Answer By law4u team
Types of Trusts in India A trust is a legal arrangement where one party (the settlor) transfers property or assets to another party (the trustee) to hold and manage for the benefit of a third party (the beneficiary). In India, trusts are governed by the Indian Trusts Act, 1882, which regulates private and public trusts and provides the framework for their formation and management. Trusts can be broadly categorized based on their purpose, type, and the nature of the beneficiaries. Below are the main types of trusts recognized in India: 1. Private Trusts A private trust is created for the benefit of specific individuals or a limited group of people. The beneficiaries are identifiable, and the trust's purpose must be directed toward them. Private trusts are often used for family, personal, or business purposes. Discretionary Trust: In this type of trust, the trustee has the discretion to decide how and when the trust income or property should be distributed to the beneficiaries. The trustee can decide the amount given to each beneficiary based on their discretion. Specific Trust: A specific trust is created when the settlor specifies the exact amount or property to be given to a particular beneficiary. The trustee is bound to follow the instructions and distribute the trust property as directed. Resulting Trust: This type of trust arises when a trust fails, or there is a failure of the designated beneficiary. The property goes back to the settlor or their legal heirs. It results when there is an incomplete trust and the intent of the settlor is not fully fulfilled. Constructive Trust: A constructive trust is not a trust that is formally created by the settlor. It arises by operation of law when there is fraud, breach of duty, or wrongdoing, and the courts impose a trust to prevent unjust enrichment. It can also be imposed when someone wrongfully holds property that they should hold for another person. 2. Public Trusts A public trust is established for the benefit of the public at large or a section of the public, such as a charity, religious institution, or educational trust. Public trusts are commonly used for social welfare, religious, and charitable purposes. Charitable Trust: A charitable trust is created for purposes like poverty alleviation, promoting education, healthcare, or advancing religion. Charitable trusts are usually recognized by the government for the purpose of receiving tax exemptions under Section 12A of the Income Tax Act, 1961. Religious Trust: A religious trust is established to manage religious institutions, temples, churches, or mosques. It can be created to support the religious activities and functions of the institution. 3. Revocable Trusts A revocable trust allows the settlor to retain control over the trust assets and modify or revoke the trust at any time during their lifetime. The settlor can alter the trust terms, remove or replace trustees, or even dissolve the trust if needed. It is typically used for estate planning purposes. 4. Irrevocable Trusts An irrevocable trust cannot be modified, amended, or revoked by the settlor once it is created. The property transferred into an irrevocable trust is no longer owned by the settlor, and they cannot alter the terms or take back the assets. This type of trust is often used for tax planning and asset protection purposes. 5. Fixed Trusts A fixed trust is one where the settlor explicitly defines the share of each beneficiary in the trust property. The trustee has no discretion and must distribute the trust property as specified. The rights of the beneficiaries are fixed, and the terms of the trust cannot be changed. 6. Special Trusts A special trust is created for a specific purpose, and the beneficiaries are usually organizations or individuals who are involved in a particular cause or interest. Special trusts may focus on education, relief of the poor, or any other specific social, cultural, or charitable cause. Family Trust: A family trust is a special type of private trust created for managing and preserving family wealth. The primary goal is to ensure the property is passed down to future generations in a way that provides for the welfare of the family members. Unit Trust: A unit trust involves pooling the contributions of several investors into a common fund, which is then managed by a trustee. The investors are entitled to a specific share of the profits or returns on investment based on the units they hold in the trust. 7. Testamentary Trust A testamentary trust is created through a will after the death of the settlor. This type of trust is established to manage and distribute the assets of the deceased according to their wishes. The trust only becomes effective once the settlor passes away. 8. Living Trust (Inter Vivos Trust) A living trust is created during the settlor’s lifetime and becomes effective immediately. It is designed to manage the settlor’s assets while they are still alive and to distribute them after their death, avoiding the probate process. 9. Trusts for Minor Beneficiaries A trust can be created specifically for the benefit of a minor. In such cases, the trustee manages the assets and distributes the income or corpus of the trust to the minor beneficiary when they reach the age of majority or as per the settlor’s instructions. Conclusion Trusts are powerful tools for asset management, estate planning, and achieving social, charitable, or religious objectives. The types of trusts available in India offer flexibility for various purposes, from private family wealth management to public charitable work. Each type of trust serves a different need, and it is crucial to understand the specific benefits and limitations associated with each one.
