How to Form a Charitable Trust
What is a charitable trust
A charitable trust is a set of assets — usually liquid — that a donor signs over or uses to create a charitable foundation. The assets are held and managed by the charity for a specified period of time, with some or all interest that the assets produce going to the charity.
What is the difference between a charity and a charitable trust
A charitable trust is a type of charity run by a small group of people known as trustees. The trustees are appointed rather than elected, and there is no wider membership. A charitable trust is not incorporated, so it cannot enter into contracts or own property in its own right.
Definition of Charitable Trust in India
The Indian Trusts Act, 1882 defines a Trust as an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.
A Trust is the obligation or responsibility placed on one in whom confidence or authority is place; it is a confidence reposed in a person by conveying to him the legal title to property which he is to hold for the benefit of others. Therefore, the “Trustee” responsibility includes protection of rightful ownership in the Trust property, the preservation of the Trust property and channelizing the income from the Trust property in accordance with the intentions of the creator of the Trust. In this article, we look at the procedure for forming a Charitable Trust in India.
The THE INDIAN TRUSTS ACT,1882 defines a Trust as an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.
- The person who reposes or declares the confidence is called the “Author of the Trust”.
- The person who accepts the confidence is called the “Trustee”.
- The person for whose benefit the confidence is accepted is called the “Beneficiary”.
- The subject-matter of the trust is called “Trust Property” or “Trust Money”.
- The instrument if any, by which the Trust is declared is called the instrument of Trust or Trust Deed.
The following elements are essential for the formation of a Charitable Trust:
- An Author or Settlor of the Trust
- The Trustee
- The Beneficiary
- The Trust Property or the Subject Matter of the Trust
- The objects of the Trust
As per Section 6 of the THE INDIAN TRUSTS ACT,1882 a Trust is created when the Author of the Trust indicates with reasonable certainty by any words or acts the following:
- An intention on his part to create a Trust
- The purpose of the Trust
- The Beneficiary
- The Trust Property
- And transfers the Trust Property to the Trustee.
A Trust can be formed by words or act and there is no requirement for a Trust Deed. However, a Trust Deed is desirable and required in some cases. When a private Trust pertains to an immovable property a written and executed trust deed is essential and shall also require to be registered except where the Trust is created by a will. In case of public Trust for immovable property, a written Trust deed is not mandatory but desirable. In relation to Trusts for movable property (public or private), a simple delivery of possession with a direction that the property be held under Trust, is sufficient; it requires no document or registration.