Private Trust
A trust is a legal arrangement created by the author(s) with the help of a trust deed. An author is also known as the settlor(s).
An author is the owner of the assets forming part of the trust property. He or she transfers such property to the trust for the benefit of one (1) or more persons who are known as the beneficiaries of the trust.
A trust is operated and managed by trustee(s) appointed as per the trust deed. The Trustees (s) are legally bound and have a fiduciary duty under law to handle and manage the trust property for the benefit of the beneficiaries and in accordance with the trust deed. The duties of a trustee are defined under the Indian Trust Act 1882.
Trust property means the assets of the author(s) of the trust for which the trust has been formed and the benefits of which are to be applied and/or transferred in favour of the beneficiaries. Trust property can include both movable and immovable property such as cash, investments, real estate or any other property.
The Trust Property is held in the name of a trustee in his capacity as a trustee for the benefit of the Beneficiaries. The Trustee is not permitted to use the Trust Property for personal gain. However, an author can also be a trustee and a beneficiary.
Trusts are used for various purposes, including estate planning, business succession planning, asset protection, and charitable activities.
Key Components of a Trust
Settlor: The individual who owns the assets, creates the trust and transfers assets into it.
Trustee: The person(s) or entity responsible for managing the trust's assets according to the terms set by the settlor.
Beneficiary: The person or group of people who benefit from the trust.
Trust Property: The assets transferred into the trust by the settlor.
Trust Deed: The legal document that outlines the terms and conditions of the trust.
Types of Trusts
Living Trusts: Created and operational during the settlor's lifetime. They can be revocable or irrevocable.
Testamentary Trusts (also called Will Trusts): Established through a will and take effect after the settlor's death.
How Does a Trust Work?
Creation: The trust is created when the settlor transfers assets to the trustee, and the trustee accepts the responsibility to manage those assets for the benefit of the beneficiary. This transfer is formalized through registration of the trust deed with the appropriate sub-registrar.
Management: The trustee is legally obligated to manage the trust assets and funds according to the terms specified in the trust deed. The trustee has a fiduciary duty to act in the best interest of the beneficiaries, ensuring that the trust's purpose is fulfilled. Access to the trust assets and funds is given to the beneficiaries in accordance with the provisions of the trust deed.
Access to trust funds: The trustee distributes the trust funds to the beneficiaries as per the trust deed's instructions. Trusts provide the settlor with control over how and when the assets are accessed or distributed to beneficiaries. The trust deed can specify conditions under which distributions are made, such as reaching a certain age or achieving specific milestones (e.g., completing education). This control helps ensure that the assets are used in a manner consistent with the settlor's wishes.
Termination: A trust can be terminated or revoked under the conditions specified in the trust deed. The settlor can revoke the trust during their lifetime. After the lifetime of the settlor, the trust deed can be revoked with the consent of the beneficiaries who are competent to contract. The trust may also be terminated if the purpose of the trust is fulfilled.
Advantages of Trusts
Trusts can protect assets from third parties, creditors and legal claims.
Trusts facilitate the smooth transfer of assets to beneficiaries, avoiding the probate process and having to pay court fees.
Trusts offer more privacy than wills, as they do not become public records.
They are created to preserve and manage your assets in a manner that maintains its value and longevity.They are created to provide long term financial security to the future generations.They are created to manage life contingencies.
They are also used to appoint and instruct guardians for your minor children.
They are also used to take care of adult children or dependents with special needs or disabilities.
They are also used to manage family businesses.
They can also be used to financially plan a marriage or its transition.
Conclusion
Trusts are versatile legal structures used for managing and protecting assets for the benefit of individuals or causes. They can also be used to manage family owned businesses. Understanding how trusts work and the legal requirements in India is crucial for effective estate planning and asset management. At No Grey, our team of legal experts can help you understand this better.
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