Trust

Trust Deed- How does it work!

calendar04 Feb, 2022
timeReading Time: 4 Minutes
Trust Deed

Trusts are the statutory bodies primarily created for the benefit of private individuals or public at large and may also be established for the promotion of art, science, commerce etc. Generally, the trusts are of two types- private trusts and public trusts.

The trusts are governed under the Indian Trusts Act, 1882[1]. Nowadays, the trusts are also used as a pooling vehicle for various kind of funds such as mutual funds, venture capital funds etc. Such funds, therefore would be governed by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and Securities and Exchange Board of India (Venture Capital Funds) Regulations.

As per Section 3 of the Indian Trusts Act, 1882, trust refers to the obligations associated with the ownership of the property, issued in the benefit of an individual or public at large.

What is a Trust Deed?

The Trust Deed is an instrument wherein, the settler of the trust transfers the identifiable property to the trustees thereby making them obligatory to work and manage the trust as per the terms and conditions specified in the deed.

Elements of a Trust Deed

The Trust Deed comprises of several elements combined together for a meaningful execution. Let’s discuss some of these elements in detail form:

  • Objects of the Trust Deed

The foremost object for which the trust deed is enacted holds a major importance in the documentation.  All the activities of the trust are being listed in the Trust Objects and shall always be complied with as long as the trust is in the mere existence.

  • Registered Office of the Trust

Every trust deed shall mandatorily mention the registered office of the trust in bold to be easily readable by any of the concerned parties.

  • Raising of Funds

The trust is eligible to accept the donations, subscriptions or grants, in cash or in kind from any person or institution, companies or government.  The funds shall always be utilised for the objects of the trust and shall fall within the conditions which are consistent with the objectives of the trust.

  • Making Investments

Fund management of the trust is in the hands of the trustees.  Therefore it should be done in an efficient manner. There should be proper bifurcation between short term investment and long term investments. The funds which won’t be utilised in the short span of time shall be put into long term investments and vice-versa.

  • Roles and Responsibilities of Trustees

The trustees, being held with the duty to efficiently manage the trust, have an array of roles and responsibilities on their part:

Let’s discuss, some of them:

  1. Recruitment of the employees in the trust;
  2. Purchase, sale, rent out properties in the name of the trust;
  3. Opening up of the Bank Accounts in the name of the trust and on behalf of the trust;
  4. Files cases in the name of the trust and on behalf of the trust;
  5. Making investments in the name of the trust;
  6. Accepting of donation or contribution, in cash and in kind in the name of the trust;
  7. Day to day management of the trust.
  • Accounting and Auditing Activities

Being a statutory body, the trust is also obliged to maintain its books of accounts and conduct the auditing services on the annual basis.  This would provide a more transparent picture of working at the trust and any financial mismatch can also be avoided.

Moreover, it presents a true and fair view of the assets, liabilities, income and expenditures associated with the Trust. This could be really helpful for closure of the trust once the purpose for which it has been established, have been accomplished.

  • Winding Up

The last but not the least clause present in the Trust Deed is of winding up. This refers to the procedure of closure of trust after its purpose is established and the benefits have been received in the hands of the beneficiary.

There may also be cases where the trust needs to be wind up due to managerial or other issues, and not due to the accomplishment of its purpose. In such cases, the assets belonging to the trust shall be transferred to similar trusts or any other institutions or organisation whose motive is similar to that of the existing trust. In no case, the assets shall be transferred to the trustees.

Apart from the above, the trust deed shall also mention the clauses pertaining to the appointment, qualification and cessation of the trustees. Let’s discuss the same in detail:

Appointment of trustees

Once the trust is originally established, any vacancy in respect of the same shall be filled up by the existing trustees though the exercise of their votes. A fit, proper and suitable person shall be appointed for the role of the trustee.

Cessation of the Trusteeship

The trustee shall cease to be in position if one or all of the factors mentioned below are met:

  1. In case of his resignation;
  2. In case he becomes insolvent;
  3. In case of his death;
  4. In case majority of the rest of the members of the trust find out that the activities of the concerned trustee is not in alignment with the purpose of the trust.

Now, let’s take a review upon the qualifications of a trustee:

  1. One of the trustee shall possess the qualification in relation to the alternative medicines or acupuncture;
  2. One of them shall be a specialist in the Yoga therapy;
  3. Other trustees shall be from the field social work or must be the professionals in the field of medicine or accounts or law.

The Deed Also mentions about the Administrative position of the Trust

Every trust shall be vested with the Board of trustees, which will be comprised of:

  1. One member as  Managing Trustee;
  2. One member as  Joint Managing trustee;
  3. One member as Deputy Managing Trustee and three other trustees.

Remuneration of the Trustees

The Trustees shall not be eligible for any remuneration in the hands of the trust. But they receive all the out of pocket expenses incurred by them for the discharge of the functions of the Trust. All the income of the trust shall be utilized towards the objects of the trust and nothing else.

Indemnity

Every Trustee shall be indemnified against any loss arising out of the activities of the trust unless the loss is incurred due to the negligence of the trustees.

Conclusion

Therefore, we are able to understand from the above that a trust deed is a detailed document containing all the points necessary for the smooth functioning of the trust as well as helps in the administration of the trust and also contains in itself the procedure for the winding up of the trust.

Read our Article:An Overview on Formation of a Trust under Indian Trusts Act

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