A trust is an agreement between a group of individuals (called trustees) to manage property (movable or immovable including intellectual property rights) over which they have control either to benefit other individuals (called beneficiaries) or for charitable purposes. This group of trustees may be incorporated as a board under the Charitable Trusts Act 1957 if the objects are charitable.
A Trust can either be a private trust or a public charitable trust. Private trusts are governed by the Indian Trusts Act (1882) and are used for private purposes, such as running a private estate or institution. Private trusts are not given any tax benefits by the Government of India. If you want to do some charitable work for the public you can set up a public charitable trust. India does not have a national-level law to govern charitable trusts. However, a few of the states have enacted the Public Charitable Trusts Act (Like the Bombay Public Trusts Act, 1950)
Some common characteristics of trusts incorporated under the Charitable Trust Act 1957 are:
Trust has a board of at least two trustees;
Public Trust must have charitable purposes;
Trust has its trustees make the major decisions;
Trust is set up under a trust deed which outlines how it operates;
Trust often has more limited community or member involvement than incorporated societies;
Trust’s assets can be used to meet its debts, but if it is incorporated and trustees have acted responsibly, they are unlikely to be personally liable;
Trustees are generally not accountable in specific ways unless the deed specifically sets these out;
it can be legally wound up at any time unless a specific term for its existence has been stipulated in the trust deed (more common in private Trusts);
List of documents required to register a charitable trust
1. Original Trust Deed or a certified copy.
2. Application for Incorporation of Trustees as a Board The application must be signed by the majority of trustees.
3. Statutory Declaration. The statutory declaration states: whether any Trustees hold any property as trustees for other trusts; that at a meeting of the Trust, a resolution was passed approving incorporation; and that the person making the Declaration has been approved by the Trustees to make it.
Trusts are registered using a document called TRUST DEED. This document contains all the information about the Trust and is printed/written/typed. Along with these papers, you would need to attach an Rs. 100 Non-Judicial stamp paper (please check the latest stamp act of the respective state). All the Trustees are required to give thumb impressions and signatures on these papers. The same process applies to witnesses too. You will need a competent professional to draft the same.
The following elements must be mentioned in the Trust Deed document:
- Name and address of the Settler (Settler is the person who is setting up trust)
- Name(s) and address(es) of the other trustees
- Name of the trust
- Minimum and maximum number of trustees your trust can have
- Address of the registered office of the trust
- Objectives of the trust
- Rules and Regulations of the Trust
For registering a trust you need a minimum of two trustees (i.e. one settler and another person). You can decide the maximum number of trustees and this number must be mentioned in the trust deed. All the trustees together are called the Board of Trustees. This board collectively governs the trust.
Unlike societies, in the case of trusts, all or some of the trustees can be related persons (i.e. they may belong to the same family)
Trusts are irrevocable unless it is mentioned in the trust deed. This means that the trust cannot be wound up
Trustees are usually life-long members or their tenure is specified in the deed. The electoral process is not involved in the appointment of trustees.
The Board of Trustees can also have various designations for trustees. Common designations are Chairperson and Managing Trustee
Trustees cannot draw any remuneration from the trust fund. However, they may take reasonable compensation for the professional services they provide to the Trust.
Profits earned by the Trust (e.g. interest gained from the bank) cannot be distributed among the trustees.
Trust Deed can be amended through a Supplementary Trust Deed.
The most important part of the Trust Deed that you should pay special attention to is the objectives of the trust. You should be as thorough as possible in writing down trust objectives so that you can function smoothly without any problems.
The Professional you appoint will provide you detailing of the filing process with the Registrar’s office and timeline.
Some other facts on Trust formation:
Trust income is exempted from income tax. To avail of this facility, after registration, you need to acquire a certificate from the Income Tax Department. This certificate is called u/s 12A
Donations to public charitable trusts are also exempted from tax (i.e. the donor will not have to pay tax on the amount he donates to the trust subject to the Tax Exemption Letter and provisions of the Income Tax Act). For this, you need to acquire an 80G certificate from the Income Tax Department.
Please take due care while drafting the Trust Deed and appoint a professional to write your own trust deed
Normally registration process is quick and after registration of the Trust, for acquiring 12A and 80G certificates, you may need to take the services of the same professional to provide you seamless approvals and ensure representing your case with authorities.
You will need a competent professional to draft the same and assist you in the process of getting your Trust registered and provide you with a Tax Exemption Certificate.
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