In a trust, the owner can transfer the property to a trustee for the benefit of the beneficiary or beneficiaries. Trusts are irrevocable and cannot be amended or terminated without an order of the court. Trusts are registered with limited members for some charitable purpose under state laws.
Trusts can be Private, or Public Trust and Public Trusts are further classified as Charitable Trust or Religious Trust.
Introduction to Charitable Trust
As the name suggests, charitable trusts are for the benefit of people. They are incorporated to uplift the people who are not able to help themselves. Their focus area is poverty, illiteracy, public health, religious practices and other charitable purposes.
These are certain reasons for the creation of Charitable trust:
- Public benefit
- Perpetual existence
- Tax exemption
Types of Charitable trust in India
These are two types of charitable trusts which mirror each other, but they serve different needs.
Charitable lead trust
This type of charitable trust distributes the portion of its proceeds to a charity, and the remainder of the principal is then divided among the beneficiaries.
Here the donor has control over the trust property. Any interest which comes from the assets of the trust goes to charity or is divided between charity or the beneficiary of the trust. After termination of the trust, the donation goes to the person of the donor’s choice and not to the charity.
Charitable remainder trust
In this type of charitable trust, one can receive income from the distribution of assets that he puts in the trust earlier; these assets are the non-income-producing assets.
Here the assets are signed to a charity for a specific period, and once this time period is over, the charity gets complete control over the assets of the trust with the interest or profit they have generated. The term specified can be for some years or till the death of the donor.
Essential elements of Charitable Trust
- An author who creates the trust
- A trustee who is responsible for the trust property
- A beneficiary who gets the benefit from the trust property
- The property used for the creation of trust
- A clear objective for the creation of trust
The procedure to register a Charitable Trust
The Act that governs the charitable trusts is the Indian Trust Act, 1882, but each state has its own rules to govern trusts which are created in their own state. A charitable trust should be registered with the office of charity commissioner of the jurisdiction of the trust.
Followings are the procedure for registration of such trusts:
- Choose an appropriate name
The name should not come under the restricted list as per the provisions of the Emblem and Name Act, 1950.
- Formation of trust deed
A trust deed is very important for the registration of the trust; it is legal evidence of the existence of the trust. It contains all the rules, regulations and bye-laws of the trust. The trust deed should be prepared on stamp paper.
The MOA should also be formed with the trust deed; it has specific objectives of the trust along with the details and signatures of the trustees/members.
- Submission of trust deed with Registrar
The certified trust deed along with the photocopies attested by the Registrar. The settler and the two witnesses with their identity proof should be physically present at the time of registration.
- Obtain trust registration number
After submission of the trust deed, the Registrar keeps the photocopy and returns the original of it.
Then after completion of all the formalities, a certificate of registration is issued within seven working days.
Documents required for registration
- Trust deed
- Self-attested copy of Identity proof of the settler
- Self-attested copy of Identity proof of the trustee
- Address Proof of registered office of the charitable trust
- PAN Card
- Non-objection certificate (NOC) by the owner of the land
The charitable trust a created for a charitable purpose, especially for public health, religious practices, education, poverty or gender equality. It is a form of public trust which is registered with the office of the charity commissioner. The registration of such trust is done by the Registrar after submitting the trust deed along with other documents and the required fee. A charitable trust is governed by the provisions of the Indian Trust Act, 1882; however, each state has its own law to govern the trust created in that state. The trust property is an essential part of the trust along with the author, trustee and beneficiary. The objective of the trust should be very clear. The charitable trust has permanent existence, and it enjoys various tax benefits. Such trusts also generate goodwill.
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