Trust

A trust is basically an arrangement made with regard to future development and/or use of a property by its owner. This property can be immovable such as land, houses, building structures etc., or movable such as money, shares, debentures, ornaments etc.

A trust can be distinguished from a gift or transfer of property by way of sale, mortgage, lease etc.

  • When a property is gifted or is transferred by way of sale, mortgage, lease etc., it involves only two parties the owner of the property and the person or persons getting the property via such transfer called the transferee.
  • However, when a property is arranged to be transferred by way of a trust apart from the owner and the transferee a third party called a trustee is also involved.
  • The property in such cases is not transferred directly to the transferee but is put in control of the trustee for the benefit of the transferee. The trustee depending upon the nature of the trust either transfers the property or its earnings to the transferee at the happening of certain events or applies the property and /or its gains for the benefit of such a transferee.
  • The document by which a trust is created is termed as an instrument of the trust and the person for rules benefit the trust is created is termed as beneficiary.
The trust may be private, public, charitable or religious in nature.

  • A trust is termed private in nature if it is created for the benefit ofspecific individuals that is, individuals who are defined and ascertainedindividuals or who within a definite time can be definitely ascertained
  • If however, the trust is created for the benefit of an uncertain andfluctuating body of persons who cannot be ascertained any point of time,for instance the public at large or a section of public following aparticular religion, profession or faith, the trust is termed as publictrust. Such a trust is generally a non-profit venture with charitableobject and in such cases it is also referred to as the charitable trust.
  • A trust created for religious purposes is termed as a religious trust andit can be either a private or a public trust. A religious endowment madevia trustees to a specified person is a private trust and the one to thegeneral public or a section thereof is a public trust.
A public trust is normally permanent or at least indefinite in duration.But a private trust does not work in perpetuity and essentially getsterminated at the expiry of purpose of the trust or happening of an eventor at any rate twenty one year after the death of the last transfereeliving at the time of the creation of the trust.

Private trusts are governed by the Indian Trusts Act, 1882. This Act is applicable to the whole of India except the State of Jammu and Kashmir andthe Andaman and Nicobar Islands.
That apart this Act is not applicable to the following:

  • Waqf
  • Property of a Hindu Undivided Family's.
  • Public or private religious as charitable endowments.
  • Trusts to distribute prizes taken in war among the captors.
CREATION OF A PRIVATE TRUST

  • A Private trust may be created for any lawful purpose.
  • A private trust can be created by any person who is of the age of majorityand is of sound mind, and is not disqualified by any law. Every person domiciled in India attains majority, when he or she completes age of 18years. But in case of a minor, for whom a guardian is appointed by thecourt or of whose property the superintendence has been assumed by thecourt of wards the age of majority is twenty one years.
  • A trust can be as well created by or on behalf of a minor with thepermission of a principal civil court of original jurisdiction.
  • Apart from a human being, a company, firm, society or association of persons is also capable of creating a trust.
  • Any person who is capable of holding property can be appointed a trustee.
  • A person has capacity to hold property if such a person is capable of administering the property effectively and efficiently with ordinary prudence.Depending upon the nature of the trust, if trustee is required to play a passive and role without any scope of discretion a minor may as well be appointed as trustee
  • However, where the trust involves exercise of discretion such as trust requiring sale of property or its investment, the trustee should be of theage of majority, of sound mind and should not be disqualified by any law.
  • A Corporation, a company or association of persons may as well be appointed as trustee.
BENEFICIARY OF A PRIVATE TRUST

  • Every person capable of holding property such as a human being,corporation, Company and even a state can be made beneficiary of a trust.
  • An unborn person can also be made beneficiary.
  • However, a proposed beneficiary is not bound by the desires of the person creating the trust. Such a proposed beneficiary can renounce his interest under the trust by either making a disclaimer addressed to the trustee orby setting up a claim inconsistent with the trust.
RIGHTS OF A BENEFICIARY

  • Unless the trust instrument expresses a different intention, a beneficiary has a right to the rents and profits of the trust property.
  • Again, the beneficiary has the right to ensure that the intention of theauthor of the trust is specifically executed to the extent of the beneficiary's interest therein.
  • Accordingly, a beneficiary can compel the trustee to perform any particular act of his duty or can as well restrain the trustee from committing any contemplated or probable breach of trust.
  • If no trustees are appointed or all the trustees die, disclaim or are discharged or where for any other reason the execution of a trust by the trustee becomes impracticable, the beneficiary can file a suit for the execution of the trust. In such a circumstance, the court executes the trust until a trustee is appointed for the same.
  • A trust is created when the person creating the trust, termed the author ofthe trust indicates with reasonable certainty by any words or acts the following.
    • An intention on his part to create trust.
    • The purpose of the trust.
    • The beneficiary.
    • The trust property
  • Again, unless the trust is declared by will, or the author of the trust is himself to be trustee, the author has to transfer the trust property to the trustee
  • A trust in relation to immovable property has to be declared in writing signed by the author of the trust or the trustee and has to be as well registered such a trust may as well be declared by a will of the author ofthe trust or of the trustee. The will is not required to be registered.
  • A trust in relation to movable property can be either declared as in thecase of immovable property or by transferring ownership of the property to the trustee.
  • The subject matter of the trust is called trust property. Any property, which can be transferred to the beneficiary, can be subject matter of the trust. But a mere beneficial interest under a subsisting trust cannot be the subject matter of a trust.
  • Certain other properties also cannot form subject matter of a trust. Someof these are as follows.
    • Chance of receiving property such as chance of a relation to obtain legacy on death of a kinsman or chance of an heir apparent to succeed to anestate.
    • Mere right to sue.
    • Public office or the salary of a public officer whether after or before it has became payable.
    • An interest in property restricted in its enjoyment to the owner personally.
    • Stipends allowed to military, naval, airforce and civil pensioner's of state or political pensions.
No one is bound to accept a trust as trustee. Instead of accepting a trust,the intended trustee can within a reasonable period disclaim it. Such a disclaimer prevents vesting of the trust property in the trustee. A disclaimer by one of two or more co-trustees vests the trust property in the other or others, and makes him or them sole trustee or trustees from the date of the creation of the trust.

However, a trustee who has accepted the trust cannot after wards renounce it except as under.

  • With the permission of a principal civil court of original jurisdiction.
  • Consent of the beneficiary if he is of the age of majority, and of soundmind and not disqualified by any law.
  • By special power in the instrument of the trust.

Equally a trustee cannot generally delegate his duties either to aco-trustee or a stranger. A delegation of duties can be made only, if:

  • instrument of trust provides for it
  • delegation is in the regular course of business
  • the delegation is necessary
  • the beneficiary,
  • being a major of some mind consents to the delegation.
ADMINISTRATION OF TRUST PROPERTY BY THE TRUSTEE

  • The trustee is required to fulfil the purpose of the trust and to obey the directions of the author of the trust unless they have been duly modified by the consent of all the beneficiaries.
  • In order to do so, the trustee has to acquaint himself as soon as possible, with the nature and circumstances of the trust property and where necessary he is also required to transfer the trust property to himself. He may also reclaim the trust money, invested on insufficient or hazardous security.
  • A trustee has to protect the trust property.
  • In the absence of a contract a trustee is not liable for the loss,destruction or deterioration of the trust property if in the exercise ofhis duties he has extended due care as a man of ordinary prudence.
  • A trustee is required to keep clear and accurate accounts of the trust property and is also bound to furnish the beneficiaries at their requestfull and accurate information as to amount and state of the trust property.
  • Where the trust property consists of money and cannot be applied immediately or at an early date to the purpose of the trust the trustee is bound to invest the money on certain government securities prescribed bythe Indian Trusts Act.
  • A trustee can apply to the court for its opinion, advice, or direction onissues regarding the management of the trust property if such issues can be adjudicated by the court in a short hearing.
  • A breach of any duty imposed on a trustee is termed as breach of trust. Where the trustee commits a breach of trust, he is liable to make good the loss, which the trust property or the beneficiary has thereby sustained.
  • However, the trustee is not liable if the beneficiary has by fraud induced the trustee to commit the breach or the beneficiary being competent to do so, has himself, without coercion or undue influence, concurred in the breach, or subsequently acquiesced therein with full knowledge of facts of the case and of his rights as against the trustee.
  • Again, a trustee is not liable for the breach of trust committed by his predecessor or his co-trustee if he has himself exercised due care and diligence requisite of a man of ordinary prudence and has not facilitated or connived the breach of trust.
  • A trustee may seek reimbursement of all the expenses properly incurred inor about execution of the trust and/or for the protection and benefit of trust property or the beneficiary. The reimbursement is to be sought from the trust property.
  • Equally if a trustee makes an over payment to the beneficiary, he can seek reimbursement from the beneficiary's interest in trust property and if such interest is insufficient, the trustee is entitled to recover the money from the beneficiary personally.
The beneficiary can file suit for removal of a trustee if the trust property is not held and administered by a proper trustee. The Indian trusts Act marks out the following individuals as not proper to under take duties of a trustee

  • a person domiciled abroad
  • an alien enemy
  • a person having an interest in consistent with that of the beneficiary
  • a person in insolvent circumstances
  • a married woman or a minor (unless the personal law of the beneficiary such as Hindus allows a married woman or a minor).
Where the administration of the trust involves the receipt and custody of money, a beneficiary can file suit to have one more trustee if only one trustee has been appointed as per the trust instrument.

The beneficiary can (where there is one beneficiary or if there are several beneficiaries and all of them agree) direct the trustee to transfer the trust property to him (if there are several beneficiaries to all of them) or to such other person as the beneficiary (or the beneficiaries may desire).

A beneficiary can also transfer his interest in the trust property and every person to whom a beneficiary transfers his interest acquires the rights and liabilities of the beneficiary at the date of the transfer. But such a transfer can be sought or made by the beneficiary (or the beneficiaries as the case may be) only if they are of the age of majority with sound mind and are not disqualified by any law for the time being inforce in India.

In case the beneficiary is a married woman and the trust property has been bequeathed to her via the trust to ensure that she would not deprive herself ofher beneficial interest the trust property cannot be transferred at her instance as aforesaid.

The beneficiary has a right to inspect and take copies of the instrument ofthe trust, the documents of title relating solely to the trust property, the accounts of the trust property and the vouchers if any by which theyare supported and as well the cases submitted and opinions taken by the trustee from the court for his guidance in the discharge of his duty.

PROTECTION OF TRUST AND TRUST PROPERTY

  • Where a trustee has wrongfully bought trust property the beneficiary has aright to have the property retransferred by the trustee or to have suchproperty declared subject to the conditions and safeguards of theinstrument of trust.
  • Where a third person acquires the trust property inconsistently with the trust, the beneficiary can file a suit to seek declaration that the property belongs to the trust. But such a declaration cannot be obtained if the third party has obtained the property in good faith by making due payment and without having notice of the trust
  • However, in such cases, the beneficiary can claim the money obtained by thetrustee on selling the trust property from the trustee or his legal representatives.
LIABILITY OF BENEFICIARY

If one of several beneficiaries facilitates or partakes in the breach oftrust committed by the trustee or deceives a trustee and induces him tocommit a breach of trust or fails to take proper steps to protect interestsof other beneficiaries after he becomes aware of the intended or committed breach of trust, he is liable to such all other beneficiaries. These othe rbeneficiaries can impound all the beneficial interest of such liable beneficiary until the loss caused by breach of trust is compensated.

  • As regards the public trusts, there is no Central Act applicable in all the States. But various states such as Bihar, Madras, Madhaya Pradesh Orissa,etc, have enacted their own acts prescribing conditions and procedure for the administration of public trusts. These Acts are more or less similar innature though there may be certain variations.
  • For instance, the Bombay Public Trusts Act, 1950 provides machinery of charity commissioners to regulate the administration of public religious and charitable trusts. It makes registration of all the public religious and charitable trusts including the religious trusts created under Hindu, Muslim and Christian personal laws mandatory and prescribes certain norms for the maintenance and audit of budget, and accounts of such trusts and further empowers the charity commissioners to inspect and supervise the property belonging to a public trust and as well the proceedings of the trustees and books of accounts of such a trust.
  • That apart, the act also creates certain restrictions on the investment of public trust money and as well alienation of immovable property of such a trust.
PUBLIC SUPERVISION AND REGULATION
The working of the public trust and its trustees can be regulated and closely supervised by the state and/or the beneficiaries of such a trust.In the case of any alleged breach of a public trust or where the direction of the court is deemed necessary for the administration of such trust, either the Advocate General or two or more persons having an interest in the trust and having obtained the leave of the court can institute a suit to seek:

  • removal of a trustee
  • appointment of a new trustee
  • for vesting any property in a trustee
  • for directing a trustee who has been removed or a person who has ceased to be a trustee to deliver possession of any trust property in his possession to the person entitled to the possession of such property
  • For directing accounts enquiries
  • for seeking of declaring what proportion of the trust property or of the interest therein shall be allocated me any particular object of the trust.
    • In such a suit, the court may alter the original purpose of the trust and allow the property or income of such trust or any portion there of to be applied to different purpose or in a different manner for a similar purpose, as nearly as possible according to the intentions of the author.
    • Such an alternation can be sought where either the original purpose of the trust is fulfilled or can not be carried out or where the original purpose of the trust provides a use for only part of the trust property or where the property of the trust can be used more effectively for another similar purpose.
    • The Court can also make alternation if the original purpose, in whole in part, has been adequately provided for by other means or has ceased to be charitable or has become useless or harmful to community or has ceased to provide a suitable and effective method of using the trust property as per the spirit of the trust.
The creation of religious charitable trusts is governed by the personal laws of the religion. The administration of these religious trusts can either be left to the trustees as per the dictates of the religious names or it can be regulated to a greater or lessee degree by statute such as the Bombay Public Trusts Act, 1950 discussed above.In case of Hindus, the personal law provisions regulating the religious trusts have not been codified and are found dispersed in various religious books and epics.

ESSENTIALS OF RELIGIOUS AND CHARITBALE TRUST UNDER HINDU LAW

  • There are four essential requirements for creating a valid religious or charitable trust under Hindu Law:
    • Valid religious as charitable purpose of the trust as per the norms of Hindu Law.
    • Capability of the author of the trust to create such a trust.
    • The purpose and property of the trust must be indicated with sufficient precision.
    • The trust must not violate any law of the country.
  • The religious and charitable purpose are neither delineated nor defined with precision under the Hindu Law.
  • However, acts of piety and benevolence such as gifts to idols, establishment of Dharmasala, mutts or monasteries, performance of 'Sradhs' of the author of the trust or his family excavation of tanks, wells etc, establishment of hospitals, educational institute etc. qualify as religious and charitable under the Hindu Law.
  • No document in writing is necessary to constitute valid religious and charitable trust by a Hindu. Only there has to be a clear and unequivocal manifestation of an intention on the part of the author to create such a trust.
  • Such intention may be manifested by performing the ceremonies of sankalpa and samarpan. But these ceremonies are not essential for the Validity of the trust.
The word wakf as per Islamic law has two meanings:

  • inalienable lands belonging to the Government which are charitable.
  • Pious endowments with reference to the subject matter of trusts the second meaning is relevant.
ESSENTIALS OF WAKF

  • Wakf has to be a permanent endowment in perpetuity.
  • It cannot be either contingent or revocable.
  • No instrument in writing is required to create a wakf. An oral dedication can as well create a wakf.
  • Neither delivery of possession nor appointment of mutawallis is required. But the subject of wakf must be clearly defined.
  • A wakf can also be made by a will or by long user.
  • Any muslim who has attend majority and is of sound mind can make a wakf. A minor or his guardian as on behalf of the minor cannot make a wakf. Again, a wakf cannot be made for an illegal object.
  • A wakf nama by which immovable property of value of Rs.100 as more is dedicated by way of wakf requires registration.
  • The property which is either capable of being used without being consumedor which is though consumable in itself but is capable of being converted in to property of a permanent nature can form the subject matter of a wakf.
  • A wakf can be created for any purpose which is considered religious,pious, or charitable by the Mohammadan law.
  • Any wakf created with the object of obtaining the approval of the almighty or a reward in the next world is pious as per Mohammadan law.
  • Few instances of a pious or a religious purpose may be mosques, provisions for imams, colleges, bridges, assistance to poor people to perform pilgrimage to Mecca, and distribution of alms to the poor.
  • Wakf may be made for the rich as well poor people alike or for the affluent and thereafter for the poor or for the poor people alone. All persons regardless of their financial status can be made beneficiaries of a wakf.
  • Even family members and descendents of the wakif, that is the person creating the wakf, can be made beneficiaries. Under Hanafi law, the wakifhimself can also be a beneficiary.
  • Under Muslim law, the administration of a wakf is vested in the Mutawalli but since 1923 a number of Central and State Acts, have restricted and regulated the administration powers of a mutawalli so as to ensure transparency and proper execution of a wakf. For instance the Wakf Act 1954 makes registration of a wakf, whether created before or after the commencement of the Act, at the office of a wakf commissioner mandatory.
  • Thereafter, the Mutawalli's of these registered wakfs are required to prepare budget and accounts of the wakf for the appraisal of the wakf commissioner and the wakf board.
  • In certain cases, the wakf board can assume direct Management of the wakf.
Following incomes are exempted from the application of income tax and no tax is payable on them.

  • Income derived from property held under trust wholly for charitable or religious purpose
    • To extent the income is applied for such purpose in India.
    • To the extent but not exceeding 25% of such income, the income is accumulated or set apart for application to such purposes in India.
  • Income derived from property held under trust partly only for charitable or religious purpose.
    • To the extent the income is applied for such purpose in India and;
    • to the extent but not exceeding 25% of such income, the income is accumulated or set apart for application to such purposes in India provided such trust had been created before 1.4.1962.
  • Income derived from property held under trust to the extent the income is applied for the purposes of the trust outside India, if direction to this effect has been issued by the Central Board of Direct Taxes by general or special order
    • in case of a trust created on or after 1.4.1962 if the trust was created for a charitable purpose which tends to promote international welfare in which India is interested or
    • in case of a trust created before 1.4.1952 if the trust was created for charitable and religious purposes.
  • Income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust.

Private,Public and Religious Trusts

The trust may be private, public, charitable or religious in nature.

  1. A trust is termed private in nature if it is created for the benefit ofspecific individuals that is, individuals who are defined and ascertainedindividuals or who within a definite time can be definitely ascertained
  2. If however, the trust is created for the benefit of an uncertain andfluctuating body of persons who cannot be ascertained any point of time,for instance the public at large or a section of public following aparticular religion, profession or faith, the trust is termed as publictrust. Such a trust is generally a non-profit venture with charitableobject and in such cases it is also referred to as the charitable trust.
  3. A trust created for religious purposes is termed as a religious trust andit can be either a private or a public trust. A religious endowment madevia trustees to a specified person is a private trust and the one to thegeneral public or a section thereof is a public trust.

A public trust is normally permanent or at least indefinite in duration.But a private trust does not work in perpetuity and essentially getsterminated at the expiry of purpose of the trust or happening of an eventor at any rate twenty one year after the death of the last transfereeliving at the time of the creation of the trust.

Private Trust

Private trusts are governed by the Indian Trusts Act, 1882. This Act is applicable to the whole of India except the State of Jammu and Kashmir andthe Andaman and Nicobar Islands. That apart this Act is not applicable to the following:

  1. Waqf
  2. Property of a Hindu Undivided Family's.
  3. Public or private religious as charitable endowments.
  4. Trusts to distribute prizes taken in war among the captors.

CREATION OF A PRIVATE TRUST

  1. A Private trust may be created for any lawful purpose.
  2. A private trust can be created by any person who is of the age of majorityand is of sound mind, and is not disqualified by any law. Every person domiciled in India attains majority, when he or she completes age of 18years. But in case of a minor, for whom a guardian is appointed by thecourt or of whose property the superintendence has been assumed by thecourt of wards the age of majority is twenty one years.
  3. A trust can be as well created by or on behalf of a minor with thepermission of a principal civil court of original jurisdiction.
  4. Apart from a human being, a company, firm, society or association of persons is also capable of creating a trust.

Trustee/Beneficiary Of A Private Trust

  1. Any person who is capable of holding property can be appointed a trustee.
  2. A person has capacity to hold property if such a person is capable of administering the property effectively and efficiently with ordinary prudence.Depending upon the nature of the trust, if trustee is required to play a passive and role without any scope of discretion a minor may as well be appointed as trustee
  3. However, where the trust involves exercise of discretion such as trust requiring sale of property or its investment, the trustee should be of theage of majority, of sound mind and should not be disqualified by any law.
  4. A Corporation, a company or association of persons may as well be appointed as trustee.
BENEFICIARY OF A PRIVATE TRUST
  1. Every person capable of holding property such as a human being,corporation, Company and even a state can be made beneficiary of a trust.
  2. An unborn person can also be made beneficiary.
  3. However, a proposed beneficiary is not bound by the desires of the person creating the trust. Such a proposed beneficiary can renounce his interest under the trust by either making a disclaimer addressed to the trustee orby setting up a claim inconsistent with the trust.
RIGHTS OF A BENEFICIARY
  1. Unless the trust instrument expresses a different intention, a beneficiary has a right to the rents and profits of the trust property.
  2. Again, the beneficiary has the right to ensure that the intention of theauthor of the trust is specifically executed to the extent of the beneficiary's interest therein.
  3. Accordingly, a beneficiary can compel the trustee to perform any particular act of his duty or can as well restrain the trustee from committing any contemplated or probable breach of trust.
  4. If no trustees are appointed or all the trustees die, disclaim or are discharged or where for any other reason the execution of a trust by the trustee becomes impracticable, the beneficiary can file a suit for the execution of the trust. In such a circumstance, the court executes the trust until a trustee is appointed for the same.

Modes Of Creating A Private Trust

  1. A trust is created when the person creating the trust, termed the author ofthe trust indicates with reasonable certainty by any words or acts the following.
    1. An intention on his part to create trust.
    2. The purpose of the trust.
    3. The beneficiary.
    4. The trust property
  1. Again, unless the trust is declared by will, or the author of the trust is himself to be trustee, the author has to transfer the trust property to the trustee
  2. A trust in relation to immovable property has to be declared in writing signed by the author of the trust or the trustee and has to be as well registered such a trust may as well be declared by a will of the author ofthe trust or of the trustee. The will is not required to be registered.
  3. A trust in relation to movable property can be either declared as in thecase of immovable property or by transferring ownership of the property to the trustee.

Trust Property

  1. The subject matter of the trust is called trust property. Any property, which can be transferred to the beneficiary, can be subject matter of the trust. But a mere beneficial interest under a subsisting trust cannot be the subject matter of a trust.
  2. Certain other properties also cannot form subject matter of a trust. Someof these are as follows.
    1. Chance of receiving property such as chance of a relation to obtain legacy on death of a kinsman or chance of an heir apparent to succeed to anestate.
    2. Mere right to sue.
    3. Public office or the salary of a public officer whether after or before it has became payable.
    4. An interest in property restricted in its enjoyment to the owner personally.
    5. Stipends allowed to military, naval, airforce and civil pensioner's of state or political pensions.

Trustee Of A Private Trust- Rights And Powers

No one is bound to accept a trust as trustee. Instead of accepting a trust,the intended trustee can within a reasonable period disclaim it. Such a disclaimer prevents vesting of the trust property in the trustee. A disclaimer by one of two or more co-trustees vests the trust property in the other or others, and makes him or them sole trustee or trustees from the date of the creation of the trust.
 
However, a trustee who has accepted the trust cannot after wards renounce it except as under.
  1. With the permission of a principal civil court of original jurisdiction.
  2. Consent of the beneficiary if he is of the age of majority, and of soundmind and not disqualified by any law.
  3. By special power in the instrument of the trust.

Equally a trustee cannot generally delegate his duties either to aco-trustee or a stranger. A delegation of duties can be made only, if:

  1. instrument of trust provides for it
  2. delegation is in the regular course of business
  3. the delegation is necessary
  4. the beneficiary,

being a major of some mind consents to the delegation.

ADMINISTRATION OF TRUST PROPERTY BY THE TRUSTEE

  1. The trustee is required to fulfil the purpose of the trust and to obey the directions of the author of the trust unless they have been duly modified by the consent of all the beneficiaries.
  2. In order to do so, the trustee has to acquaint himself as soon as possible, with the nature and circumstances of the trust property and where necessary he is also required to transfer the trust property to himself. He may also reclaim the trust money, invested on insufficient or hazardous security.
  3. A trustee has to protect the trust property.
  4. In the absence of a contract a trustee is not liable for the loss,destruction or deterioration of the trust property if in the exercise ofhis duties he has extended due care as a man of ordinary prudence.
  5. A trustee is required to keep clear and accurate accounts of the trust property and is also bound to furnish the beneficiaries at their requestfull and accurate information as to amount and state of the trust property.
  6. Where the trust property consists of money and cannot be applied immediately or at an early date to the purpose of the trust the trustee is bound to invest the money on certain government securities prescribed bythe Indian Trusts Act.
  7. A trustee can apply to the court for its opinion, advice, or direction onissues regarding the management of the trust property if such issues can be adjudicated by the court in a short hearing.

Breach Of Trust

  1. A breach of any duty imposed on a trustee is termed as breach of trust. Where the trustee commits a breach of trust, he is liable to make good the loss, which the trust property or the beneficiary has thereby sustained.
  2. However, the trustee is not liable if the beneficiary has by fraud induced the trustee to commit the breach or the beneficiary being competent to do so, has himself, without coercion or undue influence, concurred in the breach, or subsequently acquiesced therein with full knowledge of facts of the case and of his rights as against the trustee.
  3. Again, a trustee is not liable for the breach of trust committed by his predecessor or his co-trustee if he has himself exercised due care and diligence requisite of a man of ordinary prudence and has not facilitated or connived the breach of trust.

Reimbursement of Expenses And Over-Payment

  1. A trustee may seek reimbursement of all the expenses properly incurred inor about execution of the trust and/or for the protection and benefit of trust property or the beneficiary. The reimbursement is to be sought from the trust property.
  2. Equally if a trustee makes an over payment to the beneficiary, he can seek reimbursement from the beneficiary's interest in trust property and if such interest is insufficient, the trustee is entitled to recover the money from the beneficiary personally.

Removal of The Trustee

The beneficiary can file suit for removal of a trustee if the trust property is not held and administered by a proper trustee. The Indian trusts Act marks out the following individuals as not proper to under take duties of a trustee

  1. a person domiciled abroad
  2. an alien enemy
  3. a person having an interest in consistent with that of the beneficiary
  4. a person in insolvent circumstances
  5. a married woman or a minor (unless the personal law of the beneficiary such as Hindus allows a married woman or a minor).

Where the administration of the trust involves the receipt and custody of money, a beneficiary can file suit to have one more trustee if only one trustee has been appointed as per the trust instrument.

Transfer Of Trust Property By The Beneficiary

The beneficiary can (where there is one beneficiary or if there are several beneficiaries and all of them agree) direct the trustee to transfer the trust property to him (if there are several beneficiaries to all of them) or to such other person as the beneficiary (or the beneficiaries may desire).
 
A beneficiary can also transfer his interest in the trust property and every person to whom a beneficiary transfers his interest acquires the rights and liabilities of the beneficiary at the date of the transfer. But such a transfer can be sought or made by the beneficiary (or the beneficiaries as the case may be) only if they are of the age of majority with sound mind and are not disqualified by any law for the time being inforce in India.
 
In case the beneficiary is a married woman and the trust property has been bequeathed to her via the trust to ensure that she would not deprive herself ofher beneficial interest the trust property cannot be transferred at her instance as aforesaid.

Documents And Accounts Of Trust Property

The beneficiary has a right to inspect and take copies of the instrument ofthe trust, the documents of title relating solely to the trust property, the accounts of the trust property and the vouchers if any by which theyare supported and as well the cases submitted and opinions taken by the trustee from the court for his guidance in the discharge of his duty.
 
PROTECTION OF TRUST AND TRUST PROPERTY
  1. Where a trustee has wrongfully bought trust property the beneficiary has aright to have the property retransferred by the trustee or to have suchproperty declared subject to the conditions and safeguards of theinstrument of trust.
  2. Where a third person acquires the trust property inconsistently with the trust, the beneficiary can file a suit to seek declaration that the property belongs to the trust. But such a declaration cannot be obtained if the third party has obtained the property in good faith by making due payment and without having notice of the trust
  3. However, in such cases, the beneficiary can claim the money obtained by thetrustee on selling the trust property from the trustee or his legal representatives.

LIABILITY OF BENEFICIARY

If one of several beneficiaries facilitates or partakes in the breach oftrust committed by the trustee or deceives a trustee and induces him tocommit a breach of trust or fails to take proper steps to protect interestsof other beneficiaries after he becomes aware of the intended or committed breach of trust, he is liable to such all other beneficiaries. These othe rbeneficiaries can impound all the beneficial interest of such liable beneficiary until the loss caused by breach of trust is compensated.

Discharge of a Trustee

The office of a trustee is vacated by his death or by his discharge under the provisions of the Indian Trusts Act, which envisages following six modesof discharge for a trustee.

  1. by extinction of the trust
  2. by the completion of duties under the trust
  3. by such means as may be prescribed by the instrument of trust
  4. by appointment of a new trustee in his place
  5. by consent of himself and all the beneficiaries provided the beneficiaries are of the age of majority and have sound mind and are not disqualified under any law
  6. by the court by filing a petition for discharge.

A trustee can apply to a principal civil court of original jurisdiction for seeking discharge from his office. If the court finds that there are sufficient reason for such discharge, it may discharge him accordingly. Insuch a case, the cost of litigation is paid out of the trust property. But if there is no sufficient reason, the court cannot discharge such a trustee unless a proper person can be found to take his place.

Appointment of a New Trustee

A new trustee can be appointed by
  1. a person nominated for that purpose by the instrument of trust or
  2. author of trust or
  3. surviving or continuing trustees or the trustee for the time being
  4. legal representatives of the last surviving and continuing trustee or
  5. with the consent of the court, the retiring trustees(if they all retire simultaneously) or the last retiring trustee
  6. by the court if it is impracticable to appoint a new trustee by the aforesaid persons.
A new trustee can be appointed if
  1. any person appointed as trustee disclaims
  2. any trustee dies
  3. any trustee is absent from India for a continuous period of 6 months or leaves India for the purpose of residing abroad
  4. any trustee is declared an insolvent
  5. any trustee desires to be discharged from the trust or refuses to act as trustee or accepts an inconsistent trust
  6. if any trustee, in the opinion of a court becomes unfit or personally incapable to act as a trustee.

Extinction & Revocation Of Trusts

A trust gets extinguished under four circumstances:(1) when its purpose is completely fulfilled (2) when its purpose becomes unlawful (3) when the fulfillment of its purpose becomes impossible by destruction of the trust property or otherwise (4) when the trust being revocable is expressly revoked.
 
REVOCATION OF A PRIVATE TRUST
 
The trust created by will can be revoked at the pleasure of the testator that is, author of the trust who has by his will envisaged the trust. Atrust created otherwise can be revoked only in following 3 circumstances:
  1. by the consent of all the beneficiaries if they are of the age of majority and of sound mind and are as well not disqualified by any law
  2. by exercising power of revocation if it is expressly reserved for the author of the trust
  3. at the pleasure of the author of the trust if the trust is for the payment of the debts of the author of the trust and it has not been communicated to the creditors. But no trust can be revoked by the author of the trust so as to defeat or prejudice the acts duly done by the trustees in the execution of trust.

Public, Charitable and Religious Trusts

  1. As regards the public trusts, there is no Central Act applicable in all the States. But various states such as Bihar, Madras, Madhaya Pradesh Orissa,etc, have enacted their own acts prescribing conditions and procedure for the administration of public trusts. These Acts are more or less similar innature though there may be certain variations.
  2. For instance, the Bombay Public Trusts Act, 1950 provides machinery of charity commissioners to regulate the administration of public religious and charitable trusts. It makes registration of all the public religious and charitable trusts including the religious trusts created under Hindu, Muslim and Christian personal laws mandatory and prescribes certain norms for the maintenance and audit of budget, and accounts of such trusts and further empowers the charity commissioners to inspect and supervise the property belonging to a public trust and as well the proceedings of the trustees and books of accounts of such a trust.
  3. That apart, the act also creates certain restrictions on the investment of public trust money and as well alienation of immovable property of such a trust.
PUBLIC SUPERVISION AND REGULATION
 
The working of the public trust and its trustees can be regulated and closely supervised by the state and/or the beneficiaries of such a trust.In the case of any alleged breach of a public trust or where the direction of the court is deemed necessary for the administration of such trust, either the Advocate General or two or more persons having an interest in the trust and having obtained the leave of the court can institute a suit to seek:
  1. removal of a trustee
  2. appointment of a new trustee
  3. for vesting any property in a trustee
  4. for directing a trustee who has been removed or a person who has ceased to be a trustee to deliver possession of any trust property in his possession to the person entitled to the possession of such property
  5. For directing accounts enquiries
  6. for seeking of declaring what proportion of the trust property or of the interest therein shall be allocated me any particular object of the trust.
    1. In such a suit, the court may alter the original purpose of the trust and allow the property or income of such trust or any portion there of to be applied to different purpose or in a different manner for a similar purpose, as nearly as possible according to the intentions of the author.
    2. Such an alternation can be sought where either the original purpose of the trust is fulfilled or can not be carried out or where the original purpose of the trust provides a use for only part of the trust property or where the property of the trust can be used more effectively for another similar purpose.
    3. The Court can also make alternation if the original purpose, in whole in part, has been adequately provided for by other means or has ceased to be charitable or has become useless or harmful to community or has ceased to provide a suitable and effective method of using the trust property as per the spirit of the trust.

Religious Trusts

The creation of religious charitable trusts is governed by the personal laws of the religion. The administration of these religious trusts can either be left to the trustees as per the dictates of the religious names or it can be regulated to a greater or lessee degree by statute such as the Bombay Public Trusts Act, 1950 discussed above.
In case of Hindus, the personal law provisions regulating the religious trusts have not been codified and are found dispersed in various religious books and epics.
 
ESSENTIALS OF RELIGIOUS AND CHARITBALE TRUST UNDER HINDU LAW
  1. There are four essential requirements for creating a valid religious or charitable trust under Hindu Law:
    1. Valid religious as charitable purpose of the trust as per the norms of Hindu Law.
    2. Capability of the author of the trust to create such a trust.
    3. The purpose and property of the trust must be indicated with sufficient precision.
    4. The trust must not violate any law of the country.
  2. The religious and charitable purpose are neither delineated nor defined with precision under the Hindu Law.
  3. However, acts of piety and benevolence such as gifts to idols, establishment of Dharmasala, mutts or monasteries, performance of 'Sradhs' of the author of the trust or his family excavation of tanks, wells etc, establishment of hospitals, educational institute etc. qualify as religious and charitable under the Hindu Law.
  4. No document in writing is necessary to constitute valid religious and charitable trust by a Hindu. Only there has to be a clear and unequivocal manifestation of an intention on the part of the author to create such a trust.
  5. Such intention may be manifested by performing the ceremonies of sankalpa and samarpan. But these ceremonies are not essential for the Validity of the trust.

Wakf

The word wakf as per Islamic law has two meanings:

  1. inalienable lands belonging to the Government which are charitable.
  2. Pious endowments with reference to the subject matter of trusts the second meaning is relevant.

ESSENTIALS OF WAKF

  1. Wakf has to be a permanent endowment in perpetuity.
  2. It cannot be either contingent or revocable.
  3. No instrument in writing is required to create a wakf. An oral dedication can as well create a wakf.
  4. Neither delivery of possession nor appointment of mutawallis is required. But the subject of wakf must be clearly defined.
  5. A wakf can also be made by a will or by long user.
  6. Any muslim who has attend majority and is of sound mind can make a wakf. A minor or his guardian as on behalf of the minor cannot make a wakf. Again, a wakf cannot be made for an illegal object.
  7. A wakf nama by which immovable property of value of Rs.100 as more is dedicated by way of wakf requires registration.
  8. The property which is either capable of being used without being consumedor which is though consumable in itself but is capable of being converted in to property of a permanent nature can form the subject matter of a wakf.
  9. A wakf can be created for any purpose which is considered religious,pious, or charitable by the Mohammadan law.
  10. Any wakf created with the object of obtaining the approval of the almighty or a reward in the next world is pious as per Mohammadan law.
  11. Few instances of a pious or a religious purpose may be mosques, provisions for imams, colleges, bridges, assistance to poor people to perform pilgrimage to Mecca, and distribution of alms to the poor.
  12. Wakf may be made for the rich as well poor people alike or for the affluent and thereafter for the poor or for the poor people alone. All persons regardless of their financial status can be made beneficiaries of a wakf.
  13. Even family members and descendents of the wakif, that is the person creating the wakf, can be made beneficiaries. Under Hanafi law, the wakifhimself can also be a beneficiary.
  14. Under Muslim law, the administration of a wakf is vested in the Mutawalli but since 1923 a number of Central and State Acts, have restricted and regulated the administration powers of a mutawalli so as to ensure transparency and proper execution of a wakf. For instance the Wakf Act 1954 makes registration of a wakf, whether created before or after the commencement of the Act, at the office of a wakf commissioner mandatory.
  15. Thereafter, the Mutawalli's of these registered wakfs are required to prepare budget and accounts of the wakf for the appraisal of the wakf commissioner and the wakf board.
  16. In certain cases, the wakf board can assume direct Management of the wakf.

Tax Exemptions of Trust

Following incomes are exempted from the application of income tax and no tax is payable on them.

  1. Income derived from property held under trust wholly for charitable or religious purpose
    1. To extent the income is applied for such purpose in India.
    2. To the extent but not exceeding 25% of such income, the income is accumulated or set apart for application to such purposes in India.
  2. Income derived from property held under trust partly only for charitable or religious purpose.
    1. To the extent the income is applied for such purpose in India and;
    2. to the extent but not exceeding 25% of such income, the income is accumulated or set apart for application to such purposes in India provided such trust had been created before 1.4.1962.
  3. Income derived from property held under trust to the extent the income is applied for the purposes of the trust outside India, if direction to this effect has been issued by the Central Board of Direct Taxes by general or special order
    1. in case of a trust created on or after 1.4.1962 if the trust was created for a charitable purpose which tends to promote international welfare in which India is interested or
    2. in case of a trust created before 1.4.1952 if the trust was created for charitable and religious purposes.
  4. Income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust.

Incomes Not Exempted

  1. The above said exemptions are not available if the income is transferred by the assessee in favour of another person without transfer of the property producing the income or when income arises from the property
    transferred by assessee by way of revocable transfer that is, a transfer which can be nullified by the person making the transfer at his will and convenience.
  2. The income of the trust being profits and gains of business of the trust is exempted only if the business of the trust is incidental to the attainment of the objects of the trust and separate books of accounts are maintained by the trust in respect of the business.
  3. Income accrued from the property held under a private religious trust, which does not endure for the benefit of the public, does not enjoy any exemption under the Income Tax Act.
  4. If a public charitable institution is crated for the benefit of any particular religious community or caste except the one created for the benefit of scheduled casts, backward classes, scheduled tribes or women and Children only no exemption is available.
  5. No exemption is available for the income of a public religious or charitable trust established after 1.4.1962 which enures as is applied directly or indirectly for the benefit of
    1. Author of the trust
    2. any person who has made substantial contributions i.e., total contribution of more than Rs.50,000/-
    3. where author of trust is Hindu Undivided family, any member of such a family
    4. trustee of the trust
    5. any relative of the persons aforesaid as any concern in which the persons aforesaid have substantial interest.

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