A Trust is registered under The Indian Trust Act 1882 and provides for the provision related to Trust. The trust is a harmonization where the owner of the Trust transfers the property to a trustee. Here, the objective of transferring the property is to provide the benefit to a third party. The property is transferred to the trustee by the trustor along with a proclamation that the property should be held by the trustee for the beneficiaries of the trust.
To obtain the benefits of a Trust, it needs to meet certain prerequisites and the registration process is one of the prerequisites. Before registration, Trust Deed must be formed on the non-judicial stamp paper. Every state has fixed its rate on stamp duty.
Benefits of Trust:
To Involve In Charitable Activities : Charitable trusts are set up with the common objective of getting involved in charitable activities while collecting certain benefits for him, his heirs, and successors.
Registered Trust Avails Tax Exemptions : The other main reason for setting up the registered Trust is to avail tax exemptions. Such charitable trusts are nonprofit organizations and to avail all these perquisites, the charitable trust should have a legal entity.
Provides Benefits To Poor People: The registered trust provides the advantage to the poor people and the public by exercising the charitable activities fairly.
Compliance With Law : By registering the trust, compliance would be maintained under the provisions of the Indian Trusts Act, 1882, which will directly keep the Trust safe from any legal hindrance.
Preservation Of Family Wealth: Trusts may be utilized to own specific assets, such as land/an interest in a family based company, which would not be suitable or practical for a settlor to split between individuals. The usage of a trust allows such individuals to benefit from the assets despite the fact that they do not own them. A trust will also assist to preserve the capital value of such assets for potential generations.
Avoid Probate Court: As legal title of the assets surpasses from the settlor to the Trustee when they are “settled”, there is consequently no change of ownership when the settlor get dies, thus evading the need for probate of a will in terms of trust assets.
Moreover, Grants of probate is a matter of public record, while a trust is a private agreement which does not have to be registered anyplace. The use of a trust can also avoid the economic adversity sometimes undergone by a surviving spouse even as waiting for probate to be granted.
Immigration/Emigration Of Family : When a person and her/his family shift to another country, it is frequently an ideal/only time to set up a trust in order to evade taxation in the destination nation, thereby protecting the family wealth & providing flexibility in its organization. Such organization requires detailed professional advice and guidance.
Forced Heirship: The Residents of countries with fixed laws of legacy may be able to utilize trusts to get the flexibility they offer in respect of distribution of part/all of their assets to beneficiaries who could otherwise not be permitted to benefit under the laws of their country of the residence. Such planning must be made under a detailed professional guidance from legal experts in their nation of residence/nationality.
Tax Mitigation: Trusts can be very effective in reducing taxation on capital and income. The trust may provide effective protection for the settlor, the beneficiaries and the trust assets from punitive taxation. A frequent use for trusts is the mitigation or avoidance of inheritance tax in the settlor’s jurisdiction although this will, naturally, be subject to appropriate tax advice being obtained.
Managing Assets: Trusts can be very effective in reducing taxation on capital and income. The trust may provide effective protection for the settlor, the beneficiaries and the trust assets from punitive taxation.
There are two types of trusts in India: private trusts and public trusts. While private trusts are governed by the Indian trusts Act, 1882, public trusts are divided into charitable and religious trusts. The Charitable and Religious Trust Act, 1920, the Religious Endowments Act, 1863, the Charitable Endowments Act, 1890, the Bombay Public Trust Act, 1950 are some of the statutes for the enforcement of public trusts in India.
Private Trust: A Private trust is a trust that is constituted for the benefit of 1 or more individuals who are, or within a given time may be, definitely ascertained. Private Trusts are regulated by the Indian Trusts Act 1882. These trusts may be created inter vivos or by will.
Public Trust: A Public Trust is a trust which is established wholly for the benefit of Public at large. Key points for Public Trusts are given bellow:-
- Public trusts are basically charitable or religious trusts and are regulated by the general Law.
- The regulations of Indian Trusts Act do not apply on Public Trusts.
- Similar as the private trusts, public trusts may be established inter vivos or by will.
Public-Cum-Private Trusts: The trusts whose part of the income may be utilized for public purposes and a part may go to a private person or persons are known as Public-cum-Private Trusts.
Classification In Terms Of Motive Of Formation
Recently, trusts can also be used as a vehicle for investments, such as mutual funds and venture capital funds. These trusts are governed by Securities and Exchange Board of India (SEBI). Classification in terms of motive of formation is as follows:-
Private Trust: Settlor creates a Trust primarily for benefit of one or more particular individuals as its Beneficiary.
Public Trust: Beneficiaries are the general public or a class as a whole. It has some charitable end as its Beneficiary.
Simple Trust: Trustee is just a passive depository of the Trust property. There are no active duties expected from Trustee and no directions are given to him.
Special Trust: Trustee is active and acts as an agent to execute the Grantor’s wishes. This Trust is operative.
Express Trust: Here, the Settlor creates a Trust over his assets either in present or upon his death. It can be either by way of a will or Trust deed.
Implied Trust: It is created where some legal requirements for an Express Trust are not met, but intention on behalf of the parties is to create a Trust that is presumed to exist.
Others depending on the type of object(s).