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.
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.
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.
For valid constitution of a Trust, the author must indicate with reasonable certainty:
The intention on his part to create a Trust.
Similar to private trusts, public trusts may be created either inter vivos or by will.
A declaration of Trust which is binding on settlor.
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.
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.
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