Trust Registration

Trust registration is a process of legalizing the trust deed (a legal contract between the settlor and Trustee) from the registrar of the respective jurisdiction. The Trust serves as a legal medium liable for the lawful distribution of the settlor’s assets among the concerned beneficiaries. The Trust comes to an effect as soon as the registrar provides its authorization to the trust deed.

What is Trust in an Indian Context?

The Indian Trust Act 1882 governs all registered Trusts in India and facilitates the legal provisions for the same. The Trust is usually referred to as a legal arrangement where the Trust’s owner transfers the property to the concerned Trustee (aka beneficiary). The object of the Trust is to ensure the seamless transfer of the Trustor’s assets among the beneficiaries as per the clauses cited in the Trust deed.

A trustee, selected by the grantor, is liable for administering the Trust & finally distributing his/her assets to the designated beneficiaries selected by the grantor when the Trust is set up. Heir, family members, or charity are some common beneficiaries of the Trust in India.

Trusts can be utilized to reduce taxes, simplify or avert the probate process & safeguard assets.

What are the Benefits of Trust Registration?

  1. To Involve In Charitable Undertakings

A Charitable Trust is primarily a way to set up your assets to benefit you, concerned beneficiaries, & a charity simultaneously. Such Trust could render various advantages for a person seeking to aid society with nonessential assets, such as stocks or real estate.

  1. Accessibility to Tax Exemptions

All registered trusts in India have access to several tax exemptions offered by the Income-tax department. Since the object of the Trust doesn’t revolve around profit generation, like NGOs, they are eligible to avail various tax relaxations. However, such a benefit is only available to trust that have a registered deed at their disposal.

Trusts are very useful in ensuring taxation relaxation on capital and income. The Trust may facilitate better coverage for the settlor, the beneficiaries & the trust assets from stringent tax provisions.

  1. Provide Benefits to Financially Aggrieved Individual

The registered Trust facilitates the much-needed financial aid to the poor people and the masses via charitable activities.

  1. Encounter Minimal Legal Hindrances

The Indian Trusts Act, 1882, ensures comprehensive legal protection for the Trust. It also prevents any third party to make an unnecessary claim that could endanger the legal standing of Trust.

  1. Ensures Legal Coverage for the Family Wealth

Trust can be used to allocate specific assets such as land/an interest in the entity formed by the family, which otherwise would not be practical for a trustor to split between individuals.

  1. Avert Probate Court

Anybody can leverage trust registration as a tool for transferring an asset to the heir in the absence of a Will. As the legal title of the assets transfers from the settlor to the Trustee in case when they are “settled”, there is no change of ownership after settlor demise, thus evading the requirement for probate of a will on account of trust assets.

Unlike probate, the trust acts as a private agreement that skip the requirement for additional registration. The use of a trust can also avert the economic adversity often encountered by surviving spouse even as waiting for grant of probate.

  1. Immigration/Emigration of Family

When an individual & her/his family move to another nation, it is a perfect event to establish a trust to get rid of taxation in the destination country, thereby safeguarding the family assets and facilitating flexibility in its organization.

What are the Types of Trusts?

There are three types of trusts in India:

  1. Public Trust
  2. Private Trust
  3. Public Cum-Private Trust

While private trusts function as per the provisions of the Indian Trusts Act, 1882, public trusts are categorized into religious & charitable trusts. The Religious Endowments Act, 1863, Charitable and Religious Trust Act, 1920, the Bombay Public Trust Act, 1950 are some of the prominent statutes for the enforcement of public trusts in India.

Private Trust

Private Trust refers to a legal arrangement created for the benefit of individuals other than a public or charitable purpose. It is formed for the financial benefit of one or more beneficiaries who are known to the Trustor. Private Trust doesn’t serve a charitable purpose, and its benefits are only accessible to designated beneficiaries. Such trusts are bound to follow the provisions of the Indian Trusts Act, 1882

Public Trust

A Public Trust essentially benefits the public at large. Unlike private trusts, public trusts do not function under the Indian Trusts Act and are formed to serve a charitable or religious purpose. Such Trust follows the general law, which is in effect for the time being. Just like the private Trust, these trusts may be formed inter vivos by will.

Public-Cum-Private Trusts

As the name suggests, the Public-Cum-Private Trusts serve a dual purpose. They are eligible to use their income for the public as well as private purposes. That implies that beneficiaries of such Trust could be either public or private persons or both.

Fundamental Documentation Required for Trust Registration:

Following are key documents that one needs to arrange for trust registration:

  • Self-attested copies of Identity proof for Trustor & Trustee such as Aadhaar Card, Voter ID, Passport, DL
  • Address Proof related to Registered Office such as Copy of Property Registration Certificate/Utility Bills (water bill/electricity bill)
  • No objection certification from the Landlord if the property is rented.
  • Trust Deed on Proper Stamp Value (The value of the stamp paper is a certain percentage of the total property value, belonging to the trust. The percentage differ from state to state)
  • Passport size photograph of trustee, settlor and witnesses present whiling signing the deed
  • Trustee and settlor PAN details
  • Presence of settlor as well as two witnesses at the time of registration of Trust

Trust deed must reflect the following information:

  • Number of trustees
  • Trust registered address
  • Proposed name of trust
  • Proposed Rules that will govern the trust
  • Presence of settlor as well as two witnesses at the time of registration of Trust

Documents Required:

To get your trust registration certificate, you should require the following documents during the registration of the Trust:

  • A completely drafted trust deed
  • Proof of registered office – (Rental Agreement or ownership document)
  • ID proof of the Founder of the Trust
  • Two witnesses

Applicability of tax exemption

There is a general notion that trust need not have to pay tax as they work towards the welfare of the public at large. But this is not true. A trust, like any other legal entity, is liable to pay tax. In order to be exempted from tax, trust is required to obtain certification for the said exemptions such as Section 12 A, 80G etc. from the Income Tax authorities.