Formation of Trust

A trust is a three-party fiduciary relationship in which the first party, the trustor or settlor, transfers a Property upon the second party for the benefit of the third party, the beneficiary. 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 channelising 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 following elements are essential for the formation of a Charitable Trust:

1. An Author or Settlor of the Trust

2. The Trustee

3. The Beneficiary

4. The Trust Property or the Subject Matter of the Trust

5. The objects of the Trust

Reasons for forming a Charitable Trust

Charitable Trusts are formed in India for one or more of the following reasons:

1. Discharge of the Charitable an/or religious sentiments of the Author, in a way that ensures public benefit.

2. For claiming exemption from Income Tax, as the case may be, in respect of incomes applied to charitable or religious purposes.

3. For the welfare of the members of the family and/or other relatives, who are dependent on the settlor of the Trust

4. For the proper management and preservation of property.

5. For regulating the affairs of a provident Fund, superannuation fund or gratuity fund or any other fund constituted by a person for the welfare of its employees.