Trust Registration online in India - When a settlor passes property to a trustee to manage for the benefit of beneficiaries, the legal procedure of formally recording the trust with the relevant authorities to grant it legal recognition is known as trust registration. Public charitable trusts are subject to different state legislation, whilst private trusts are governed by the Indian Trusts Act, 1882.
The term "property" refers to more than just physical estate. It could be money, stock, or anything else of value. Furthermore, "the instrument of trust" or "trust deed" is the document that creates or declares this complete trust.
Trusts in India are governed by the Indian Trusts Act. It is applicable throughout India. Waqf, or the relationships between members of an undivided family as established by personal or customary law, as well as by religious or charitable endowments, are exempt from this rule. In India, public trusts are typically regulated by laws unique to each state, such the Maharashtra Public Trust Act of 1950.
Governing body:
For private trusts (governed by the Indian Trusts Act, 1882), registration is mandatory if the trust involves immovable property and is created through a trust deed.
For public charitable or religious trusts, registration is compulsory under laws like the Indian Registration Act, 1908 and Income Tax Act, 1961 (for tax benefits under Sections 12AB and 80G).
Definition of Trust (Section 3):
"An obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, for the benefit of another, or of another and the owner."
Importance of Trusts in India:
The significance of trusts in India's legal, financial, and social systems cannot be overstated. They are useful tools for safeguarding and managing assets, making sure that money is kept and distributed in accordance with the settlor's desires. Without requiring complicated legal procedures like probate, trusts offer an organized method of transferring assets to heirs, especially minors or dependents, in estate and succession planning. Through continuous support and care, they provide financial security to vulnerable family members, such as ageing parents or those with disabilities. Particularly when set up as irrevocable or discretionary trusts, trusts can also be utilized from a financial standpoint to minimize obligations and arrange for legal taxation.
By promoting causes like healthcare, education, and religious endeavors, public charitable trusts further assist society while providing tax advantages to both the trust and its contributors. Furthermore, unlike wills or corporate records, which are sometimes open to the public, trusts preserve confidentiality. Long-term objectives and intentions are preserved because they also provide continuity of purpose, continuing to function even after the settlor's passing. In general, trusts are effective legal instruments for social welfare, asset management, and preserving beneficiaries' future interests.
1. Asset Protection
Trusts help protect family wealth from risks like creditors, disputes, or legal claims. Assets placed in a trust are legally separate from the settlor's personal property.
2. Estate and Succession Planning
Trusts allow smooth transfer of wealth to heirs, especially minors or dependents, avoiding lengthy legal procedures like probate.
3. Financial Security for Dependents
They ensure long-term financial support for children, elderly parents, or differently-abled family members.
4. Tax Planning
Trusts can be structured to minimize tax liability through legal means, especially in the case of discretionary or irrevocable trusts.
5. Charitable and Religious Purposes
Public trusts promote social welfare by supporting education, healthcare, religion, and poverty relief. They also offer tax benefits to donors and the trust.
6. Confidentiality
Trusts often provide more privacy than wills or company structures, as trust details (especially in private trusts) are not always made public.
7. Continuity and Control
A trust can continue to operate even after the death of the settlor, ensuring that their intentions are followed over time.
Types of Trusts in India:
Trusts in India can be broadly classified based on their purpose, structure, and governance. Below are the main types:
1. Based on Purpose:
A. Private Trusts
- Created for the benefit of specific individuals or families.
- Governed by the Indian Trusts Act, 1882.
- Examples: Family trust, trust for minor children, trust for dependents.
B. Public Trusts
- Created for a charitable, religious, or public purpose.
- Governed by state-specific public trust laws (e.g., Bombay Public Trusts Act, 1950).
- Examples: Trusts for education, healthcare, poverty relief, temples.
2. Based on Revocability:
A. Revocable Trust
- Can be altered or cancelled by the settlor during their lifetime.
- Income is typically taxed in the hands of the settlor.
B. Irrevocable Trust
- Cannot be modified or revoked once created.
- Offers better asset protection and tax planning benefits.
3. Based on Control Over Income:
A. Specific Trust
- The shares of beneficiaries are fixed and known.
- Income is taxed in the hands of the beneficiaries as per their share.
B. Discretionary Trust
- Trustee has discretion over how much income or benefit each beneficiary receives.
- Usually taxed at the maximum marginal rate, unless exceptions apply.
4. Based on Beneficiaries:
- Living Trust (Inter Vivos Trust)- Created during the lifetime of the settlor.
- Testamentary Trust- Comes into effect after the death of the settlor, usually through a will.
To qualify for trust registration, the following conditions must be fulfilled:
- Minimum Number of Founders: Trust must be established by at least two or more individuals.
- Compliance with the Indian Trusts Act of 1882: The trust must be formed in accordance with the provisions specified in the Indian Trusts Act of 1882.
- Disqualification Status: None of the parties involved should be disqualified under any prevailing law in India.
- Conformity with Legal Objectives: The objectives of the trust must not contravene any existing laws in India.
- Fair and Just Conduct: The trustee must conduct their activities in a fair and just manner.
- Alignment with Public Interest: The formation of the trust should not be contrary to public interest or any other applicable laws.
V. Non-Harmful Activities: The activities carried out by the trust must not cause harm to any individual.
VI. Consistency with Stated Objectives: The trust activities should align with the objectives outlined in the trust deed.
- Appropriately Drafted Trust Deed: The trust deed must be drafted appropriately, reflecting the genuine interests of the parties involved in forming the trust.
- Validity of Multiple Objectives: If the trust has more than two purposes, both purposes must be valid. If one goal is reasonable and the other is invalid, trust cannot be formed.
Documentation for Trust Registration:
- Trust Deed
- Photographs
- PAN Cards
- Address proof
- Identity Proof
- Authentication rom partners
- NOC
- Utility bill
- Office Address Proof
- Income Tax Certificate
Process to register a trust:
- Determine the type of trust
- Draft the trust deed
- Prepare supporting documents
- Get the trust deed notarized (As per instruction)
- Register the Trust with local Authorities
- Apply for PAN
- Open a bank account in the name of the TRUST
- Additional registration (For public/Charitable Trust)
Conclusion
In order to create a legally recognized organization for private, religious, or philanthropic purposes, it is essential to register a trust. Along with tax advantages and the capacity to raise and handle funds in an open manner, it gives the organization a legal identity. Along with ensuring legal compliance, proper registration and 12A and 80G certificates also increase confidence with regulators, donors, and recipients. Therefore, if you want to have an organized and long-lasting social impact, you must register your trust.
