TRUST PROPERTY:

Trust property refers to the asset or assets that the grantor or settler (the trust creator) transfers into the trust for the purpose of providing benefits to the beneficiary or beneficiaries (an individual, group of individuals or public) during his or her lifetime or on his or his death (the grantor’s death).

Trust property includes real estate property or personal property which can be tangible or intangible or both, such as a bank account or a business interest which may include equity, shares, etc.

A trust is a separate legal entity apart from its creator (the grantor). Moving asset or assets into a trust reduces tax liability depending upon the kind of trust and the ownership of the asset or assets. Irrevocable trust asset or assets are not considered as the property of the creator whereas the revocable trust asset or assets are considered as the property of the trust.

THE INDIAN TRUST ACT, 1882 (TRUST ACT):

Section 3 of the Indian Trust Act, 1882 defines a “trust” as an obligation annexed to the ownership of 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.

Therefore, trust is a declaration which is made by the owner of the property (the grantor or the settler) which is going forward by the method of transfer, and the same will be held by him, her or some other person (he or she can be a trustee), for the benefit of specifically mentioned individual or group of individuals or public (i.e. beneficiary or beneficiaries) and will be handed over to that person immediately or in due course as in accordance with the choice of the grantor or settler.

WHO OWNS THE PROPERTY IN A TRUST? 

The trust holds the asset or assets that have been re – titled into it. The particular legal person owns the trust property for tax filing and other legal purposes which depends upon the type of trust. There are several types of trusts, but there are mainly two categories which includes revocable trust and irrevocable trust. 

WHO CAN FORM A TRUST?

A Trust can be formed by any person who is competent to contract and:

• He or she must be above 18 years of age;

• He or she is of sound mind;

• He or she is not disqualified from entering into any contract by any law; or

• On behalf of a minor (only with the permission of a principal civil court of original jurisdiction).

REQUISITES OF A TRUST:

• Author of the Trust:

An individual at whose instance the trust can come into existence (also known as the grantor or settler);

• Purpose to form a Trust:

The purpose to divest the ownership of the Author, Settler or Grantor of the Trust in favor of the Beneficiary or the Trustee;

• Trustee:

Each and every individual who is capable of holding property can become a Trustee;

• Beneficiary:

An individual to whom the Trust income/corpus is intended for or for whom the benefits of the trust are for;

• Subject matter of Trust:

Any asset or assets capable of being transferred is eligible for being a subject matter of a trust.

All these mentioned requisites are required for a Trust’s legitimate establishment and legal existence.

TYPES OF TRUST:

There are several kinds of trusts, but they mainly fall under only two categories which are as follows:

• Revocable Trust: 

A revocable trust is a type of trust which can be cancelled at any time after the transfer of the asset or assets takes place only at the choice of the creator till his or her survival.

• Irrevocable Trust:

An irrevocable trust is a type of trust which cannot be cancelled, once it comes into effect or the transfer of the asset or assets takes place. Setting up an irrevocable trust requires the help and guidance of a legal professional, such as an estate attorney. If a creator does not set up an irrevocable trust then he or she may face unintended tax consequences.

WHAT HAPPENS TO PROPERTY IN A TRUST THE CREATOR DIES? 

After the death of the creator (the grantor), the trustee (the caretaker of the trust) distributes the property of the trust to the beneficiary or beneficiaries of the trust or the trustee continues managing the assets in accordance with the documents of the trust. If the creator was also a trustee or one of the trustees of the trust, then a successor trustee will take over his or her duties.

It is general setting up of a trust fund or a family trust that continues to exist long after the death of the creator to provide a steady income for a surviving spouse, if any. If the trust document does instruct for the beneficiary or beneficiaries to receive assets upon the death of the creator, he, she or they can receive the same without going through the probate process. 

APPOINTMENT OF A TRUSTEE:

A trustee is an individual who has a fiduciary relationship with the grantor and the trust which is of obligatory nature in accordance with the legal provisions to hold the trust owed property for the benefit of the beneficiaries. For this purpose the trustee has been given various powers under the trust deed to manage the affairs of the trust and trust owed property.

Essential requirements to take into consideration while appointing an individual, institution, or Private Trust Company (PTC) to act as trustee are as follows:

1. Neutral nature of the trustee;

2. Terms and conditions of the trust;

3. Expertise in respect of discharging fiduciary duties;

4. Knowledge in respect of administrative functions like record keeping, legal disclosures, regulatory compliance, etc.;

5. Annual funds.

DISABILITIES OF TRUSTEES:

The disabilities of a trustee are as follows:

1. After acceptance of the trust; he or she cannot refuse to act as a trustee.

• A trustee cannot delegate his duties to another individual or any co- trustee.

• A trustee should not use the trust property for his or her own profit or any other purpose, which is not in connection with the trust.

• A trustee cannot buy the trust property on his or her own account or as an agent of any third person.

• A trustee cannot act unilaterally but he or she must consult his co-trustees, if any.

HOW DOES A TRUST CEASE TO EXIST?

A trust ceases to exist:

1. When the purpose of the trust is completely fulfilled; or

2. When the purpose of the trust becomes unlawful; or

3. When the fulfillment of the purpose of the trust becomes impossible by destruction of the trust property or by any other cause; or

4. When the trust is expressly revoked.

RIGHTS OF A BENEFICIARY:

The beneficiary has the given rights which include the right to:

1. Enjoy the rents and profits of the trust property.

2. Expect the trustee to transfer the trust property to one or more beneficiary.

3. Inspect and take copies of the instrument of trust, the documents in relation to trust property and the accounts of the trust property.

4. If for any reason the execution of the trust by the trustee becomes impracticable then the beneficiary may institute a suit for the execution of the trust.

5. To expect the trustee to properly protect, manage and administer the trust property.

6. To compel the trustee for the performance of his duty.

7. To transfer the benefits which are arising out of the trust to any other person after attaining the age of majority.

HOW A TRUST CAN BE REVOKED:

When a trust is created by will, it is revocable at the pleasure of the testator as it does not come into effect or become effective during the lifetime of the testator.

Trust of any other type can be revoked in the following ways:

1. By or with the consent of all the beneficiaries.

2. By the settler in exercise of powers of revocation expressly reserved to him.

3. If the trust was created for repayment of debts, then, the settler can revoke the trust at any time irrespective of whether the debt is repaid or not. But, if the debt is not repaid, and the creditor has the knowledge of the creation of the trust, then, the trust cannot be revoked without the consent of the creditor.

CONCLUSION:

In the present era, creation of a trust is a secure and legitimate methodology for the proper utilization of the trust owned property. Trust owed property plays a vital role for providing legitimate and secure benefits to the beneficiaries of the trust. By the creation of a trust, the grantor mainly focuses upon providing stability in the use of the property for the third party or parties with the prevention of misuse of the trust owned property. It is not only a way for providing the benefits to beneficiaries of the trust, but, it also acts as a societal measure to cope up with misuse of properties which can be used for the welfare and development of others.

SOURCES:

1. The Indian Trust Act, 1882
2. https://www.policygenius.com
3. https://www.investopedia.com
4. https://taxguru.in

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