A private trust or family trust was a very popular instrument to deal with inheritance tax in Indian before repeal of Estate duty in 1985. However it is considered to be the extreme important tool in western/developed world even today as most of these Countries still have inheritance tax provision in place.
In India, people still love to form private trust not for tax planning purposes but for settling family estate to the next generation in most appropriate and undisputed manner as compared to other of succession/estate planning like gifts, Will etc.
In this series of Succession/Estate Planning- Introduction, importance and taxation for all form of Estate planning including FEMA matters relating to such planning, this is Part-1 of this series. For other part, please visit www.dsrvindia.com
What is a Private Trust?
A “trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner. (Section-3 of by Indian Trust Act, 1882)
A Private trust can be used for several purposes like assets protection from undesirable elements, family holding over business and most importantly for the purpose of holding of assets and transfer of assets to the next generation. A private trust is established for the benefit of the Beneficiary and consists of a Settlor, Trustees and Beneficiaries and Governed by Indian Trust Act, 1882.
Registration of Trust is mandatory if it is being created in relation to immovable property while in case of movable property registration is not mandatory if such movable property has been transferred to the trustee/trustees. (Section-5 of by Indian Trust Act, 1882)
How the Trust is created
A private trust is created when the author of the trust indicates with reasonable certainty by any words or acts
(a) An intention on his part to create thereby a trust,
(b) The purpose of the trust,
(c) The beneficiary, and
(d) The trust-property, and transfers the trust-property to the trustee. (Unless the trust is declared by will or the author of the trust is himself to be the trustee). (Section-6 of by Indian Trust Act, 1882)
Parties to the Private Trust
A trustee who has accepted the trust cannot afterwards renounce it except (a) with the permission of a principal Civil Court of original jurisdiction, or (b) if the beneficiary is competent to contract, with his consent, or (c) by virtue of a special power in the instrument of trust. (Section-46 of by Indian Trust Act, 1882)
A trustee cannot delegate his office or any of his duties either to a co-trustee or to a stranger, unless (a) the instrument of trust so provides, or (b) the delegation is in the regular course of business, or (c) the delegation is necessary, or (d) the beneficiary, being competent to contract, consents to the delegation. (Section-47 of by Indian Trust Act, 1882)
In the absence of express directions to the contrary contained in the instrument of trust or of a contract to the contrary entered into with the beneficiary or the Court at the time of accepting the trust, a trustee has no right to remuneration for his trouble, skill and loss of time in executing the trust. (Section-50 of by Indian Trust Act, 1882)
A trustee may be discharged from his office only as follows:—
(a) by the extinction of the trust;
(b) by the completion of his duties under the trust;
(c) by such means as may be prescribed by the instrument of trust;
(d) by appointment under this Act of a new trustee in his place;
(e) by consent of himself and the beneficiary, or, where there are more beneficiaries than one, all the beneficiaries being competent to contract; or
(f) by the Court to which a petition for his discharge is presented under this Act.
(Section-71 of by Indian Trust Act, 1882)
Besides the above discussed key persons in a trust, a trust may also have a protector and an advisory board. The protector of the trust is entrusted with the responsibility of ensuring that the directions of the Settlor are given effect and that the trustees administer and dispose of the properties in an appropriate manner. The protector must also ensure that the trust is carried on for the purpose it was originally established. An advisory board is set up under a Trust Deed to advise the trustees. However, the trustees are not bound by the advisory board.
Type of Private Trust:
Why Private Trust:
Importance of Trust Deed
Trust deed is an instrument by which the private trust comes into existence. It basically spell out various terms and conditions according to which the trustee/trustees shall execute the trust enforced upon them by the author of the trust. A clearly defined trust deed shall minimise the probable litigation and execute the trust to its fullest meaning.
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Authored By: CA Sanjay Kumar Agrawal Email: email@example.com M: +91 9810116321