any direction when to do so would be impracticable,
illegal or manifestly injurious to the beneficiaries.

 Section 12 - Trustee to inform himself of state of trust-

property

11
Section 8 of the Indian Trusts Act, 1882.

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 A trustee is bound to acquaint himself, as soon as
possible, with the nature and circumstances of the
trust-property; to obtain, where necessary, a transfer
of the trust property to himself; and (subject to the
provisions of the instrument of trust) to get in trust-moneys
invested on insufficient or hazardous security.

 Section 13 - Trustee to protect title to trust-property

A trustee is bound to maintain and defend all such
suits, and (subject to the provisions of the instrument of
trust) to take such other steps as, regard being had to
the nature and amount or value of the trust-property,
may be reasonably requisite for the preservation of
the trust-property and the assertion or protection of
the title thereto.

 Section 14 - Trustee not to set up title adverse to

beneficiary
The trustee must not for himself or another set up or
aid any title to the trust-property adverse to the
interest of the beneficiary.

 Section 15 - Care required from trustee

A trustee is bound to deal with the trust-property as
carefully as a man of ordinary prudence would deal
with such property if it were his own; and, in the absence
of a contract to the contrary, a trustee so dealing is
not responsible for the loss, destruction or
deterioration of the trust-property.

 Section 16 - Conversion of perishable property

Where the trust is created for the benefit of several persons
in succession, and the trust-property is of a wasting nature
or a future or reversionary interest, the trustee is bound,
unless an intention to the contrary may be inferred from the
instrument of trust, to convert the property into property of
a permanent and immediately profitable character.

 Section 17 - Trustee to be impartial

Where there are more beneficiaries than one, the
trustee is bound to be impartial, and must not
execute the trust for the advantage of one at the
expense of another.
Where the trustee has a discretionary power, nothing in this
section shall be deemed to authorize the court to control the
exercise reasonably and in good faith of such discretion.

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 Section 18 - Trustee to prevent waste
Where the trust is created for the benefit of several persons
in succession and one of them is in possession of the trust-
property, if he commits, or threatens to commit, any act
which is destructive or permanently injurious thereto, the
trustee is bound to lake measures to prevent such act.

 Section 19 - Accounts and information

A trustee is bound (a) to keep clear and accurate
accounts of the trust-property, and (b) at all
reasonable times, at the request of the beneficiary to
furnish him with full and accurate information as to the
amount and state of the trust-property.

 Section 20 - Investment of trust-money

Where the trust-property consists of money and cannot
be applied immediately or at an early date to the
purposes of the trust, the trustee shall, subject to any
direction contained in the instrument of trust, [make
investments as expressly authorised by the
instrument of trust or in any of the securities or class
of securities] as specified by the Central Government,
by notification in the Official Gazette:
Provided that where there is a person competent to contract
and entitled in possession to receive the income of the trust-
property for his life, or for any greater estate, no investment
shall be made without his consent in writing.

 20A. Power to purchase redeemable stock at a

premium
(1) A trustee may invest in any of the securities mentioned
or referred to in section 20, notwithstanding that the
same may be redeemable and that the price exceeds the
redemption value:
(2) A trustee may retain until redemption any redeemable
stock, fund or security which may have been purchased
in accordance with this section.]

 Section 21 - Mortgage of land pledged to

Government under Act 26 of 1871. Deposit in
Government Savings Bank

Nothing in section 20 shall apply to investments made

before this Act comes into force, or shall be deemed to
preclude an investment on a mortgage of immovable
properly already pledged as security for an advance under
the Land Improvement Act, 1871 (26 of 1871)1, or, in case

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 the trust-money does not exceed three thousand rupees, a
deposit thereof in a Government Savings Bank.

 Section 22 - Sale by trustee directed to sell

within specified time
Where a trustee directed to sell within a specified time
extends such time the burden of proving, as between
himself and the beneficiary, that the latter is not prejudiced
by the extension lies upon the trustee, unless the extension
has been authorized by a principal civil court of original
jurisdiction.

 Section 23 - Liability for breach of trust

Where the trustee commits a breach of trust, he is

liable to make good the loss which the trust-property
or the beneficiary has thereby sustained, unless the
beneficiary has by fraud induced the trustee to
commit the breach or the beneficiary, being
competent to contract, has himself, without coercion
or undue influence having been brought to bear on
him, concurred in the breach, or subsequently
acquiesced therein, with full knowledge of the facts
of the case and of his rights as against the trustee.

A trustee commuting 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.

He is liable, in case (a), to account for the interest actually

received, and, in case (b), (c) and (d), to account for simple
interest at the rate of six per cent, per annum, unless the
court otherwise directs;

(e) where the breach consists in failure to invest trust-

money and to accumulate the interest or dividends
thereon, he is liable to account for compound interest
(with half-yearly rests) at the same rate;
(f) where the breach consists in the employment of trust-
property or the proceeds thereof in trade or business,
he is liable to account, at the opinion of the
beneficiary, cither for compound interest (with half-

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 yearly rests) at the same rate, or for the net profits
made by such employment.

 Section 24 - No set-off allowed to trustee

A trustee who is liable for a loss occasioned by a breach of
trust in respect of one portion of the trust-property cannot
set-off against his liability a gain which has accrued to
another portion of the trust property through another and
distinct breach of trust.

 Section 26 - Non-liability for co-trustee's defaults

Subject to the provisions of sections 13 and 15, one trustee

is not, as such, liable for a breach of trust committed
by his co-trustee:
Provided that, in the absence of an express
declaration to the, contrary in the instrument of trust,
a trustee is so liable--
(a) where he has delivered trust-properly to his co-trustee
without seeing to its proper application;
(b) where he allows his co-trustee to receive trust-
properly and fails to make due enquiry as to the co-
trustee's dealings therewith, or allows him to retain it
longer than the circumstances of the case reasonably
require;
(c) where he becomes aware of a breach of trust
committed or intended by his co-trustee, and either
actively conceals it or does not within a reasonable
time lake proper steps to protect the beneficiary's
interest.

Joining in receipt for conformity

A co-trustee who joins in signing a receipt for trust-property
and proves that he has not received the same is not
answerable, by reason of such signature only, for loss or mis-
application of the property by his co-trustee.

 Section 27 - Several liability of co-trustees

Where co-trustees jointly commit a breach of trust, or

where one of them by his neglect enables the other to
commit a breach of trust, each is liable to the
beneficiary for the whole of the loss occasioned by
such breach.

Contribution as between co-trustee - But as between the

trustees themselves, if one be less guilty than another and
has had to refund the loss, the former may compel the latter,
or his legal representative to the extent of the assets he has
received, to make good such loss; and if all be equally guilty,

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 any one or more of the trustees who has had to refund the
loss may compel the others to contribute.

Nothing in this section shall be deemed to authorize a

trustee who has been guilty of fraud to institute a suit to
compel contribution.

 Section 30 - Indemnity of trustees

Subject to the provisions of the instrument of trust and of
sections 23 and 26, trustees shall be respectively chargeable
only for such moneys, stocks, funds and securities as they
respectively actually receive, and shall not be answerable
the one for the other of them, nor for any banker, broker or
other person in whose hands any trust-property may be
placed, nor for the insufficiency or deficiency of any stocks,
funds or securities, nor otherwise for involuntary losses.

 Section 41 - Power to apply property of minors,

etc. for their maintenance, etc

Where any property is held by a trustee in trust for a

minor, such trustee may, at his discretion, pay to the
guardians (if any) of such minor, or otherwise apply for
or towards his maintenance or education or
advancement in life, or the reasonable expenses of
his religious worship, marriage or funeral, the whole
or any part of the income to which he may be entitled
in respect of such property; and such trustee shall
accumulate all the residue of such income by way of
compound interest, by investing the same and the
resulting income thereof from time to time in any of the
securities mentioned or referred to in section 20, for the
benefit of the person who shall ultimately become entitled to
the property from which such accumulations have arisen:
Provided that such trustee may, at any time, if he thinks fit,
apply the whole or any part of such accumulations as if the
same were part of the income arising in the then current
year.
Where the income of the trust-property is insufficient
for the minor’s maintenance or education or
advancement in life, or the reasonable expenses of
his religious worship, marriage or funeral, the trustee
may, with the permission of a principal Civil Court of
original jurisdiction, but not otherwise, apply the
whole or any part of such property for or towards
such maintenance, education, advancement or
expenses.

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 Nothing in this section shall be deemed to affect the
provisions of any local law for the time being in force relating
to the persons and property of minors.

IX. TYPES OF PRIVATE TRUSTS12

a) Distribution based
 Determinate Trusts/Fixed Trust
A determinate private trust is a legal arrangement
where the beneficiaries have fixed and
predetermined entitlements to specific assets
or a fixed share of the trust property. Like all
trusts, a Determinate Private Trust is established
through a legal document called the trust deed.
While the trustee is responsible for managing and
administering the trust, their discretion is limited in
comparison to discretionary trusts.

 Discretionary Trusts
A discretionary trust is a legal arrangement in which
the trustee holds and manages assets on behalf
of a group of beneficiaries, but unlike a
determinate trust, the trustee has the discretion
to determine how the trust’s income and
capital are distributed among the beneficiaries.
The trust is established through a legal document
called the trust deed.

b) Revocation based
 Revocable Trusts/Living Trust
Revocable Trusts is a legal arrangement where the
author of trust creates a trust during his lifetime to
manage and distribute their assets. The
12
Available at: https://aiftponline.org/privates-trusts-part-1-basics-of-a-private-trust/

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 distinguishing feature of a Revocable Trust is that the
author of trust retains the ability to modify,
amend, or cancel/revoke the trust anytime
during their lifetime. The income of a revocable
trust is taxed in the hands of the author of
trust. This is because the author of trust retains
control over the trust and can revoke it at any time.

 Irrevocable Trusts
Irrevocable Trust is a legal arrangement where
author of trust relinquishes control and
ownership of the trust assets once the trust is
established. Unlike a Revocable Trust, the terms of
an Irrevocable Trust cannot be changed, altered
or revoked by the author of trust, providing a
higher degree of permanence and security for the
trust assets.

X. PROCEDURE FOR CREATING TRUSTS

i. Name of Trust – not to be similar or identical with
other names of trusts. However, the trust should
have a suffix ‘trust’ in its name. Certain examples of
Family Trust as per judicial precedents are as follows:
 A.V. Reddy Trust13
 Kaydee Family Trust wherein the Trust Deed was
named as the Deed of the Kaydee Family
Trust.14
ii. Ascertaining the Trustee and Beneficiaries.
iii. Drafting Trust Deed
iv. Execution and witness verification of Trust Deed
along with payment of stamp duty.
13
A.V. Reddy Trust & Ors. v. Commissioner of Wealth Tax, AIR 1999 SC 3352.
14
Vimal Kishor Shah & Ors. v. Jayesh Dinesh Shah & Ors., AIR 2016 SC 3889.

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 v. In case, it involves immovable property, then
registration of Trust Deed is mandatory. The Trust
Deed is to be presented to Sub Registrar of the area
in which the Author of Trust resides.

XI. PROCEDURE FOR MAKING CHANGES OR

ALTERING/MODIFYING THE TERMS OF TRUST
Revocable Trusts, which are unregistered, can be modified,
amended, or cancelled/revoked by the author of trust
anytime during their lifetime merely by executing an
addendum to the Trust Deed.

XII. VACATING THE OFFICE OF TRUSTEE

 Section 70. Office how vacated. —
The office of a trustee is vacated by his death or by his
discharge from his office.

 Section 71. Discharge of trustee. —

The trustee may be discharged from his office only as
follows: —
(a) by the extinction of the trust;
(b) by the completion of his duties under the trust;
(c) by such means as may be prescribed by the instrument
of trust;
(d) by appointment under this Act of a new trustee in his
place;
(e) by consent of himself and the beneficiary, or,
where there are more beneficiaries than one, all the
beneficiaries being competent to contract, or
(f) by the Court to which a petition for his discharge is
presented under this Act.

 SECTION 73. Appointment of new trustees on

death, etc.—
Whenever any person appointed a trustee disclaims, or any
trustee, either original or substituted, dies, or is for a
continuous period of six months absent from India, or leaves
India for the purpose of residing abroad, or is declared an
insolvent, or desires to be discharged from the trust,
or refuses or becomes, in the opinion of a principal
Civil Court of original jurisdiction, unfit or personally
incapable to act in the trust, or accepts an
inconsistent trust, a new trustee may be appointed in
his place by—

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 (a) the person nominated for that purpose by the
instrument of trust (if any), or
(b) if there be no such person, or no such person able and
willing to act, the author of the trust if he be alive and
competent to contract, or the surviving or continuing
trustees or trustee for the time being, or legal
representative of the last surviving and continuing
trustee, or (with the consent of the Court) the retiring
trustees, if they all retire simultaneously, or (with the like
consent) the last retiring trustee. Every such
appointment shall be by writing under the hand of the
person making it. On an appointment of a new trustee the
number of trustees may be increased. The Official Trustee
may, with his consent and by the order of the Court, be
appointed under this section, in any case in which only one
trustee is to be appointed and such trustee is to be the sole
trustee. The provisions of this section relative to a trustee
who is dead include the case of a person nominated trustee
in a will but dying before the testator, and those relative to a
continuing trustee include a refusing or retiring trustee if
willing to act in the execution of the power.

 Section 76. Survival of trust. —

On the death or discharge of one of several co-trustees, the
trust survives and the trust-property passes to the others,
unless the instrument of trust expressly declares otherwise.

XIII. EXTINCTION OF TRUSTS

Section 77. Trust how extinguished. —
A trust is extinguished—
(a) when its purpose is completely fulfilled; or
(b) when its purpose becomes unlawful; or
(c) when the fulfilment of its purpose becomes impossible
by destruction of the trust-property or otherwise; or
(d) when the trust, being revocable, is expressly revoked.

Section 78. Revocation of trust. —

A trust created by will may be revoked at the pleasure of
the testator. A trust otherwise created can be revoked only—
(a) where all the beneficiaries are competent to contract
—by their consent;
(b) where the trust has been declared by a non-
testamentary instrument or by word of mouth—in
exercise of a power of revocation expressly reserved to the
author of the trust; or
(c) where the trust is for the payment of the debts of the author
of the trust, and has not been communicated to the creditors
—at the pleasure of the author of the trust.

XIV. STAMP DUTY AND REGISTRATION CHARGES PAYABLE

IN DELHI

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  Stamp Duty as per the Delhi Schedule

 Registration Fees in Delhi

In case of Immovable Property, the Trust Deed should
be mandatorily registered.

SUGGESTIONS

 Author of the trust/Settlor is Ankita Jain being owner of the

property and expressing her will to transfer such property
for the welfare of two children by forming the trust.
 The Ankita Jain being the author of the trust may also be
the trustee.

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 Ankita Jain may be sole trustee or Mr. Niranjan Gugar may
also be added as the Co-trustee.
 Type of Trust: The trust to be established is “discretionary
and revocable private trust”. Such trust provides the
flexibility to use the funds as per the discretion of the
trustee. Further, being a revocable it provides the flexibility
to make changes in the trust deed without the approval of
the Court.
 Object of the Trust: The Trust being established is for the
welfare of the two minor children. The trust property and
income thereof to be utilized for, including – maintenance
or education or advancement in life, medical expenses
incurred till the youngest beneficiary attains the age of 25
years.
 The PPF account may be transferred to trust if the lock-in
period has passed.
 The clause may be entered in the Trust-Deed that upon
maturity of the RBI Bonds, the amount stands
automatically transferred to Trust Account.
 A separate bank account in the name of the trust to be
created and that account to be used for the expenses,
maintenance of the children.

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