Trust Registration

Trust Registration is governed by the Indian Trust Act, 1882 where the author (owner) assigns the rights of the property to a trustee so that the beneficiary i.e. the third person can take benefit out of it. The trust is carried out by way of an instrument called trust deed which is formed on a non-judicial stamp paper as per the stamp rates of the different states.

Trust Deed is the core document which defines the reason for formation of trust, details of the author, trustee and the beneficiary. It lays down all the working and functioning of the trust until its closure. The trust deed is registered with the sub-registrar of the concerned jurisdiction.

What is a Trust?

Let’s understand the concept of trust with the help of an example:Mr Z wants to pass his bungalow (property) to Mr M for the benefit of his minor granddaughter. Mr Z passes his property to Mr M, because he reposes (has) confidence on Mr M. This is nothing but the essence of a trust.

In simple words, a trust is nothing but a transfer of property by the owner (Mr Z) to another person in whom the owner has confidence (Mr M) for the benefit of a third person (Granddaughter of Z).

The property doesn’t just mean real estate. It could be cash, shares or any other valuable asset. Further, the instrument by which this entire trust is declared/created is called “the instrument of trust” or the “trust deed”.

Parties in a Trust

Author/Settlor/Trustor/Donor (Mr Z): The person who wants to transfer his property and reposes confidence on another for the creation of the trust.
Trustee (Mr M): The person who accepts the confidence for the creation of the trust
Beneficiary (Mr Z’s granddaughter): The person who will benefit from the trust in the near future.

Advantages of Trust Registration

Litigation- Every Trust has its legal entity separate from its members it is capable of filing suits against any person or any member. The registered trust can file a suit anywhere in India and in any state even if it is not registered in that particular state.

Legal status-Registration of trust gives it a legal status and that is very important because of various reasons like: for opening the bank accounts, Obtaining registrations and approvals under Income Tax Act, legally vesting properties.

Tax Benefit- The trust can take the tax benefit after applying for the 12AA/80G Certificate. Both the trust and the investor get tax exemptions.

Types of Trust

Private Trust-Private trust is for a closed group. In other words, the beneficiaries can be identified. For example: A trust created for the relatives and friends of the author.

Public Trust-It is a trust formed for public, religious or charitable purpose or both and includes a temple, or any religious or charitable institution and formed either for a religious or charitable purpose or for both.

Objectives of a Trust in General

The main objective is that the trust should be created for a lawful purpose. For example, if Mr Z had stolen money from a bank and given it to Mr M with the intention of giving the money to poor children then, in this case the trust itself is void as the very main purpose is unlawful.

So how do we actually understand as to whether the purpose is lawful or unlawful? The answer to it lies in Section 4 of the Act. As per Section 4, all purposes are said to be lawful unless it:

Is forbidden by law
Defeats the provisions of law
Is fraudulent
Involves injury to another person or his property
Immoral or against to public policy

Document Required

Self-attested copies of Identity Proof (Trustor, Trustee, Beneficiary)
Photograph of Trustor, Trustee, Beneficiary
Address Proof of Registered Office
PAN Card of Trustor, Trustee, Beneficiary

Process of Trust Registration

The process of registering a trust in India is relatively simple and straightforward. The first step is to identify the type of trust you wish to create. There are two main types of trusts in India: private trusts and public trusts.
Private trusts are typically created by individuals for the benefit of their family or themselves, while public trusts are created for the benefit of the general public.
Once you have determined the type of trust you wish to create, the next step is to choose a name for your trust.
The name should be reflective of the purpose of the trust and should be approved by the Registrar of Companies.
The next step is to appoint trustees.
Trustees are responsible for managing the affairs of the trust and ensuring that it operates in accordance with its objectives.
You will need to appoint at least three trustees, who must be natural persons (i.e. not companies or other legal entities).
Once you have appointed trustees, you will need to draft the trust deed. The trust deed is a legal document that sets out the rules and regulations governing the operation of the trust. It must be signed by all trustees and registered with the Registrar of Companies.
The final step in setting up a trust is to fund it. This can be done by making a financial contribution to the trust, or by transferring assets such as property or shares into its name.
Once you have completed all of these steps, your trust will be registered and operational.

12A and 80G Certificates

Income Tax Department issues 12A certificate to the trusts or NGOs that are involved in social welfare. Such certificate is issued for a period of 5 years and can be renewed after making an application and is not liable to pay Income tax for the entire lifetime on its surplus income. Additionally, an NGO can also apply for 80G certificate. This certification provides the donor benefit under Income Tax Act as deduction.

Comparison between Trust, Societies and Section 8 Company

S. No.	Basis	Section-8	Trust	Society
1.	Governed by	Companies Act, 2013	Indian Trust Act, 1882	Societies Registration Act, 1860
2.	Registration Document	The charter documents are MOA and Articles of Association	The main document is the Trust Deed	The Primary instrument for Registration of society its Memorandum of Society.
3.	Minimum Requirement	Section-8 Company requires at least two people.	At least two trustees are required.	At least seven members are required to form an society.
4.	Revocable/Irrevocable	It can be dissolved in accordance with the provisions of the Companies Act, 2013 and rules made there under	Public Trust are generally irrevocable	Society can be dissolved which shall be approved by at least 3/4 of the Members of the society.
5.	Control	It is managed by the Board of Directors and resolutions are passed in accordance with the Companies Act, 2013	Single man may control and prevail in a trust.	Decisions are democratically taken in societies
6.	Area of operation	It can operate all over India	It can operate all over India	It can operate in the specific state only.
7.	Bank Account Operations	Here, a person can be authorized to operate a Bank Account.	In trust it is controlled by one person mostly trustee	In case of society Bank operations are operated generally by the President and the treasurer.
8.	Annual Compliance	Annual Accounts and return of Company are filed with ROC.	There is no requirement of annual filing, but the data has to be provided to the concerned department as per prescribed formats.	Societies are required to file annually with the Registrar of societies, a list of containing name. address and occupation of the managing committee members.

FAQs

What are the purposes for which a trust can be created?

In general, trusts can be established to fulfil either or more of the following purposes:

For the discharge of the author of the trust’s charitable or religious feelings, in a way that guarantees public benefit.
In order to claim an exemption under Section 10 or 11 of the Income Tax Act, 1961, in relation to income for charitable or religious reasons.
For the well-being of family members or other relatives who are relying on the trust settler
For the proper administration and protection of property
In order to manage the affairs of a provident fund, superannuation fund, gratuity fund or any other fund established for the welfare of its workers by a person

Who can be appointed as a trustee?

Any person capable of managing property can be appointed as a trustee. However, a person is not obliged to accept responsibility as a trustee. He/she must declare his/her purpose in words and deeds since it is the duty of the trustee to achieve the purpose of the fund.

Can a trust be established to provide for the medical assistance of the author of the trust?

Yes. A trust can be established for various purposes including, providing medical assistance to the author or providing for the welfare of the child, and so on. However, the Indian Trusts Act, 1882, states that a trust cannot be created for any unlawful purposes.

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