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Trust Registration, Characteristics and Advantages

Introduction

A trust deed, which is a binding legal agreement between a person or group (known as settler) and an individual or group (known as trustee), is authorized by the registrar through the trust registration process. The Trust acts as a formal vehicle responsible for the equitable distribution of the settlor's assets to the beneficiaries. A trust comes into effect after the registrar gives his/he approval on the trust deed. Private trusts are governed by the terms of the Indian Trust Act of 1882. The interests of trusts in India are governed by and protected by this legislation. State-specific laws such as the 1950 Maharashtra Public Trust Act regulate public trusts with the exception of Jammu & Kashmir and the Andaman and Nicobar Islands.

What is a Charitable Trust?

A trust is a separate legal entity from its trustees. A public charitable trust is established when one wants to give property for a long time and the trustees want it to be used solely for designated charitable purposes under the careful supervision of the original settlers/trustees. The Trust is typically described as a legal arrangement where the Trust's owner transfers the relevant Trustee's (also known as beneficiary) ownership of the relevant property. The goal of the Trust is to make sure that the assets of the Trustor are distributed among the beneficiaries in accordance with the terms stated in the Trust deed. Trusts are governed by a trust deed that outlines the rules and conditions under which the trustee manages the assets and distributes benefits to the beneficiaries.

Trust Registration- How to form a trust in India

Here is a step-by-step guide to help you sail through the process of trust registration. Simply follow along:

Stakeholders involved in the Trust Registration Process:

  • Trustor: A trust is established by the trustor. The trustor may be a single individual, a married couple, or, in some circumstances, a business or other entity. A trust is frequently created by the trustor as part of an estate plan with the intention of transferring assets to their children or other heirs after the trustor passes away. Beneficiaries, however, do not have to be connected to the trustor.
  • Trustee: The trustee is the individual or organization in charge of overseeing and running the trust in accordance with the guidelines established by the donor. The grantor typically acts as the original trustee and retains ownership of the trust's assets. But if the grantor loses capacity or dies, the trust agreement names replacement trustees to assume the position.
  • Beneficiary: Every person who is competent to possess property may be a beneficiary, according to Section 9 of the Indian Trust Act of 1886. By sending a disclaimer to the trustee or by establishing, after receiving notice of the trust, a claim that is inconsistent with it, an intended beneficiary may renounce his interest under the trust. The individuals or people who have the right to receive the benefits of any trust arrangement are known as beneficiaries. The beneficiary of a trust is typically a natural person, although it is entirely possible and frequently occurs in complex commercial transaction structures—to have a firm as the beneficiary. All trusts must have ascertainable beneficiaries, with the exception of charity trusts and a few unique anomalous non-charitable purpose trusts.

Documents and other essentials required to register a trust:

  • The objective of the trust deed
  • In the case of a rented property, an NOC from the landlord
  • PAN details of the trustee and settlor
  • Photos of the trustee and settlor
  • Identity proof of the trustee and trustor, such as Voter ID, passport, aadhaar card, driver's license
  • Proof of registered office address such as utility bills (electricity/water), copy of property certificate
  • Trust deed on proper stamp value
  • Name of Trust
  • Number of trustees
  • Proposed rules governing the trust
  • At the moment of registering the trust, the settlor and two witnesses must be present.
  • Information on the Trustee and Settlor, such as a self-attested copy of I.D., proof of address, and profession

Eligibility criteria to register a trust

  • For the creation of trusts, a minimum of two people are required.
  • The trust's objectives should comply with Indian laws and cannot conflict with other laws or the public interest.
  • There must be no legal basis for disqualifying the parties in India.
  • The Trust must be drafted in accordance with the Indian Trusts Act, 1882
  • Trust must conduct fair practices

Steps to follow in order to register a trust

  • Select a name for your trust: The first logical step to registering a trust is to begin with picking out a suitable name.
    • The selected name must be relatable to the cause the trust wants to take up.
    • The name must conform to the Trademarks Act, Intellectual Property Rights Act, and Emblem and Names Act, of 1950.
  • Ensure that you meet all the eligibility requirements Make sure to check off all the checkboxes with respect to documents and prerequisites.
  • Prepare a Memorandum of Association (MOA) for the TrustChalk out a Memorandum of Association (MOA) that describes the goals and reasons for the trust being established. Verify the legality of the objectives listed in the MOA.
  • Draft the Trust DeedMake a trust deed, which establishes the trust and is a binding legal instrument. When registering the trust, the registrar must see the trust document. It must include all the conditions that the author, trustees, and beneficiaries have agreed upon.
  • Submit the Trust DeedWhen you have drafted the deed, you may submit it to the registrar accompanied by other required documents.
  • Get your Certificate of Trust Registration If your trust deed is accepted and you have followed all applicable laws. A trust registration certificate will be issued by the registrar for the trustees' and trustor's safekeeping.

What are the Advantages of Trust in India?

  • Tax ExemptionsThe Income-tax department in India offers a number of tax exemptions to all registered trusts. They are qualified to take advantage of numerous tax relaxations because charitable trusts do not intend to generate profits if they hold a registered deed. In India, registered trusts have access to tax exemptions made available by the Income Tax Department, reaping the benefits of tax relief.
  • Charity EngagementsAn individual can use a Charitable Trust to their advantage, the benefit of their beneficiaries, and the benefit of the charity of their choice. A charitable trust is a technique to organize your assets so that they can simultaneously benefit you, concerned beneficiaries, and a cause. Such a Trust could offer a person looking to give non-essential assets like stocks or real estate to society a number of benefits.
  • Financial Aid to the NeedyThrough charitable endeavors, registered trusts offer much-needed financial aid to the poor and the underserved.
  • Conserving High-Value AssetsHighly appreciable assets are preserved via a benevolent trust. You can maintain the value of your assets by transferring highly appreciated assets to a charity trust. Since a charitable trust won't owe capital gains tax on the sale of these assets, you can receive annual payments from the trust without paying it, which will enable you to donate more to the charities of your choice.

Wrapping Up

There are various steps involved in the intricate process of curating a legal document that not just binds but also enables trustees to direct resources toward said charitable causes. Trusts will bring along with them a host of benefits. Additionally, tax exemptions by the IT Department offer critical respite allowing registered trusts to focus on their cause.