Trusts are established to lay out legal protection for the Trustor’s Asset. The Trust, whether Public Trust or Private Trust, helps ensure that the assets are distributed as per the wish of the Trustor. In the present scenario where we see conflicts in families, relatives, and friends because of Property distribution, it is essential to create a Private Trust. In this article, we will pen down Private Trust Registration in India and their Benefits.
What is Trust?
As per Section 8 of the Indian Trusts Act, 1882, “Trust” is defined as an instrument used for safeguarding the interest of the Settlor and safeguarding beneficiaries, majorly minors and those who are unable to protect their interests.
Elements of Trust-
The Trust has four elements.
- The Settlor who creates the Trust.
- The Trustee who holds the property for another’s benefit
- The Beneficiary gets help from the Trust.
- The Trust property is involved in the transaction.
What is a Private Trust?
A private trust registration in India is formed to benefit one or more individuals who are, or within a given duration maybe, definitely ascertained.
Private Trust is a trust established for-
• Family members,
• Relatives,
• Friends, etc.
Private Trust Registration in India gives the transaction a legal form and guarantees that money is used only for the interest of the family and in the way the Trustee chooses it to be handled.
For Instance
Vijay transfers Rs 10 lakhs for the interest of his family to a private trust that has been formed. Vijay appoints himself as a trustee to handle things in his lifetime and his sister as an alternative trustee. If anything happens to Vijay, his sister will control the trust property as per the trust deed.
Establishment of Private Trust Registration in India
A private trust, formed under and controlled by the Indian Trusts Act of 1882, aims at governing determined trust properties for private or public purposes. A private trust does not avail of the advantage and tax benefits available to public trusts. In a private trust, the individuals, relatives, or families can be the beneficiaries.
The private Trust is the original form of Trust in which the creator/Author, Trustee, and beneficiaries can be easily identified.
Purposes of Private trust Registration in India
Private trusts can be established to fulfil either or more of the following purposes:
- To look after the welfare of the family member and dependent relying on Settler.
- To claim an exemption under the Income Tax Act, 1961[1] ,
- For the appropriate management and protection of property
Requisites Documents for Private trust Registration in India
Below mentioned documents are required for Private Trust Registration in India-
- Id and Address proof along with the passport size photo of the Author
- Id and Address proof along with the passport size photo of two trustees
- Id and Address proof and the passport size photo of two witnesses.
- The instrument that is non-testamentary needs to be signed by the Author.
- Particulars of all trustees along with their ID and Address Proof.
- Verified original copies of the registration certificate.
- Xerox copy of income tax registration certificate.
- Original copy of Trust Deed.
What are the benefits of establishing Private trust Registration in India?
Below mentioned are the benefits of Private trust Registration in India.
1. A trust can be established for allowing the Settler to perform their responsibilities for the well-being of his family, relatives, and friends in a systematic and controlled way.
2. An effective way of managing and passing on Family Assets.
3. A Private trust can be created to safeguard the interest of family members and relatives.
4. It helps in avoiding family conflicts.
5. Attainment and Fulfillment of Author’s wishes
Types of Private trust registration in India
Private Trust Registration in India is categorized into three types-
Revocable Trust
It’s an alternative to Will. A revocable trust does not protect any assets, as they can be withdrawn from this Trust. In Revocable Trust, assets are neither treated given away; hence they are taxed in the hands of the Settlor at the slab rate.
Irrevocable Non-Discretionary Trust
Assets cannot be withdrawn from Irrevocable Non-Discretionary Trust. The Settlor has complete control over trust norms as they can decide which Beneficiary secures which asset and in what ratio. If the Settlor is the primary Beneficiary, then the Settlor is taxed at slab rate. Also, a private trust may be formed to help the disabled child and ensure that they have been appropriately cared for.
Irrevocable Discretionary Trust
The Settlor lets the Trustee decide the proportion and share of the respective beneficiaries in the case of Irrevocable Discretionary Trust. The Settlor only decides beneficiaries. In other ways, as the beneficiaries are identified, their beneficial interest in the Trust is not determined upfront.
A well-prepared discretionary trust permits the Trustee to add or exclude beneficiaries from the class, rendering the Trustee greater flexibility to handle changes in circumstances. The beneficiaries cannot force the Trustee to utilize any property registered under the Trust for their benefit. These trusts are more popular than non-Discretionary trusts. Today, most family trusts are discretionary.
Conclusion
In a nutshell, we can say that Private Trust is formed to provide the benefit of one or more persons who are certainly determined within a stipulated period. Establishing a Private Trust Registration in India can be fast and easy as less documentation and process are required compared to other nations.
Read our Article:Know the Advantage of Trust Registration in India
