It is a transfer of property by the owner to another for the benefit of a third person, along with or
without himself or a declaration by the owner to hold the property not for himself and another.
Trust is a transfer from the owner to the trustee subject to certain terms and conditions. Bailment is also a kind of trust, but in bailment also there is no transfer of any interest in the property, but only a transfer of possession without ownership. Thereof, a trust is essentially a transfer of property by one to the other, to be held by the other for the benefit of some person or for carrying out some object. It is not a sale, because a sale cannot be conditional and in sale there is consideration which is absent in a trust. The purpose of a trust must be lawful, that is, it should not be regarded by a court as immoral or opposed to the public interest.
Creation of Trust:
A trust of immoveable property can be created by two ways. One by a non-testamentary document and another by a testamentary document such as a Will. In other words, a trust regarding an immoveable property is a document duly registered.
A trust of a moveable property can be created either by a document or delivering the property to the trustee with necessary oral directions. If the directions are given in writing it would amount to a trust by a non-testamentary document which may or may not be registered.
A person who creates a trust is called the Settlor, the person to whom the property is transferred on trust is called a Trustee and the person for whose benefit the property is transferred is called the Beneficiary or “Cestuique trust”.
A Trust can be created by any person competent to contract or even by a manner with the authority of a competent court and respect of any property which is transferable and over which the author of the trust has dispossessing power.
Trust-Private and Public:When the purpose of the trust is to benefit an individual or a group of individuals or his or their descendants, for any legal person and who is capable of holding property, it is a private trust. When the purpose of the trust is to the benefit the public or any section of the public, it is public trust.
Who can be a trustee:Any asset placed in a trust as part of your estate plan will require a trustee. The trustee acts as the legal owner of trust assets, is responsible for managing the assets, ongoing administration, tax filings for the trust and making distributions to your beneficiaries according to the terms of the trust. A trustee can be any person, which is an individual or a corporate body or a corporate sole, capable of holding property, competent to contract and he must accept the trust.
Choosing a trustee:
Is the person willing to be a trustee, does the person have the skill to understand the trust terms, manage the assets (e.g., money, investments), complete tax filings and keep records?
What is the person’s relationship to the beneficiary? If the beneficiary will need a guardian, is the guardian also the best person to be trustee?
If you don't feel you know anyone who can carry out the duties of a trustee effectively, you might consider co-trustees or naming a corporate trustee to serve as sole or co-trustee. Corporate trustees often have the advantages of:
IIt is necessary to understand the following elements essential to form a trust:
Author, Trustee and beneficiary are essential to form a trust.
There should be person to repose or declare confidence, known as author of the trust. Another person should accept the confidence as reposed in him by the author, called the trustee. When the author declares and accepts the confidence himself he becomes a trustee also.
The person creating the trust should be of age 18 or above and of sound mind.
Beside the trust and trustee, there should be third person for whose benefit the confidence is reposed by the author and accepted by the trustee, called as beneficiary. In some cases the author of the trust may himself be the beneficiary.
The subject matter of the trust is the property in respect of which the trust has been created. The subject matter should be defined with certainty and such property should be capable of disposition. The word property is very wide and includes any property which a person can in law transfer or assign or disposes of inter vivo or under a Will except for any rights or interests which are purely of personal nature.
Object:
The Trust must be formed for a charitable purpose. Charitable purpose have been defined to include relief of poverty, advancement of education, advancement of religion and other purpose beneficial to the community not failing under any of these preceding heads.
A charitable trust, in order to be charity in the legal sense will have to be for purpose of a public nature. In other words, for the benefit of the community or some part of it. When the beneficiaries of a trust constitute general public or a section of public, as distinguished from private individuals and when the trust is meant to perform a public charity, it is public charitable trust.
The instrument by which trust is created is called as Trust Deed. Although it is not mandatory for trusts to enter into such deed agreement, as trusts can be formed even by oral communication, except in case of private trust in relation of immoveable property which is required to be created by a non - testamentary instrument in writing. No written agreement is compulsory required for the formation of trust but, the same is needed to get the trust registered under the Income Tax Act for availing the exemptions and more over a deed is a prima facie evidence of the existence of a trust.
A trust can also be created by the author himself, declaring that he would hold the property, not as owner, but as a trustee, for the benefit of some person or persons including himself and in that case, the transfer of property is not necessary, as one need not transfer his property but, in such a case the declaration of trust is by the owner and he alone should be the trustee. Such a declaration would however require registration under the Registration Act.
As Trust deed is non mandatory requirement, the registration so is not statutorily required but it is always desired.
Revocable trust: Also known as a living trust. A revocable trust can help assets pass outside of probate, yet allows you to retain control of the assets during your/grantor’s lifetime. It is flexible and can be dissolved at any time, should your circumstances or intentions change. A revocable trust typically becomes irrevocable upon the death of the grantor.
You can name yourself trustee (or co-trustee) and retain ownership and control over the trust, its terms and assets during your lifetime, but make provisions for a successor trustee to manage them in the event of your incapacity or death.
Although a revocable trust may help avoid probate, it is usually still subject to estate taxes. It also means that during your lifetime, it is treated like any other asset you own.
Irrevocable trust: An irrevocable trust typically transfers your assets out of your (the grantor’s) estate and potentially out of the reach of estate taxes and probate, but cannot be altered by the grantor after it has been executed. Therefore, once you establish the trust, you will lose control over the assets and you cannot change any terms or decide to dissolve the trust.
An irrevocable trust is generally preferred over a revocable trust if your primary aim is to reduce the amount subject to estate taxes by effectively removing the trust assets from your estate. Also, since the assets have been transferred to the trust, you are relieved of the tax liability on the income generated by the trust assets (although distributions will typically have income tax consequences). It may also be protected in the event of a legal judgment against you.
It is a legal document that can, in some cases, partially substitute for a Will. With a revocable living trust (also known as a revocable inter vivo trust or grantor trust), your assets are put into the trust, administered for your benefit during your lifetime and transferred to your beneficiaries when you die, all without the need for court involvement.
Most people name themselves as the trustee in charge of managing their living trust’s assets. By naming yourself as trustee, you can remain in control of the assets during your lifetime. In addition, you can revoke or change any terms of the trust at any time as long as you are still competent. The terms of the trust generally become irrevocable when you die. However, in trusts created by married couples, some or part of the trust may continue to be revocable by the surviving spouse.
In your trust agreement, you will also name a successor trustee (a person or institution) who will take over as the trustee and manage the trust’s assets if you should ever become unable to do so. Your successor trustee would also take over the management and distribution of your assets when you die.
A living trust does not remove all need for a Will. Generally, you would still need a Will to cover any assets that have not been transferred to the trust.
To help ensure that the needs of your minor children are taken care of in the event of your death, a legal guardian to care for them is usually named in the Will. A guardian can be your spouse, a family member, or a trusted friend.
If you leave assets outright to your minor children, then the guardian might manage those funds as well. This person will be responsible for adhering to state guidelines on how your children’s money is spent and invested until the children reach the age of majority. The guardian may have to submit annual accountings to the court to ensure that these funds are being properly managed for the benefit of your children.
If you name minor children as the beneficiaries of a trust, the trustee will carry out the terms of the trust and distribute the trust assets accordingly.
Consider naming a guardian for children or other dependents, who may be unable to care for themselves as adults, to ensure they have the care and oversight they need indefinitely. Life insurance may help ensure they have the necessary funds for living expenses; if they are unable to make a living for themselves.
You could name your spouse or domestic partner as your executor or trustee or you might choose an adult child, another relative, a family friend, a business associate or a professional fiduciary, such as, a bank or individual licensed to act in such a capacity. It is most important that your chosen executor or trustee is prudent, responsible and honest.
While the executor of a will is subject to direct court supervision; the trustee of a living trust is not, although they serve almost identical functions. Both are responsible for ensuring that your written instructions are followed.
One difference is that, the trustee of your living trust may assume responsibilities under the trust agreement while you are still living (if you ever become unable or unwilling to continue serving as trustee yourself).
Through estate planning, you can choose those who will care for you and your estate if you ever become unable to do so for yourself.
A power of attorney, for example, is a written legal document that gives another person the right and authority to act on your behalf. It can be limited to special circumstances or it can be general. That authority will end if you become incapacitated, unless you have a durable power of attorney. A durable power of attorney will remain in effect while you are incapacitated. This means that if you were suddenly unable to handle your own affairs, someone you trust viz. your legal agent or attorney-in-fact could do so for you.
You may choose to set up a springing power of attorney. It would only become effective at a specified future date or event (your loss of capacity, for example).
If you set up a living trust, it is the trustee who will provide the necessary management of the assets held in trust. However, even if you have a living trust, you should still consider setting up a durable power of attorney for property management as well to handle limited financial transactions and to deal with assets that may not have been transferred to your living trust, such as retirement accounts.
With an advance health care directive, you can also designate someone to make health care decisions for you, in the event that you become unable to do so for yourself. In addition, this legal document can contain your wishes concerning such matters as life-sustaining treatment, other health care issues and instructions concerning organ donation, disposition of remains and your funeral. You can revoke the directive at any time, as long as you are still competent. Give copies to designated person viz. doctor, family member. And if you are admitted to a hospital or nursing home, take a copy with you.
If you become unable to make sound decisions or care for yourself and you have not made any such arrangements in advance, a court could appoint a court supervised conservator to manage your affairs and be responsible for your care. The court’s supervision of the conservator may provide you with some added safeguards. However, conservatorships can also be more cumbersome, expensive and time-consuming than the appointment of attorneys-in-fact under power of attorney.
In any event, even if you appoint attorneys-in-fact, who could manage your assets and make future health care decisions for you; you should still document your choice of conservators in case a conservatorship is ever necessary.