Create Your Legal Document in Minutes! Get 10% off on your first order with code: LFI10

By Nazaqat Lal, Advocate & Solicitor | Mar 22, 2024

  1. What is a private trust?

A private trust is a separate legal entity created or brought into existence for the purpose of holding property (movable or immovable) for a limited period, after which, such property vests in the beneficiaries of the trust.

A private trust is formed for a small number of beneficiaries as opposed to a public trust, which is formed for the benefit of a larger section or class of people.

A “trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in an accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner:” (Section 3, Indian Trusts Act, 1882)

  1. What law governs private trusts?

Private trusts are governed by the Indian Trusts Act, 1882 (“the Act”).

  1. How is a private trust created?

A private trust comes into existence on the execution of a trust deed. This is usually followed by obtaining a PAN Card in the name of the trust and opening a bank account. Trust properties are usually transferred thereafter to the trust.

  1. Author/settlor, trustees, and beneficiaries

Formation of a trust involves identifying the (i) author/settlor, (ii) trustees and (iii) beneficiaries.

The author or settlor of the trust is the person who creates the trust and transfers property (movable or immovable) to the trust to be held by the trust for the beneficiaries.

The trustees are persons appointed to manage the trust and the trust properties from the time of the creation of the trust till the time the trust properties vest in the beneficiaries. Trustees are usually persons known to the author or settlor of the trust and persons whom the author or settlor has faith in to manage and hold the trust properties till such time as the properties can vest in the beneficiaries.

The beneficiaries are the persons for whom the trust is created and in whom the trust properties eventually vest.

  1. Why are private trusts created?

Private trusts are primarily created for the preservation of property till the property can be transferred to or vest in the beneficiaries. The following are some examples of when private trusts are created:

(i) for the benefit of children who are presently minors,

(ii) to protect certain assets during family disputes,

(iii) to protect certain assets from becoming the subject matter of matrimonial disputes, etc.

  1. What are the duties of the trustees?

The duties of trustees include managing the trust property, protecting the title of the trust property, maintaining accounts, and furnishing information to the beneficiaries from time to time, etc. Chapter III of the Act sets out in detail the duties of the trustees.

  1. How does a private trust come to an end?

A private trust may come to an end in any of the following ways; (i) when its purpose is completely fulfilled, (ii) when its purpose becomes unlawful, (iii) when the fulfillment of its purpose becomes impossible and (iv) when the trust, being revocable is expressly revoked.