This article has been written by Khalid Ali Khan Afridi, a student of PSIT College of Law

TRUST PROPERTY:

The term “trust property” refers to the asset or assets that the grantor or settler (the person who established the trust) transfers into the trust in order to benefit the beneficiary or beneficiaries (a person, a group of people, or the general public), either while the grantor is still alive or after his or her death (the grantor’s death).

Real estate and personal property that can be both tangible and intangible, such a bank account or a company investment that may include equity, shares, etc., are examples of trust property.

A trust is a distinct legal entity from the person who established it (the grantor). Depending on the type of trust and the ownership of the item or assets, placing them in a trust lowers the tax liability. Assets placed in an irrevocable trust are not regarded as the property of the creator, whereas assets placed in a revocable trust are regarded as the trust’s property.

THE INDIAN TRUST ACT, 1882 (TRUST ACT):

A “trust” is defined as a duty attached to property ownership that results from a confidence placed in and accepted by the owner, or stated and accepted by him, for the benefit of another, or of another and the owner. This definition is found in Section 3 of the Indian Trust Act, 1882.

Therefore, a trust is a declaration made by the owner of the property (the grantor or settler) that the property will be held by him, her, or another person (who may be a trustee), for the benefit of a specific individual or group of individuals or the general public (i.e., the beneficiary or beneficiaries), and that the property will be given to that person immediately or in due course as per the owner’s preference.

WHO OWNS THE PROPERTY IN A TRUST? 

The asset or assets that have been re-titled into the trust are held there. Depending on the type of trust, the specific legal person is considered the owner of the trust property for tax filing and other legal requirements. There are many different kinds of trusts, but they fall into two basic categories: revocable trusts and irrevocable trusts.

WHO CAN FORM A TRUST?

Any person who is able to enter into a contract and:

1. He or she must be older than 18;

2. He or she is mentally sound;

3. He or she is not prohibited by any law from signing a contract; or 

4. For the interest of a minor (only with the permission of a principal civil court of original jurisdiction).

REQUISITES OF A TRUST:

1. Author of the Trust: The person (also known as the grantor or settler) at whose instance the trust may be established;

2. Intention behind creating a trust: To transfer ownership from the Trust’s Author, Settler, or Grantor to its Beneficiary or Trustee;

3. Trustee: Any person who is able to hold property may hold the position of Trustee;

4. Beneficiary: A person for whom the trust’s income or corpus is intended or for whom it is envisaged that it would provide benefits;

5. Trust subject matter: Any asset or collection of assets that can be transferred is eligible to be the subject of a trust.

A Trust must meet all of the requirements listed above in order to be established legally and continue to exist.

TYPES OF TRUST:

There are several kinds of trusts, but they mainly fall under the given categories:

(1) Revocable Trust: A revocable trust is a sort of trust that can be revoked at any time after an asset or assets have been transferred, but solely at the creator’s discretion, up until that creator’s death.

(2) Irrevocable Trust: Once established or the transfer of the asset or assets has occurred, an irrevocable trust is a type of trust that cannot be revoked. A legal expert, such as an estate lawyer, is necessary for the creation of an irrevocable trust. A creator may experience unanticipated tax repercussions if they fail to establish an irrevocable trust.

WHAT HAPPENS TO PROPERTY IN A TRUST THE CREATOR DIES? 

Following the passing of the Trust’s founder (the grantor), the trustee (the caretaker of the trust) either distributes the trust’s property to one or more beneficiaries, as specified in the trust’s documents, or keeps running its business as usual. If the trust’s inventor also served as a trustee or one of the trustees, a successor trustee will take over the trust’s management.

In general, a trust fund or family trust is established to maintain an ongoing source of income for any surviving spouse, even after the founder has passed away. If the trust agreement stipulates that the beneficiary or beneficiaries are to receive property after the creator passes away, he, she, or they may do so without having to go through the probate procedure.

APPOINTMENT OF A TRUSTEE:

A trustee is a person who is in a fiduciary relationship with the grantor and the trust and is required by law to hold the property that is owing to the trust on behalf of the beneficiaries. The trustee has been granted a number of powers under the trust deed to carry out this goal, including the management of trust-owned assets. When selecting a person, organization, or Private Trust Company (PTC) to serve as trustee, the following criteria should be taken into account:

1. The trustee’s objectivity;

2. The trust’s terms and conditions;

3. Knowledge of carrying out fiduciary duties;

4. Administrative skills, such as record-keeping, legal disclosures, and regulatory compliance;

5. Annual funds.

DISABILITIES OF TRUSTEES:

The following are a trustee’s limitations:

1. He or she cannot decline to serve as a trustee after accepting the trust.

2. A trustee is not permitted to assign his responsibilities to any other person or co-trustee.

3. A trustee is not permitted to use the assets of the trust for personal gain or any other objective unrelated to the trust.

4. A trustee is not permitted to purchase trust property on their own or on behalf of a third party.

5. A trustee must speak with any other co-trustees before taking any action.

HOW DOES A TRUST CEASE TO EXIST?

A trust is terminated:

1. When the trust’s objective has been fully attained; or

2. When the trust’s goal is made illegal; or

3. If the trust’s goal cannot be achieved due to the destruction of trust assets or due to another factor; or 

4. After the express revocation of the trust.

RIGHTS OF A BENEFICIARY:

The beneficiary is entitled to the following under the stated rights:

1. Take pleasure in the trust property’s rents and earnings.

2. Anticipate that the trustee will hand over the trust’s assets to one or more beneficiaries.

3. Examine and make copies of the trust instrument, any papers pertaining to the trust property, and the trust property accounts.

4. The beneficiary may file a lawsuit to force the trustee to carry out the trust if, for any reason, doing so becomes impractical.

5. To anticipate that the trustee will properly safeguard, oversee, and manage the assets under the trust.

6. To force the trustee to carry out his responsibility.

7. After reaching the age of majority, to transfer the advantages resulting from the trust to any other person.

HOW A TRUST CAN BE REVOKED:

A trust established by will is revocable at the testator’s discretion since it does not take effect or become effective while the testator is still alive.

There are several ways to remove trust of any other kind:

1. With the approval of all beneficiaries.

2. Through the exercise of the settler’s expressly reserved revocation powers.

3. If the trust was established to repay debts, the settler may revoke it at any moment, whether or not the debt has been paid off. However, if the debt is not paid off and the creditor is aware that the trust was established, the trust cannot be terminated without the creditor’s approval.

CONCLUSION:

The establishment of a trust is currently a safe and legal approach for the appropriate use of the property possessed by the trust. For the trust’s beneficiaries to receive legal and reliable benefits, trust-owned property is essential. By establishing a trust, the grantor primarily focuses on ensuring stability in the use of the property for the third party or parties while guarding against the misappropriation of the property possessed by the trust. It serves as a social safety net against the misappropriation of assets that could be used for the welfare and advancement of others, in addition to delivering benefits to trust beneficiaries.

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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