How Is A Trust Created

How is a trust created?
What are the kinds of

trust.
ROHIT. N
WHAT IS A TRUST ?
A trust (under the Indian trusts Act 1882) is a legal

relationship that occurs when one man, for the
benefit of a third person or himself, hands over all
or some of his property to another.
The author is known as the person who hands over the
property, the person who receives it and controls it
for the benefit of the beneficiary is known as the
trustee, and the beneficiary is known as the person
who profits from it.
DEFINITION OF TRUST
As per section 3 of Indian Trust Act 1882:

A Trust is an obligation annexed to the ownership of
the property, and arising out of a confidence reposed
in and accepted by the owner, or declared and
accepted by him, for the benefit of another, or of
another and the owner.
PURPOSE OF CREATING A TRUST (SECTION 4)
Trusts are generally formed or created to fulfill any or more of

the following objectives:
• For discharge of the charitable and/or religious sentiments of
the author of settlor of the trust, in a way that ensures public
benefit.
• For claiming exemption from Income tax U/s 10 or 11, as the case
may be, in respect of incomes applied to charitable or religious
purposes.
• For the welfare of the members of the family and/or other
relatives, who are dependent on the settlor of the trust.
• For the proper management and preservation of a property.
• For regulating the affairs of a provident fund, superannuation
fund or gratuity fund or any other fund constituted by a person
for the welfare of its employees.
WHO CAN CREATE A TRUST (SECTION 7)
As per Section 7 of the Indian Trusts Act 1882, a trust may be

created by every person competent to contract and by or on behalf
a minor, with the permission of a principal court of original
jurisdiction. Following are eligible to create a Trust.
• Trust by an Hindu Undivided Family.
• Trust by a Minor.
• Trust by a Woman.
• Association of Persons.
• Company.
TYPES/KINDS OF TRUSTS
1. Private Trust:
A trust is called a Private Trust if it
is for the benefit of one or more
persons, or within a specified period,
which may be available. Financially
Trusted Trustees are governed by the
Indian trust Act 1882. Private Trust may
be established between Inter Vivos or
will.
Prerequisites for building a Private Trust:

• The person who creates the trust must make an undoubted
declaration that binds him or her.
• Trust items must be defined and clarified.
• Beneficiaries specified.
• They must transfer the identifiable asset under an
immovable order and separate themselves entirely from
the ownership and enjoyment of the revenue from that
asset.
Unless all the requirements listed above are met, the
trust cannot be assumed to exist.
2. Public Trust
A trust is called as Public Trust when it is constituted
wholly or mainly for the benefit of Public at large, in
other words beneficiaries in the Public trust constitute a
body which is incapable of ascertainment. The Public
trusts are essentially charitable or religious trusts and
are governed by the general Law. The provisions of Indian
Trusts Act do not apply on Public Trusts. Like the private
trusts, public trusts may be created by inter vivos or a
will. The Indian Trusts Act does not apply to public
trusts which can be created by general law.
Pre-requisites for creation of a Public Trust:

There are three certainties required to create a
public trust are as follows:
• Declaration of trust binding on the occupant,
• Setting aside certain property and living space
that Deprives it of ownership
• A statement of the items on which the property will
be Held afterward, i.e. the beneficiaries.
It is essential that the transferor of the property (the

settlor or the author of the trust) must be competent to
contract. Similarly, the trustees should also be persons
who are competent to contract. It is also very essential
that the trustees should signify their assent for acting as
trustees to make the trust a valid one. When once a valid
trust is created and the property is transferred to the
trust, it cannot be revoked, If the trust deed contains any
provision for revocation of the trust, provisions of
sections 60 to 63 of the Income-tax Act will come into play
and the income of the trust will be taxed in the hands of
the settlor as his personal income.
3. Public-cum-Private Trusts
Some trusts may be classified as Public cum Private
Trusts, whose portion of the profits maybe used for public
purposes and a portion may go to a private person or
individuals. Such trusts shall be eligible for exemption
in respect of the portion of income earned by private
individuals or persons as private trusts and shall be
eligible for exemption in respect of the portion of income
received for public purposes in compliance with section
11, given that such trusts have been created before the
Income Tax Act of 1961, i.e. before 1-4-1962. Public-cum-
private trusts produced on or after 1-4-1963 is not
eligible for exemption U/S 11
DIFFERENCE BETWEEN PRIVATE & PUBLIC
TRUST
The difference between a public and private trust is

essentially in its beneficiaries. A private trust’s
beneficiaries are a closed group, while a public
trust is for the benefit of a larger cross-section
having a public purpose.
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How Is A Trust Created

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How Is A Trust Created

Uploaded by

Copyright:

Available Formats

How is a trust created?

What are the kinds of

A trust (under the Indian trusts Act 1882) is a legal

As per section 3 of Indian Trust Act 1882:

Trusts are generally formed or created to fulfill any or more of

As per Section 7 of the Indian Trusts Act 1882, a trust may be

Prerequisites for building a Private Trust:

Pre-requisites for creation of a Public Trust:

It is essential that the transferor of the property (the

The difference between a public and private trust is

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