In general, a trust is a form of arrangement in which the asset is transferred by the owner (the settlor) to another person (trustee) for the benefit of the class of persons known as beneficiaries. The interested parties i.e. the trustor, and the trustee must obtain a trust deed to transform the Trust into a legal entity. Such agreements help to clarify the scope of authority to the trustee who will manage the assets of the settlor. This article will unfold the Advantage of Trust Registration in India.
Overview on Foundation of a Trust
In general, setting up a trust isn’t a daunting errand as only two members are required to lay its foundation. To serve this purpose, the members need to prepare a trust deed on a non-judicial stamp paper. The member then needs to approach charities commissioner (only in Gujarat and Maharashtra) or registrar in other states to legally authorize the deed. The trust deeds incorporate avalanches of detail, such as the Trust’s objective, aim, role, and responsibilities of the active members.
Such legal entities are set up via the Charitable Trust Registration process, a guideline prescribed under the Trust Act. Every charitable Trust needs a trust deed registration for the establishment purpose. Henceforth, the charitable trust registration is called a trust deed. At present, there are more than seven hundred thousand legally registered NGOs working in the country. However, the majority of them lack the official seal. The trustees need to refer any documents other than a trust deed for cross-reference of actions within the Trust. This is one of the vital Advantage of Trust Registration.
Read our article:Know Everything about President, Secretary and Treasurer of a Trust
Advantage of Trust registration in India
Autonomous and Executes Accurate Control
By virtue of an agreement, the trustor and the trustee play a distinctive role in managing the Trust. The trustee must stay autonomous and executes accurate control over the Trust’s asset or property. A trust would not remain legally valid in the case if the settlors continue to rein the activities of the Trust even after signing the trust deed.
Those who are not accustomed to the trust notion are often deal with skepticism related to transferring their asset to a trustee. This concern can be easily evaporated once the person grabs the fundamental knowledge of the Trust and the law that governs it.
Benefits for Their Heirs and Successors
Charitable trusts are often set up by the people who wish to engage with charitable activities while reaping benefits for their heirs and successors. Other prominent reasons for which Trust is being set up are to avail tax exemptions. Non-profit organizations are a perfect example of charitable trusts. However, these benefits can only be availed in the situation when the charitable Trust acts as a legal entity. This is probably the primary Advantage of Trust Registration.
Legal Roadmap to Guide the Charitable Entities
In India, the Federal and State Law Departments have paved down the legal roadmap to guide the charitable entities and the common people. This process is meant to aid those help seekers (especially donors) who wish to transfer their assets to the trusts for additional tax benefits. This way, these donors can save a large sum of money that can later transfer to the legal heirs.
Long-Term Taxation Benefits
This is the primary reason for such an investment where donors can reap long-term taxation benefits through continual donations in the reputable trust organization. Registration of charitable trusts requires the person to grab the essential information about setting up a new trust. Both state and federal authorities have their legal roadmap that serves as a purpose. The specific law, such as the Trust Act 1882[1], has been established and proclaimed to encourage the process of registration.
Statutory Rights
Ordinarily, the authority that grants the charitable trust registration exercises the statutory rights and common regulations to enforce charitable trusts. But it should be noted that nearly all charitable NGOs are required to register under concerned authorities.
Key Points Regarding the Trust registration
- Trustees must exercise their power as per the regulations prescribed under the relevant law. Under no circumstances trustees can violate the trust deed.
- Trustees must no avert the interest of their beneficiaries or the settlor
- The trustees are not eligible to improvise the regulations that hamper the integrity of the trust fund. Such actions are prohibited and shall not be carried out even in the absence of the remuneration.
- The trustees shall compensate for any violation of regulations associated with the Trust. Such actions could extend to the probing of the company’s activities in which the trustee holds a prominent position.
- The private trusts are comparatively less stable than a public trust.
- Public charitable Trust possesses a legal status, whereas most private Trust works autonomously without any legal obligations. It’s essential to be noted that in the case of Transfer of Immovable Properties, the private Trust would no longer act as an independent entity as such actions cannot be completed with legal interference.
- Private trusts have a limited scope for amalgamation/ merger. Meanwhile, Public Charitable Trusts can merge with other public Trusts having similar goals.
Conclusion
Setting up a trust could be an excellent idea for someone who wishes to carry out charitable activities with tax benefits. The constraints for establishing such a firm is considerably low as compared to other registrations. But, when it comes to regulation, things start becoming a little bit complicated for the Trust.
Non-compliance is one of the critical reasons for the dissolution of Trust in India. Having said that, if you wish to establish legally-oriented Trust and looking to stay ahead of the curve, then do not hesitate to avail of help from our Corpbiz professionals.
Read our article:Cancellation Grounds for Trust Registration 2020: New Changes
