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Home / Trust - Formation Requirement & Procedure Trust - Formation Requirement & Procedure
For Formation of trust it is necessary to understand the following elements essential to form a trust:
Three Parties Author, Trustee and beneficiary are essential to form a trust. There should be person to repose or declare confidence, known as author of the trust. Another person should accept the confidence as reposed in him by the author, called the trustee. When the author declares and accepts the confidence himself he becomes a trustee also. The person creating the trust should of age 18 or above and sound mind , for the purpose of eligible for creating the trust. Beside the trust and trustee there should be third person for whose benefit the confidence is reposed by the author and accepted by the trustee, called as beneficiary. In some cases the author of the trust may himself be the beneficiary. Subject Matter The subject matter of the trust is the property in respect of which the trust has been created. For creating a valid trust, the subject matter should be defined with certainty and such property should be capable of disposition. The word property is very wide and includes any property which a person can in law transfer or assign or disposes of inter vivos or under a will except for any rights or interests which are purely of personal nature. Object The Trust must be formed for charitable purpose. Charitable purpose have been defined to include relief of poverty, advancement of education, advancement of religion and other purpose beneficial to the community not failing under any of these preceding heads. A charitable trust in order to be charity in the legal sense, will have to be for purpose of a public nature in other words for the benefit of the community or some part of it. When the beneficiaries of a trust constitute general public or a section of public, as distinguished from private individuals and when the trust is meant to perform a public charity, it is public charitable trust. Trust Deed The instrument by which trust is created is called as Trust Deed. Although it is not mandatory for trusts to enter into such deed agreement, as trusts can be formed even by oral communication except in case of private trust in relation of immoveable property which is required to be created by a non - testamentary instrument in writing. No written agreement is compulsory required for the formation of trust but the same is needed to get the trust registered under the Income Tax Act for availing the exemptions and more over a deed is a prima facie evidence of the existence of a trust.
A Trust may be declared either by will or by a non-testamentary instrument called as Trust Deed. A Trust in relation to immovable property can be created also by transfer of ownership of that property to the trustee. A Trust can be created by any of the following methods:
By Trust Deed A trust declared inter vivos or by the acts of the parties is to be supported and evidenced by a non testamentary instrument in writing and signed by the author of the trust and the trustee (i.e trust deed). There is no prescribed form of a trust Deed. Any words which indicate the intention of the author that the property of which he is the legal owner, shall beneficially be another’s is sufficient. A trust in relation to an immoveable property must be supported by a trust deed, unless it is declared by a will, and must be registered. A trust declared by a non testamentary instrument comes into effect from the date specified in the instrument or the date of its execution, where the date is not specified. Necessity of Trust Deed A trust can be created orally but in such cases it is necessary to prove that there was either an express declaration as to the trust or that there is evidence of language or expressions used by or facts and conduct of the owner of the property to indicate with reasonable certainty that trust was created. In order to remove ambiguity and disputes, it is always advisable to create a trust by a written trust deed. Registration of Trust Deed As Trust deed is non mandatory requirement, the registration so is not statutorily required but it is always desired. A registered trust deed has the following advantage
By Will A person may declare his intention to create a trust in respect of his property or any part thereof by way of a will. A will according to the Indian Succession Act must be in writing and signed thereof by all testators in presence of two witnesses. A trust declared under will , shall came into existence By Transfer of Ownership A trust in relation to moveable property can be formed also by mere of ownership of the property or the trustee with a direction that the property be held under trust for the benefit of the beneficiary. The ownership of a moveable property can be transferred by physical act of handing over the possession of the property. In case where the author himself is the trustee, transfer of possession is neither necessary nor possible and mere declaration of the author that he holds the property under trust would be sufficient to constitute a trust. Trusts Deed The instrument by which trust is created is called as Trust Deed. Although it is not mandatory for trusts to enter into such deed agreement, as trusts can be formed even by oral communication. No written agreement is compulsory required for the formation of trust but the same is needed to get the registered under the Income Tax Act for availing the exemptions and more over a deed is a prima facie evidence of the existence of a trust.
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