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Sakshi Srivastava
| Updated: 26 Oct, 2020 | Category: Trust

An Overview on Formation of a Trust under Indian Trusts Act

Formation of a Trust under Indian Trusts Act

A trust in general falls under Indian law having a statutory authority, i.e. the Indian Trusts Act, 1882. The Indian Trusts Act, 1882 is an Enactment in India related to separate guardians and custodians. The Act defines what would legally be designated as trust and who can be authorized as its trustees and gives the explanation for them. Trust is a commitment attributed to possession of premises and emerging out of reliance reclined admitted by the owner for the interest. This blog will talk about the purpose and formation of a Trust under Indian Trust Act.

Moreover, Trust Registration can also be used as pooling vehicles for investments, like mutual funds or venture capital funds. These are governed by a separate set of regulations they are the Securities and Exchange Board of India (SEBI) (Mutual Funds) Regulations, 1996 and Securities and Exchange Board of India (Venture Capital Funds) Regulations.

Definition of a Trust as per Section 3 of the said Act, 1882

As per sec 3 of the said Act 1882, it states that- “A Trust is an obligation affixed to the ownership of the property, and emerging out of a confidence reposed in and affirmed by the owner, or declared and acquired by him, for the benefit of another and the owner.”

Read our article:Checklist of Documents Required For Trust Registration in India

Purpose for Formation of a Trust as per the Act

Formation of a trust is done to fulfill any or more of the following objectives-

  • For discharge of the charitable and religious sentiments of the author of the settler of the trust, in a way that assures public benefit;
  • For demanding exemption from Income tax U/s 10 or 11, as the case may be, in respect of incomes for charitable or religious purposes;
  • For the interest of the members of the family and other kin, who are subordinate on the settler of the trust;
  • For the proper administration and preservation of property;
  • For regulating the functions of a provident fund, superannuation fund or gratuity fund or any other fund constituted by a person for the well-being of its employees.

Formation of a Trust

To create a trust, the founder of the trust should specify by reasonable faith which are as following-

  • A purpose for formation of a trust;
  • The objective of the trust;
  • The successor;
  • The trust property;
  • Should (save in case of a trust declared by will, and of faith from which the author which is the creator of trust) transfer the property to the trustee.

The above-specified provision under section 6 is subject to the provision of sec 5 which prescribes that no trust with immovable property is valid unless declared by a non-testamentary instrument in writing signed by the founder of the trust and even by the trustees.

Illustration: A bequeaths specific provision to B, “having the fullest assurance that he will dispose of it for the interest of C”. This builds trust so far as regards to A and C.

The Capacity for Formation of a Trust

As a general rule, any individual who is legally capable of disposing of a property can build trust over it to the extent of his power of disposition and any person who can hold or obtain property can be a trustee.

Under section 7 of the Act, “A trust may be created by any person competent to contract, and with the approval of a principal civil court of original jurisdiction by or a behalf of a minor. For the Formation of a trust, no technical languages are necessary. Any language may be used from which intended to create a trust appears.

Who can create a Trust?

U/s 7 of the Indian Trusts Act, 1882[1] a trust may be created by each person qualified to contract and by or on behalf a minor, with the approval of a principal court of original jurisdiction.

Formation of a Trust can be done by the following persons-

Formation of a Trust

Conclusion

The purpose for formation of a trust should be provided in case anyone is creating a Trust. Where an infringement of trust has occurred and an individual other than a Trustee has asserted the benefit from the transgression, he will be obliged to compensate the administrator. Such reimbursement is not available to a trustee who has been convicted of deception in violation of trust.

A Trustee has the grant to do all such actions that are rational and outlandish for the consummation, assurance or interest of the trust assets and also for the reassurance of a pensioner who is not liable to contract. Feel free to contact our experts at CorpBiz to know more about Trust Registration in India.

Read our article:What are the Differences in Between Section 8 Company from Trust and Society under NGO?

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Sakshi Srivastava

Sakshi has pursued B.B.A.LL.B.(IPR Hons.). She is an avid reader and is keen to gather and share her knowledge on the subjects relating to IPR, Company Law and GST. Priorly she has worked as a legal researcher and vide her articles she aims at improving the core knowledge of the subjects to the masses.

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