by Trusts are a fundamental concept in both the legal and financial systems, serving as a means to manage property, assets, or resources for the benefit of others. In India, trusts are governed primarily by the Indian Trusts Act, 1882, for private trusts, and by various other laws and regulations for public or charitable trusts.
Features of Trusts:
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Fiduciary Relationship:
At its core, a trust establishes a fiduciary relationship where one party (the settlor or trustor) gives another party (the trustee) the right to hold title to property or assets for the benefit of a third party (the beneficiary).
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Separation of Legal and Beneficial Ownership:
The trustee holds the legal title to the trust property, but the beneficial interest belongs to the beneficiary. This separation is essential for the functioning of a trust.
- Purpose:
Trusts can be created for various purposes, including but not limited to, asset protection, estate planning, charity, and the benefit of minors or individuals incapable of managing their own finances.
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Flexibility and Variety:
Trusts can be tailored to meet specific needs and circumstances. They can be revocable or irrevocable, discretionary or non-discretionary, and can be established during the settlor’s lifetime (inter vivos) or upon their death (testamentary).
Parties Involved in a Trust
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Settlor (Trustor):
The person who creates the trust, transferring assets into it for the benefit of the beneficiaries, under the management of the trustee.
- Trustee:
The individual or entity responsible for managing the trust assets in accordance with the terms of the trust deed and for the benefit of the beneficiaries. Trustees have a fiduciary duty to act in the best interest of the beneficiaries.
- Beneficiary:
The person or persons for whose benefit the trust has been created. Beneficiaries have the right to receive benefits from the trust as specified in the trust deed.
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Protector (in some trusts):
A party appointed to oversee and provide checks and balances on the trustee, ensuring adherence to the trust’s purposes.
Types of Trusts
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Private Trusts:
Created for the benefit of one or more specific individuals, as defined in the trust deed.
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Public or Charitable Trusts:
Established for the benefit of a larger section of the public or for charitable purposes. These trusts are governed by different sets of laws, such as the Charitable and Religious Trusts Act, 1920.
Legal Framework
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Indian Trusts Act, 1882:
Provides the legal framework for private trusts in India.
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State Legislation:
Public or charitable trusts are often governed by specific state legislation, which can vary from one state to another.
