What is Trust? What are the different types of trusts?

Introduction

In India, trusts are an important part of the legal system and can be used for a variety of purposes. A trust is a legal arrangement where a trustee holds assets on behalf of beneficiaries. In India, there are different types of trusts that serve different purposes. In this article, we will discuss the six different types of trusts in India.

What is a Trust?  

A Trust is an arrangement in which the owner, Trust, or Trustees transfer property to a Trustee for the benefit of a third party. The Trust or a declaration specifying that the Trustee will hold the property for the Trust’s beneficiaries transfers the property to the Trustee. The Indian Trust Act, 1882, establishes the legal framework for Trusts in India. In India, registering a trust is recommended to gain benefits.

What is the Purpose of Trusts?

Trusts serve a variety of purposes, including lawful tax planning, asset protection and management, corporate structuring, privacy, spendthrift protection, charitable causes, and succession planning. In essence, trust registration is a versatile legal tool that can be used for a multitude of purposes.

What are the Different Types of Trusts?

1. Public Trust: A public trust benefits the general public or a specific section of society. People usually establish these trusts for charitable or religious purposes, such as constructing and maintaining schools, hospitals, or temples. The trustees manage the trust’s assets and ensure their proper use for the intended beneficiaries.

2. Private Trust: A private trust benefits specific individuals or families. People usually set up these trusts to protect family assets, such as property or wealth, and to provide for the education and welfare of family members. The trust deed names the beneficiaries, and the trustee manages the trust’s assets and distributes income to them.

3. Special Trust: A special trust serves a specific purpose, such as maintaining a park or caring for a pet. These trusts typically exist temporarily and dissolve once they fulfill their purpose. The trustee manages the trust’s assets and ensures their use aligns with the intended purpose.

4. Charitable Trust: A charitable trust benefits the public or a specific group, such as the poor or the sick. People usually establish these trusts to provide social welfare, and they qualify for tax exemptions under the Indian Income Tax Act. The trustees manage the trust’s assets and ensure they serve the intended charitable purposes.

5. Implied Trust: An implied trust arises when the circumstances suggest that a trust was intended, even without a formal trust deed. For example, if a person leaves money to a friend with the instruction to use it for a specific purpose, the situation creates an implied trust, making the friend the trustee of the trust.

6. Express Trust: A formal trust deed creates an express trust and outlines its terms and conditions. The deed identifies the beneficiaries, the trustee, and the trust’s assets. The trustee manages the trust’s assets and distributes income to the beneficiaries according to the trust deed’s terms.

Advantages of Trust Registration in India  

• Through charity operations, the registered Trust provides much-needed financial assistance to the needy and the masses.

• Trusts are particularly beneficial for ensuring capital and income tax relief. The Trust may provide better protection for the settler, beneficiaries, and Trust assets against tax laws that are more rigorous.

• The Indian Trusts Act of 1882 provides the Trust with extensive legal protection. It also forbids any third party from making a frivolous claim that could jeopardize the Trust’s legal standing.

• When a person and his or her family relocate to another country, it is the ideal time to set up a Trust to avoid paying taxes in the new country, thereby protecting the family’s assets and allowing for greater organizational flexibility.

Conclusion

In conclusion, trusts are an important part of the legal system in India, and the different types of trusts serve different purposes. Whether you are setting up a trust for charitable purposes or to protect family assets, it is important to understand the different types of trusts and their requirements to ensure that your trust is legally valid and effective.

Suggested Read :

 How to Form a Trust in India?

compliances for NGOs in India

Tax Exemption for NGO Donation

Annual Compliances for Trust

How to modify or terminate a trust?