Various Types of Trusts and their Importance

Trusts serve several functions and are a vital component of the Indian legal system. A legal arrangement known as a trust designates a trustee to hold assets on behalf of beneficiaries. There are various types of trusts with distinct functions in India. The six distinct categories of trusts in India will be covered in this article.

What Does Trust Mean?

A Trust is a formal agreement in which property is transferred to a Trustee by the owner, the Trust, or the Trustees. The property’s transfer benefits a third party. The Trust or a proclamation directing the Trustee to hold the property for the benefit of the Trust’s beneficiaries transfers the property to the Trustee. The Indian Trust Act of 1882 provided the legal basis for trust in India, and it is advised to establish a registered trust in India in order to receive benefits.

Benefits of a Registered Trust in India?

The registered trust helps the people and the indigent with much-needed financial support through its charitable operations. Trusts are very useful for guaranteeing income and capital tax exemptions. The trust may offer more robust protection against strict tax regulations for the settler, beneficiaries, and trust assets. The trust has broad legal protection under the Indian Trusts Act of 1882. Furthermore, it prohibits any third party from bringing up a pointless lawsuit that would undermine the trust’s credibility in court. It is best to set up a trust when a person and their family move abroad so that they can be exempted from paying taxes in the new nation, protecting their assets and enabling more organizational flexibility.

Objective of a Trust Generally

The primary goal is that the trust be established with legal justification. For instance, the trust would be null and void if Mr. X had stolen money from a bank and given it to Mr. Y with the aim of donating it to underprivileged children. This is because the trust’s primary goal is illegal.

Therefore, how can we determine whether the goal is legitimate or illegal? Section 4 of the Act contains the solution to it.

According to Section 4, all objectives are deemed legitimate unless they:

• Is prohibited by legislation
• Defeats the legal requirements
• Is not sincere
• Involves causing harm to someone else or their property
• Unethical

 Various Types of Trusts

The various types of trusts can be categorized based on duration, purpose, and beneficiaries: –

Public trust: A public trust is an institution that exists to safeguard the interests of the community at large or aspects concerning some members of it. They are usually established for benevolent or religious purposes among others such as construction and operation of schools, hospitals, temples etc. Trustees are required to take care of resources and guarantee their use for beneficiaries’ advantage in public trusts.

Private Trust: A private trust is a formation done for the benefit of one person or a family. Such trusts have been formed mainly to protect family properties like money or real estate but can also be used to cater for the welfare and education of relatives. The specific beneficiaries are named in the deed, while the trustee manages assets and distributes income amongst them. Indian Trusts Act 1882 applies to private trusts in India.

Specific Trust: Some special purpose trust may be set up to look after certain things such as pets, parks etc. In some instances, these trusts would only exist for a short period before they are wound up again. The trustee therefore looks into how much has been made available by way of fund on behalf of his special purpose trust.

Charity Trust: These are established to assist the wider community or a specific group of people like those who are sick and the needy. Such resources escape taxation under Indian Income Tax Act and commonly aim to promote social welfare. Trustees, on the other hand, are assigned with assets management and they should ensure that such resources go as per their intended use.

Implied Trust: In some instances, an implied trust is created when the surrounding circumstances imply that there was a trust even if there was no formal agreement to this effect. For example, when one gives money to a friend with instructions that it should be spent for a particular purpose, implicit trust is formed out of this. He becomes a de facto trustee in this situation.

Express Trust: This means that an express trust has been created by way of a written document setting out its terms and conditions. The document states those who will benefit from it; its trustee; as well as its property in detail among others. Thus, within these provisions the trustee continues to manage the trust investment while making distributions of returns on behalf of the beneficiaries upon implementing specific wordings of the trust deed.

Conclusion

Trusts play a vital role in India’s legal system, and the various types of trusts have different functions. It’s critical to understand the various trust kinds and their conditions, whether you’re establishing a trust to protect family assets or for charity objectives, to guarantee that your arrangement is both lawful and functional.