Anyone who is competent to contract in India can set up a trust for various reasons, including education, poverty relief and medical treatment. The trustee holds a key position and is responsible for holding and managing the property for the welfare of charitable beneficiaries. Usually, charitable trusts are set up for the welfare of charitable organizations.
The creation of all private trusts and other aspects related to trusts are governed by the provisions of the
Indian Trusts Act, 1882 (‘Act’).
Relevant Definitions
Section 3 of the Act defines some important terms that are key to understanding and establishing trusts in India. They are:
- Trust: It refers to a fiduciary arrangement that allows a third party to hold assets on behalf of the owner for the welfare of the beneficiaries.
- Author of the Trust: The individual who reposes or declares the confidence.
- Trustee: Individual who accepts the confidence.
- Beneficiary: The individual for whose benefit confidence has been accepted.
Unlawful Trusts
It should be noted that a trust may only be set up for legal purposes. However, if it is created for any of the following purposes, it shall be declared as an unlawful trust.
- It is legally forbidden.
- Its nature would defeat the purpose of the provisions of any law.
- Is fraudulent.
- Results in injuring another person or the property of another individual.
- The Court considers it to be immoral or deems it to oppose any public policy.
When is a Trust Created?
A trust is created when the author of a trust expresses with ample clarity (a) the intention of creation a trust; (b) aim of the trust; (c) the beneficiary/beneficiaries; (d) the trust property; and transfers the trust property to the trustee.
| Trusts may be created for both movable and immovable properties. |
Who can be a Trustee?
As per Section 10 of the Act, any individual who can hold property can be a trustee. In cases where discretion may be exercised in the trust, they cannot execute it unless they are competent to contract.
Who can be a Beneficiary?
As per the provisions of Section 9 of the Act, any individual who can hold property can be a beneficiary. This is not applicable solely to individuals but may apply to corporate entities as well.
Trustees’ Responsibilities
- Trustees are bound to achieve the aim of the trust and adhere to the directions of the author of the trust.
- Trustees are bound to familiarize themselves with the trust property’s nature and circumstances.
- Trustees are bound to protect the ownership of the trust property and maintain and defend all matters as required to safeguard the trust property.
- They must be unbiased and must not execute the trust in any beneficiary’s favor.
- They must handle the trust property as carefully as one would deal with their own assets.
- In case of a breach of trust by the trustee, they shall be liable to pay for losses.
Trustee vis-à-vis Beneficiary
When a property is vested in a trust, where the ownership and power to make decisions for the property is granted to the trustees, in law a unique situation is created between the holder of such a property and their authority to deal with the same.
As mentioned before, the trustee holds the trust property in a fiduciary arrangement and is legally liable to distribute/use this property for the welfare of the beneficiaries of the trust.
When it comes to the ownership of the trustee, it is a case of form rather than substance and more nominal rather than real.
When comparing between the trustee and the beneficiary in substance, while the property belongs to the beneficiaries, its application and power to use it for any trust-related purposes lies with the trustee.
Can an Individual be Both – Trustee and Beneficiary?
As per the provisions stated under the Act, there is particular restriction on a trustee being a beneficiary and vice versa under a trust. If the individual fulfills the legal requirements of being both a trustee as well as a beneficiary, they can be both – a trustee and a beneficiary.
Conclusion
Trusts are usually formed to help deal with certain issues of the public and provide assistance in the form of poverty relief, education, medical treatment, daily meals, etc. As such, if an individual requests to be both a trustee and a beneficiary, it is vital to ensure that this individual is a trustworthy and honest person who can be trusted with the assets that are to be used for the welfare of all beneficiaries of the trust.
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