How to Register a Trust.

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Income Tax Act, 1961, defines a Trust as “An arrangement by which property is handed over to or vested in a person, to use and dispose of for the benefit of another person”. Creation of a Trust can be broadly classified into two methods namely private trust formation and public trust formation. In this article, we look at how to register a Trust in India in detail.

Private Trust Formation-

A private trust may be created either inter vivos or by will. The creation of Trusts are subject to the provisions of the Indian Succession Act, 1925.

Prerequisites for Formation of Private Trust-

The following are the pre-requisites for the creation of a private Trust.
  • The intention on his part to create a Trust.
  • The purpose of the Trust.
  • The beneficiaries and the certainty revolving the beneficiary. An alternative beneficiary must be nominated.
  • The Trust property.
  • Transfer of property to the Trust.
Validation of a Private Trust- For valid constitution of a Trust, the author must indicate with reasonable certainty:
  • The intention on his part to create a Trust.
  • The purpose of the Trust.
  • The beneficiaries and the certainty revolving the beneficiary. An alternative beneficiary must be nominated.
  • The Trust property.
  • Transfer of property to the Trust.

Public Trust Formation-

Similar to private trusts, public trusts may be created either inter vivos or by will

Pre-Requisition for Formation of Public Trust

  • A declaration of Trust which is binding on the settlor.
  • Setting apart definite property and the settlor relinquishing himself of the ownership thereof.
  • A statement of the objects for which the property is hereon held.
  • The settlor or the author of the Trust, and the Trustees must be competent to contract.
  • After the formation of the Trust, the Trust shall not be revoked, barring a few exemptions where the Trust contract contains any clause.

Book-Entry for Trust Formation

Book entries for Trust formation can be of two types, which we’ll explain in brief:

Entries made by the Donor in his own Books-

The basic requirement to make a declaration of trust valid is that the donor should have absolutely parted with that interest which was owned by him at the time of the declaration. If there is no setting apart of ascertained property and no disinvestment on the part of the settlor of the ownership thereof, mere book-entry cannot result in an effective trust.

Entries made on Debtors Books-

If a credit entry is made in the books of the debtor in favor of a trustee displaying an interest in the creation of a trust rather than in the books of a donor, such an entry would amount to a specific appropriation for the trust.

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