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Sam Ghosh Founder and SEBI Regd. Investment Adviser at Wisejay Private Limited Bangalore, Karnataka
Estate Planning using Trusts in India
In Estate Planning
1 answer/comment
12:00:42 PM, 2nd December, 2018
  • Sam GhoshFounder and SEBI Regd. Investment Adviser at Wisejay Private LimitedBangalore, Karnataka
    Profile

    Trusts are governed by Indian Trusts Act 1882 which 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.

    In simple language a trust is transfer of legal ownership of assets to someone who agreed to take care of the assets till some future date on behalf of one or more beneficiaries. Consider you want to transfer some assets to your granddaughter when she turns 18. You can set up a trust she as the beneficiary. Trusts can also be set up for charitable purposes. The person who transfers the assets is called the “settler” or “author of the trust”, the person who is given the responsibility to manage the assets is called the “trustee” and the person for whose benefit the trust is created is called the “beneficiary”.




    DIFFERENCE BETWEEN PRIVATE AND PUBLIC TRUSTS


    The basic difference between the public and private trust is how the beneficiaries are defined. In case of a public trust, the beneficiaries are either the general public or a certain section of the public. For example, charities and educational trusts.

    Whereas in case of a private trusts the beneficiaries are specific individuals. Private trusts are relevant for estate planning purposes.




    BENEFITS OF PRIVATE TRUST IN ESTATE PLANNING


    1. Privacy

    A private trust is a private document and does not require getting published in newspapers like a will.



    2. No Registration

    A private trust does not require registration unless it involves any immovable property.



    3. Insolvency Protection

    A private trust provides insolvency protection if it is an irrevocable trust and assets are transferred to the trust at least 2 years before the insolvency.


    Note: An irrevocable trust is a trust which cannot be modified, amended or terminated without the permission of the beneficiaries. The author of the trust effectively looses all rights over the assets transferred to the trust.




    SOME LEGALITIES OF TRUST


    1. Lawful purpose

    A trust can only be created for lawfull pupose. Indian Trusts Act defines the lawful purpose which is not

    a. forbidden by law.

    b. is of nature that, if permitted, defeats the provision of any law.

    c. is fraudulent.

    d. involves or implies injury to any person or property.

    e. the Court regards it as immoral or opposed to public policy.



    2. Creation of Trust

    A trust is created when the author of the trust with reasonable certainty indicates in any words or acts

    a. an intention to create a trust

    b. the purpose of the trust.

    c. the beneficiary.

    d. the trust-property.

    Note: As mentioned before if a trust involves an immovable property, it is not valid unless declared “by a non-testamentary instrument in writing signed by the author of the trust or the trustee and registered, or by the will of the author of the trust or of the trustee.”



    3. WHO CAN CREATE A TRUST

    According to Indian Trusts Act, a trust can be created by

    a. every person competent to contract or
    b. by or on behalf of a minor with the permission of a principal Civil Court of
    original jurisdiction.

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