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    Concept of Family Trusts

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    Neha Goenka

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    Concept of Family Trusts

    Uploaded by

    Neha Goenka
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    Concept of family trusts

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    12 views7 pages

    Concept of Family Trusts

    Uploaded by

    Neha Goenka

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Concept of family trust

     The family trust, there are three parties: a grantor, a trustee and the
    beneficiaries.
     The grantor is the person who makes the trust and transfers their
    assets into it.
     The trustee is the person who manages the assets in the trust on behalf
    of the beneficiaries.
     The beneficiaries are the individuals who receive some type of
    financial benefit from the trust, similar to a beneficiary for a life
    insurance policy.
     Family trusts are a type of living trust, and they can
    be revocable or irrevocable depending on your wishes.

    A family trust is a legal arrangement where a person (the trustor or settlor)


    transfers ownership of their assets into a trust for the benefit of their family
    members.

    The main purposes of a family trust include:

    1. Asset Protection: It can help shield assets from creditors or legal


    claims.
    2. Estate Planning: It allows for the smooth transfer of assets to
    beneficiaries after the trustor's death, potentially avoiding probate.
    3. Tax Benefits: Certain trusts can help manage tax liabilities.
    4. Control: The trustor can set specific terms on how and when
    beneficiaries receive assets.

    Family trusts can be revocable (the trustor can change or dissolve it) or
    irrevocable (the trustor cannot change it once established).

    They can provide peace of mind and financial security for family members,
    making them a popular tool in estate planning.
    Deed of trust

    A deed of trust involves three parties: a lender, a borrower, and a trustee.


    The lender gives the borrower money. In exchange, the borrower gives the
    lender one or more promissory notes.

    Family Trust

     Is a 'Private' Trust created with rules by an owner / settlor in a Trust


    Deed. It does not require any approval from Government or any
    regulator. It requires registration of the Trust Deed at local Sub-
    Registrar Office as per settlor's residence address.
     There should be a test individual & a family group can include.
     Any parent grandparent, brother, sister, nephew, niece or child of the
    test individual’s spouse.
     A range of other family members, as defined in section 272-95 of
    schedule 2F of the Income Tax Assessment Act 1936.

    Objective of family

     The trust should be created for a lawful purpose.


     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.

    Who can create trust

    A trust must be formed by at least two or more individuals. The trust must be
    established in accordance with the provisions outlined in the Indian Trusts
    Act of 1882. None of the parties involved should be disqualified under any
    prevailing law in India.

    Type of trust
    Private trusts

    A private trust is for a closed group.(the beneficiaries can be identified)

    For ex- a trust created for the relative and friends of the author.

    Public Trust

    A public trust is created for a large group.

    For example- The public in large (Non- Profit NGO’s Charitable Institutions for
    the general public)

    The rules for charitable trust

     It must be established for charitable purposes, such as the relief of


    poverty, education, or the promotion of religion.
     The trust must have a minimum of two trustees, who must be
    competent to contract. The trust must have a clear and specific purpose,
    and its objectives must be lawful and not opposed to public policy.

    Powers of trustee to apply for directions


    Any trustee of an express or constructive trust created or existing for public
    purpose of a charitable or religious nature may apply by petition to the Court,
    within the local limits of whose jurisdiction any substantial part of the subject-
    matter of the trust is situate, for the opinion, advice or direction of the Court
    on any question affecting the management or administration of the trust
    property, and the Court.

    The Indian Trusts Act 1882

    Section 5, a trust is created when the author of the trust indicates.


    a) An intention on his part to create thereby a trust-

    (b) The purpose of the trust.

    (c) The beneficiary.


    (d) The trust-property.

    Is there only one type of Family Trust?

     Trust can be Revocable or Irrevocable, and Discretionary or Determined It


    means that if the Settlor/owner wishes to cancel or terminate or dissolve
    the Family Trust during their lifetime to get all the assets back in their
    personal name, it is called as a Revocable Trust.
     But if Settlor/owner transfers assets to trust without any rights to reclaim,
    then it is called an Irrevocable Trust. Decision related to Revocable or
    Irrevocable is required mainly as per objective/reason for creating Family
    Trust as well as for Tax purpose.
     When annual income distribution ratio is fixed for each beneficiary in a
    Trust Deed, it is called Determined (Specific Trust). When income
    distribution ratio is to be decided by Trustees – it is called Discretionary
    Trust.

    Can a private trust sell its property in India?

    Yes but it comes with certain restrictions. The Delhi High Court has stated that
    prima facie, no trust property can be held, sold, mortgaged, or exchanged
    without obtaining prior permission from the court.

    How to set-up Family Trust

     The steps for creating a Family Trust as mentioned below:


    ➢Objective for creating Family Trust.
    ➢Who will be the Settlor, Trustees and Beneficiaries.
    ➢ Rules for management / dissolution of Trust for Family Trust Deed.
    ➢ Register Family Deed with sub-registrar’s Office.
    ➢ Obtain PAN card for Family Trust.
    ➢ Open Bank Account for Family Trust.
    ➢ Transfer assets to Family Trust during your lifetime.
    What is the validity of a Family Trust

    A Trust is created for few years as per objectives of Trust. The maximum
    period can be for 99 years (about 3 generations).

    Which assets can be gifted or transferred to a Family Trust?


    Following assets and properties can be gifted or transferred or settled
    into a Family Trust
    ➢ Immovable Property which are not under loans,
    ➢All types of financial assets,
    ➢All types of movable assets including Business Ownerships,
    Artifacts.➢All types of Intellectual Property Rights.
    ➢All types of Digital assets.

    What are Income Tax laws for Family Trust for creation,
    gift/transfer, management of income/capital gains and
    dissolution.

    Following Tax compliances:


    For Gift/Transfer of immovable / movables / financial assets.
    ➢ No Gift tax, Capital Gains if beneficiaries are Relatives as per Income
    Tax Act
    ➢ No capital gain tax on dissolution – as per Succession laws
    ➢Other capital gains laws apply similar to individuals For annual
    Income.
    ➢ Payment of Maximum Marginal Tax.

    what, how and why about Family Trust.

     A person when gifts or transfers part of his/her assets and wealth for a
    specific reason OR to specific person.
     Under the control of themselves or other persons under specific rules
    framed by wealth owner for long-term period.
     It is like Gifting but ownership is not transferred immediately, but later
    and to get benefits of asset as per rules set up. There are three persons
    in this type of a Trust.
     1. Settlor or Author of Trust - Person(s) who owns wealth and decide to
    Gift / Transfer, it can be more than one person.
     2. Trustee(s) - Person(s) who will control and manage the Trust as per
    the given rules. It can be more than one person.
     3. Beneficiaries - Persons for whom the Trust is created. It can be more
    than one person.
     4. Rules framed by wealth owner / settlor is called as a Trust Deed.

    Duties

     Duty of the trustee to execute trust (Section –11)


     Duty to protect title to the trust property (Section-13)
     Duty to care the property (Section 15)
     Duty to be impartial (Section 17)
     Duty to prevent waste (Section 18)

    Rights

     Right to title deed (section 31)


     Right to reimbursement of expenses (Section 32)
     Right to apply to Court for opinion in management of trust-property
    (Section 34)
     Right to settlement of accounts (Section 35)

    Under the Trusts Act, the section relating to family trusts typically outlines the
    creation, administration, and regulation of trusts specifically designed for
    family purposes.
    While the specifics can vary by jurisdiction, some common themes often
    include:

    1. Creation of Trusts: Details on how a family trust can be established,


    including requirements for the trust deed and the roles of the settlor,
    trustee, and beneficiaries.
    2. Duties of Trustees: Responsibilities of the trustee, including the duty to
    act in the best interest of the beneficiaries, manage trust assets
    prudently, and maintain accurate records.
    3. Rights of Beneficiaries: The entitlements of beneficiaries, including the
    right to receive information about the trust and distributions.
    4. Modification and Termination: Conditions under which a family trust
    can be modified or dissolved, including the ability of the settlor to
    revoke the trust if it's revocable.
    5. Tax Implications: Information regarding tax treatment of income
    generated by the trust and any potential tax benefits or liabilities.

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