What is a Trust?
A TRUST is defined as a fiduciary relationship between the trustee and a trustor. In a trust, the Trustor is the party that gives the right to another party (‘The Trustee’) to hold title to property or assets for benefit of a third party (‘The Beneficiary’). Trusts are generally incorporated or established in order to provide legal protection for the assets of the trustor, to ensure that those assets are distributed or applied in accordance with the wishes of the trustor, and to save time, minimalize paperwork. In some cases, trusts are also established to avoid or reduce inheritance or estate taxes.
A trust deed, which is a binding legal agreement between the settlor and the trustee, is legalised by the registrar of the relevant state through the trust registration process. The Trust acts as a formal vehicle responsible for the equitable distribution of the settlor's assets to the targeted beneficiaries. As soon as the registrar gives the trust deed his or her approval, the trust takes effect.
The term ‘trust ‘is defined as
âž² An obligation attached to the ownership of property and
âž² arising out of a confidence reposed in and
âž² declared & accepted by the owner or and accepted by him,
âž² For the benefit of another or of another and the owner.
DEFINITIONS
‘author of the trust’ is the person who responses or declares the confidence,
‘trustee’ is the person who accepts the confidence
‘beneficiary’ is the person, for whose benefit, the confidence or the trust is accepted;
‘trust property’ or ‘trusts money’ is the subject matter of the trust;
‘beneficial interest’ is the right of the beneficiary’s against the trustee as owner of the trust’s property;
‘instrument of trust’ is the instrument declaring the trust
In a legal sense, word trust has a technical and definite meaning which is very much different from the sense in which this word is used in daily parlance. It implies a legal concept or relationship similar to other relationships created by law, e.g., Contract, Agency.
Classification of Types of Trusts
There are several classes of trust divided according to the mode of their creation. Some of the prominent classes of trusts are as follows:
âž² Charitable or Religious Trust
Charity means piety/mercy/betterment/welfare something religious or divine, so charitable trust means a trust created for the charity of people or society.
âž² Express and Implied Trusts
Express Trust: This is one that is intentionally declared by the maker of a trust known as the settlor, or the testator, whether the trust is created by a will. It is one which the settler himself created through the manifestation of a desire to create one. It is a kind of trust where terms and conditions are clearly written in the instrument.
Implied Trust: These are trusts which court deduces from the parties' actions and the transaction's circumstances. For example, if a person decides to settle property for the benefit of another in return for valuable consideration, the other person immediately becomes a trustee of the property. It is a type of trust where terms and conditions are written but the intention is not clear but can be understood.
âž² Public and Private Trusts
Private Trust: A private trust is one that benefits particular persons irrespective of whether they are immediately ascertainable and if they don't vest within the perpetuity period the interest defined therein will fail. It is a type of trust which is created for a group of people or for a family or particular
Public trust: A trust which is created for common people, for a charitable purpose, or for the welfare of society.
âž² Constructive Trust
It applies to an arrangement whereby a person who has obtained title to a property has an equal obligation to pass it to another person to whom it rightly belongs, on the grounds that obtaining or maintaining it is wrongful and would unjustly enrich the person if he or she is permitted to retain it.
Procedure for Registration of a Trust
âž² Preparation of Trust Deed:
It is not a mandatory requirement but it is desirable to have a Trust deed in place. It is also enforceable by law and provides an increased sense of security. Following details must be mentioned in the deed:
- Name and address of trustor (the one who set up the trust)
- Name and address of another trustee
- Address for correspondence & Evidence
- Name of trust
- Minimum and maximum number of trustee
- Registered office address of the trust
- Objective of trust
- Rule and regulation of trust
​➲ Particulars of a Trust Deed
- There should be least three parties are required to form a trust.​
- Author of the trust’s name & address should be mentioned in the deed.
- Details of trustees/ member: Address and details of trustees shall be mentioned in the deed. A minor cannot be a member/trustee.
- Details of the beneficiary shall also be included in the deed.
- Objects of trust must be clearly mentioned in the trust deed.
âž² Registration of the trust with the trustee:
The next step after the preparation of Trust will be to register the Trust deed. It is not compulsory but is needed to get the trust registered under the Income Tax Act for availing the exemptions under Section 12A and Section 10G. Moreover, a deed is a prima facie evidence of the existence of a trust and also a written proof of the existence of the trust. The deed shall be submitted to the local registrar of trust along with the one copy and the settler shall sign all the pages of the copy of the said deed.
âž² Tenure of Trustees:
Tenure for trustees shall be a minimum of 1 year up to a maximum of 5 years.
âž² 80G and 12A certificate application is for tax benefits
A trust shall go for registration under Section 12A and 80G in order to avail Tax exemptions prescribed by the Income Tax Act.
Documents required for registration of a trust
The application for registration of Trust shall be accompanied with the following particulars: –
âž² Particulars of documents creating the trust;
âž² Particulars other than documents about creation;
âž² Objects of the trust;
âž² Sources of income of the trust;
âž² Details of encumbrances, if any, on trust property;
âž² Details of the scheme, if any, relating to the trust;
âž² Particulars of title deeds relating to the trust’s property
âž² The name and addresses of the Trustees and managers;
Documents for Registration of a Trust Deed
âž² Deed of trust on stamp paper with requisite stamp duty;
âž² Photograph & Identity Proof of trustor (one who set up the trust);
âž² Photograph & Identity Proof of two trustees;
âž² Every page of the trust deed, the signature of the trustor;
âž² At least two witnesses on the trust deed.
Difference between various type of non-profit organization
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Sl No.
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Particulars
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Section 8
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Society
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Trust
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1
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Govern Under Act
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It is governed by the Indian Companies act 2013
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It is governed by Societies Registration act 1860 or by the State society act as per the registration
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It is governed by The Indian trust act 1882
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2
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Registration Authority
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Authority is under regional director and registrar of companies of state
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Authority lies under the hands of the registrar of societies
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Authority is under the jurisdiction of deputy registrar/charity commissioner of the relevant area
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3
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Minimum Requirement
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Minimum 2 director and 2 member
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Minimum of seven members
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Minimum 2 trustees are required
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4
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Primary registration document
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Memorandum and Article of association under which objects and company internal rules are defined respectively
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Memorandum of Society under which objective of the society is mentioned
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Trust deed under which all the objects, rules and powers are defined
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5
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Managing body
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Board of director of companies manages the company
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It is managed by governing council or managing committee
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Managed by trustees
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6
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Revocable/ Irrevocable
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It may get dissolved as per the provision of the act
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It may be dissolved, dissolution must be approved by at least 3/5th of the society’s member
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These are generally irrevocable
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7
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Compliance
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The company need to file a financial report to concern ROC and need to intimate ROC as per the requirement of act
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Societies need to file annually a list of the names, addresses, and occupations of their managing committee members and other details to registrar
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There is no need for annul return filing
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8
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Registration under 80G and 12AA
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Yes
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Yes
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Yes
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9
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Subsidy by government
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Mostly preferred
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Moderately preferred
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Moderately preferred
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10
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FDI
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Most preferred
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Moderately preferred
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Moderately preferred
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11
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Transparency
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Member can seek any information from the company
Fully transparent
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Less transparency then section 8 company
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Less transparent
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