TRUST: AN OVERVIEW

AMIT GROVER
BBA LLB(H) SEC B
SEMESTER 10
A3221515130
 INTRODUCTION
A trust (under Indian Trusts Act 1882) is a legal relationship which arises when one person
hands over all or some his property to another for the benefit of a third person or himself. The
person who hands over the property is known as the author, the person who receives it is
known as the trustee and the person who benefits from it is known as the beneficiary. For
example, a person may create a trust handing over a part of his land to a friend with the
directive to provide for his old age from the proceeds of the land. A person, for example, may
also create a trust by transferring to a bank certain bonds he holds and direct them to provide
maintenance to his wife after his demise from the dividends received on the bonds. In India,
there are basically two types of laws governing trust:

1. The Indian Trusts Act 1882 which deals with private trusts.
2. The Public Trust Act of various states which deal with public trusts. These Acts are
based on the general framework of the Indian Trusts Act 1882.

One of the key distinctions that can be made in creating a trust is that between inter-vivos (or
living) trust and testamentary trusts. A living trust is created during the lifetime of the settlor
and comes into effect within this period. On the other hand, a testamentary trust is a trust
created by will, which comes into effect only upon the settlor’s death. These two may have
significant differences in the formalities implied for creating and changing the trust as well as
the costs involved. There are also differences that may be significant in certain
circumstances, depending upon the specific objectives that one is trying to achieve. A trust
may continue for up to 100 years from the date of its existence. 

DEFINITION AND MEANING OF TRUST

As per Section 3 of the Indian Trusts Act 1882, trust is interpreted as:

“An obligation annexed to the ownership of property and arising out of a confidence
reposed in and accepted by the owner or declared or accepted by him for the benefit of
another or of another and owner.”

For the true constitution of trust, it is necessary that there should be,

1. Property to be made the subject matter of confidence

 2. A person in whom the confidence is reposed that is the trustee

3. A person to be benefitted by the confidence

Thus a trust is a contract between the settler and trustees. In a trust the settler places some
property in the hands of trustees and entrusted him power to manage that property in a
specified manner. The benefits of the property are given to certain persons by the trustees.

PARTIES TO TRUST

The settlor. This is the person who creates the trust. He ‘settles’ the property on trust. In order
to do this, he transfers the legal ownership of the property to the second person in the
arrangement, the trustee.

As per Section 9, Beneficiary is said to be every person capable of holding property,

There must be a person called the beneficiary, he is the person who benefits from the trust.
They will enjoy the equitable interest in the property which is the subject matter of the trust.
The beneficiary’s easy task is to reap the rewards of being the person the settlor has chosen to
benefit from his generosity. As we shall see, however, the beneficiary’s harder task is as the
enforcer of the trust, making sure the trustee completes his obligations by, if necessary,
forcing him to do so. There can be any number of beneficiaries. It also states that the
beneficiary can renounce his interest
1. By disclaimer addressed to the trustee
2. By setting up a claim inconsistent with the trust, provided the beneficiary had been
given notice thereof

As per Section 10, a Trustee is a person capable of holding a property but where the trust
involves the exercise of discretion, he cannot execute it unless he is competent to contract.

This is the person who administers the trust. The trustee will hold the trust property for the
benefit of the third party in the arrangement, the beneficiary. When the trust comes to an end,
the trustee must transfer the legal ownership to the beneficiary, but until that time he retains
it. Usually it is a good idea to have more than one trustee so that, for example, the burden of
trusteeship can be shared. The maximum permitted number of trustees where the trust
involves land is four.
 OBJECTIVES OF TRUST
The main objective is that the trust should be created for a lawful purpose. 

For example, if Mr X had stolen money from a bank and given it to Mr Y with the intention
of giving the money to poor children then, in this case the trust itself is void as the very main
purpose* is unlawful.  

*So how do we actually understand as to whether the purpose is lawful or unlawful? The
answer to it lies in Section 4 of the Act. 

As per Section 4, all purposes are said to be lawful unless it: 

1. Is forbidden by law 
2. Defeats the provisions of law 
3. Is fraudulent
4. Involves injury to another person or his property
5. Immoral or against to public policy

Who can create a Trust?

A trust may be created by: 

1. Every person who is competent to contracts: This includes an individual, AOP, HUF,
company etc.
2. If a trust is to be created by on or behalf of a minor, then the permission of a Principal
Civil Court of original jurisdiction is required. 

Further, it also depends on the law in force that is prevailing at that particular point of time
and the extent to which the author of the trust may intend to dispose of his property.

Which are the types of trusts that can be created?

1. Private Trusts: A private trust is for a closed group. In other words, the beneficiaries
can be identified. Eg: A trust created for the relatives and friends of the author.
2. Public Trusts: A public trust is created for a large group i.e. the public in large. Eg:
Non-Profit NGO’s Charitable Institutions for the general public.
 CREATION OF TRUST

The elements of valid trust are presented in section-6.

The act defines how the author could create the trust, assign trustees and give them his
monetary assets to be controlled by the trust. It may be express or implied. It includes-

 Intention of the author to create the trust.

 Purpose of the trust.
 The monetary asset is assigned for the benefit of the trustee.
 Gives control or transfer the trust property to the trustee which includes intention
of the author.
 Trustee can claim expenses & salary from the benefits from the trust of his work.

The requirement of the trust law is that the author should indicate by words or conduct with
the reasonable intention to create a trust.

 Certainty of author’s intention,

 Certainty of object,
 Certainty of beneficiary &
 Certainty of trust property.

For example: A property transfer within the same family no valid trust will arise because the
beneficiary of the trust is not indicated with certainty similarly if the transferee distributed the
property amongst the member of same family, as he should think most deserving, here there
is also no valid trust because there should be no certainty about beneficiaries but where a
person transfer is property and his assets to another person for payment of his creditor. This is
not trust but a transfer on a condition mentioned under a trust law in India.

SECTION 8 – About the subject matter,

Under this provision, the trust law requires that the subject matter must be property & are
capable of being transferred to beneficiary.
SECTION 5 – Nature of the property
Under this provision, properties which are transferred to the trustee may be moveable or
immoveable. In case of immovable property, it may be valid if the author of the trust & the
 trustee being signed on the instrument & by the will of the author of the trust. The provision
of trust law in India cannot be used for the purpose of committing fraud. (R/W Sec-4)

SECTION 4 – Purpose should be lawful

Under the provision, sec4 states that a trust must be created for lawful purpose.
Where the purpose of law of trust is unlawful, the trust becomes void but as if the trust
property is located in foreign country, the law of that country shall apply.

Trust Law in India requires that the purpose should be lawful.

Unless it is not being-

 It is forbidden by the law,

 It is fraudulent,
 It is of such nature that, if permitted it would defeat the provision,
 The court regards it as immoral or opposed to public policy.

SECTION 7– Competent to contract

According to sec-7 of the trust law in India says that a trust may be created by every person
competent to contract. But where the trust is created on behalf of minor, permission from
civil court jurisdiction should be obtained first.

CLASSIFICATION OF TRUSTS

1. Public Trust:
When the trust is constituted for the benefit of the at large or of some considerable portion of
it answering a particular description it is a public trust. A public trust is of permanent and
indefinite character. In public trust beneficiaries are not capable of ascertainment. Such trusts
are generally created for public support and convenience.

a) Religious Trust: A trust is known as religious trust; if it is constituted to uphold and

promote particular religion, propagate views of a particular religion, to maintain a
 particular religious place, etc. E.g. Trust constituted for maintaining a temple, Parsee
Trust.

b) Charitable Trust: Charitable trust comes in the category of public trust. Charitable
trust means a trust created for philanthropic purpose. The main object of charitable trust
is the general welfare of the community at large.

2. Private Trust:
When the beneficial interest is limited to specific individuals or definite ascertainable
individuals it is a private trust. In private trust the beneficial interests vested in some
individuals who are defined and ascertained or who within definite time can be ascertained.
Private trusts concern only individuals or families for private convenience and support.

a) Discretionary Trust: A trust is regarded as discretionary trust, if the income or any

part thereof is specifically receivable on behalf or for the benefit of any one person or
where individual share of beneficiaries are indeterminate or unknown.

b) Definite Trust: A trust is regarded as definite trust where the shares of the beneficiaries
are determinate or known.

c) Oral Trust: A trust, which is not declared by a duly executed deed in writing, is
considered as an oral trust.