FORMATION OF TRUSTS IN INDIA

How to form a trust in india?

A trust is a legal document. The rules governing a trust are similar between the states but each
state has one or two twists to the rule. As such, you should speak to an attorney if you are
interested in establishing one.
Generally speaking, a trust involves three types of parties -- the settlor, the trustee, and the
beneficiary. The settlor is the person who establishes the trust including determining the original
trustee and the beneficiaries, what property is in the trust, and what rules govern the duties of the
trustee. The trustee is the person (or persons or company) that manages the trust. The
beneficiaries are the people who receive the income (or property) or property from the trust.
Beneficiaries fall into two categories. The first category is income beneficiaries -- these are the
people who receive the annual income earned by the trust. Depending on the wishes of the settlor
that income can be for a certain period of time or for the life of the beneficiary. The second
category are the principal (or residual) beneficiaries. These are the people who receive the
remaining assets of the trust when it is dissolved (typically by the ending of the last income
beneficiary whether through death or the end of the term of years).
It is possible for the settlor to also be a trustee and one of the beneficiaries but not the sole
beneficiary.
How to Form a Charitable Trust?
A public charitable or religious institution can be formed either as a Trust or as a Society or as a
Company registered u/s 25 of the Companies Act.
It generally takes the form of a trust when it is formed primarily by one or more persons.
To form a Society at least seven persons are required. Institutions engaged in promotion of art,
culture, commerce etc. are often registered as non-profit companies.
These forms are enumerated as under :
1. 1. Charitable Trust settled by a settlor by a Trust Deed or under a Will.
2. 2. Charitable or religious institution / association can be formed as a society.
3. 3. Charitable institution can be formed by registering as a company u/s. 25 of the
Companies Act, 1956, as non profit company (without addition to their name, the word
Limited or Private Limited).
Definition of Trust
Creation of a trust, particularly relating to an immoveable property is also a specie of transfer of
property. Trust is defined in section 3 of the Trust Act, 1882 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. In simple
words it is a transfer of property by the owner to another for the benefit of a third person
alongwith or without himself or a declaration by the owner, to hold the property not for himself
and another.
Requirements of a Trust
A trust is not a contract of agency to hold the property, as in that case there would be no transfer
of the property. In trust there is a transfer from the owner to the trustee subject to certain terms
and conditions. Bailment is also a kind of trust, but in bailment also there is no transfer of any
interest in the property, but only a transfer of possession without ownership. Thereof, a trust is
essentially a transfer of property by one to the other to be held by the other for the benefit of
some person or for carrying out some object. It is no also a sale because a sale cannot be
conditional and in sale there is consideration which is absent in a trust. The purpose of a trust
must be lawful, that is,
It should not be forbidden by law.
It should not be of such nature that, if permitted it could defeat the provisions of any law.
It should not be fraudulent.
It should not involve or imply injury to the person or property of another or It should not be such
as would be regarded by a court as immoral or opposed to the public policy.

Where a trust is created for two purposes one of which is lawful and the other is not and the two
purposes cannot be separated, the whole trust is void.
Creation of Trust
A trust of immoveable property can be created by two ways. One by a non-testamentary
document and another by a testamentary document such as a will. In other words, a trust
regarding a immoveable property cannot be created orally but it must be by a document duly
registered. A trust of a moveable property can be created either by a document or delivering the
property to the trustee with necessary oral directions. If the directions are given in writing it
would amount to a trust by a non-testamentary document which may or may not be registered.
A person who creates a trust is called the settlor, the person to whom the the property is
transferred on trust is called a trustee and the person for whose benefit the property is transferred
is called the beneficiary or "cestuique trust" .
Deed of Trust
A trust relating relating to an immoveable property is required to be created by a document and
such document must state and contain five essential things with reasonable certainty namely :
the intention on the part of the author of the trust or settlor to create a trust.
the purpose of the trust.
the beneficiary.
the trust property, and transfer of the property to the trustee.
Declaration of Trust
A trust can also be created by the author himself declaring that he would hold the property, not
as owner, but as a trustee for the benefit of some person or persons including himself and in that
case the transfer of property is not necessary as one need not transfer his property but in such a
case the declaration of trust is by the owner and he alone should be the trustee. Such a
declaration would, however, require registration under the Registration Act.
Testamentary Trust
A trust can also be created by a testamentary document that is by Will and the same conditions as
mentioned in Section 6 of the Trust Act are required to be fulfilled. such a Will also does not
require registration
A trust is also created :
by application of employed trust or
as a constructive trust or as derivative trust.
But they are created by fiction by of law and cannot be subject matter of conveyancing
Who can Create a Trust
A Trust can be created by any person competent to contract or even by a manner with the
authority of a competent court and respect of any property which is transferable and over which
the author of the trust has dispossessing power.
Trust, Private and Public
A Trust may be Private and Public.
When the purpose of the trust is to benefit an individual or a group of individuals or his or their
descendants for any legal person and who is capable of holding property, it is a private trust.
When the purpose of the trust is to the benefit the public or any section of the public, it is public
trust.
Who can be a trustee
A trustee can be any person that is, an individual or a corporate body or a corporate sole, capable
of holding property and competent to contract. and he must accept the trust