The Indian trusts Act of 1882 defines a Trust as an obligation annexed to the ownership of the property and arising out of a confidence reposed in and accepted by the owner or declared and accepted by him, for benefit of another ,or of another and the owner.[1]

In India the trusts are of two types i.e. a Public trust and a private trust. The public trusts are further categorized into charitable and religious trusts which are governed by legislations such as the charitable Endowments Act of 1890, the Societies Registration Act of 1860 and the charitable and Religious Trusts Act of 1920. A private trust is body constituted usually for members of family, relatives, friends etc. for benefit of one or more individuals who are, or within a given time maybe, definitely ascertained.

It is a form of a legal transaction that guarantees the benefit of the family member or the purpose for which it was formed in a way as ascertained by the family members. The private trusts are governed by the Indian Trusts Act of 1882. For example a private trust was formed by A for benefit of his family members and he transfers 20 lakhs to the private trust and he has appointed himself as the trustee to handle the trust during his lifetime and his sister is the alternate trustee, if any accident occurs to A causing his death, his sister would handle the trust.

Features Of Private Trust

• The creditors can't claim a property if it is managed by a private trust, but if the purpose of forming a private trust was to run away from the creditors then the court can indeed order attachment of such property lying in the trust.
• A property protected by insurance policy under Married Women Property Act will be created as a sort of private trust formed for protection of spouse and children.
• The creditor will not be able to make any claim on the amount ascertained to be assured under the insurance policy and the property will be protected by the insurance company for benefit of wife and children.
• Many professional companies such as banks and other financial companies provide trusteeship services and the trust is managed as per the trust deed
• This helps in the cases where the issue arise as to the age or health issues or in case of special beneficiaries, etc.
• The trust deed defines all the objectives for which the trust has been formed, the beneficiaries' names and the was of distribution of assets etc.
• The deed also prevents unimportant court trials and the problem of probation thereby results in costs saving.

Private trust deed:

A deed known as trust deed (if the trust is formed during the lifetime of the trustees) has to formed and executed in order to form a trust and a trust can also be formed by way of a will for which trustees are to be appointed for purpose of administration of the said trust.

Following are the features of a trust deed which are specified in the deed:

• The purpose or intention behind formation of the trust
• The objectives of creation of the trust
• The names of the beneficiaries of the trust
• The property which will be transferred by the settlor when the trust is being formed, but in case the trust is being formed by the way of a will then the property will be transferred after death of the trustee
• If the trust is created during the lifetime of the trustee then the property or properties can be transferred at that time including the properties stated under trust formed by will.
• The trust can also transfer property on discretion of the trustees i.e. it can be discretionary.
• It can also happen that the settler expressedly mentions the way of distribution of the property in trust for purpose of benefit of the beneficiaries under the trust, i.e. Non discretionary transfer.
• The payment of stamp duty is mandatory and required under the Indian Registration Act if the property is being transferred to the trust during the lifetime of the trust.
• In case of transfer under the will stamp duty is not payable on the transmission of the property to the trust.

Compliances

• Compliance to the Indian Trust Act, 1882, the Income Tax Act and other related laws or provisions are mandatory.
• In case the total income crosses the limit of Rs. 1, 50,000 which limit for non taxable income under the Income Tax Act, 1961, then the private trust has to be mandatorily audited by the Chartered Accountant.
• The audited reports are supposed to be in Form No. 10 B and the must be attached along with Annual Return of Income under the Form ITR -7.
• In case the trust receives any foreign contributions a report called the foreign contribution report is too submitted but every private trust to the secretary for the Ministry of Home Affairs, Government of India. The said report should be mandatorily certified by a chartered accountant, supplemented by the income and expenditure statement of the trust, the receipt and payments record and the balance sheet within 9 months of every financial year.
• In case the trust has employees etc the TDS for payment of salaries to employees with annexed certificates of TDS to person on whose behalf TDS was collected.
• Any profit earned or income earned by the trust property is available only for the beneficiaries and the way it is to be taxed varies from the kind of trust formed.
• The trust can be of two kinds:
  
  • Specific Trust:
    where a representative assessed receives the income on behalf of the beneficiaries and the exact share to be received is pre determined.
     
  • Discretionary Trust:
    the trustees decide the income allocation among the beneficiaries which is not predetermined. The tax to be paid on the income will depend on the tax slab under which it will fall. The income obtained must be from the assets of the private trust. In case the income is from the business of the private trust the way it is taxed is different.

Process Of Registration

In order to register a trust in India following are the steps to be taken:

• A document called trust deed is to be drafted on a stamp paper of a stipulated value
• The deed should contain the name of the trust, trust address, character of the trust (if it's a religious trust or charitable), name of the settler and the trustees of the trust the type of the property it holds whether movable or immovable.
• The details of all trustees such as address and PAN.
• A photocopy of the income tax registration certificate.
• Audit reports of balance sheet and income & expenditure of last 3 years.
• The original trust deed as an evidence of formation of the trust.

S. Darshan Lal V. Dr. R.E.S Dalliwal [2]

This case law has defined the rights a beneficiary has in relation to a trust.
Following are the rights

• Right to payment (Rents & Profits
• Right to information
• Right to an Accounting
• Remove the trustee
• Termination of the Trust

Liabilities of a Trust Beneficiary in India are as follows:

• Duty to compensate the trustee
• Liability in breach of trust
• Liability not to harm others' interests
• Liability to receive his interest(s)
• Liability to become aware of breach of trust
• Liability in case to deceive the trustee
• Liability to take reasonable steps

Conclusion
In conclusion the private trust is governed by the Indian Trust Acts, 1882 which has clearly defined the constitution of a private trust, the procedures of taxing the income etc, the rights and liabilities of the beneficiaries of the trust, who can be the trustee, appointment of trustee and the termination of the trust. The trust is formed for the purpose of benefit of the beneficiaries yet they have some liabilities. They need to act within the limits of the Indian Trusts Act.

End-Notes:

1. Section 3 Indian Trusts Act,1882
2. (AIR 1952 All 825)