Essentials of Drafting A Trust Deed

 

Essentials of Drafting A Trust Deed

• According to the Indian Trust Act 1882, public trust registration is required to be undertaken and completed, where the author of the proposed trust indicates the following –
  • An intention to form a trust
  • Purpose for trust registration
  • Beneficiary of trust
  • Trust-property
• In India, public charitable trust registration in accomplished, where the trust deed of the said trust is registered with the office of the charity commissioner within the jurisdiction of the trust property.
• Trust or institutions may be formed by executing a trust deed. Trust deed is required to be annexed on a non-judicial stamp paper, and the amount of stamp duty varies from state to state.
• The instrument by which the trust is said is named the ‘instrument of trust’ or more popularly because the ‘trust-deed’. Charitable, Religious institutions may be formed by executing a trust deed. trust deed is executed between the settlor and also the trustees.
• A settlor is a person creating the trust for a charitable, religious or hospitality & rehabilitation purposes. Whereas the trustees are the folks that manage the trust. It is commonly seen, that the settlor appoints the trustees, who are vested with the responsibility to effectively run and work with the objects of the trust.
• Under trust deed, the settlor transfers the identifiable property to the trustees and makes it obligatory for the trustees to figure and manage the trust as per the terms and conditions laid out in the instrument

Advantages of Trust Deed

Though a trust could also be created orally in certain cases, however, a written trust-deed is often desirable, even if not required statutorily because of following reasons:

• A written trust-deed would be clear evidence to existence of a trust;
• Facilitates devolution of trust property to proposed trust;
• It clearly specifies the trust-objectives which enables to establish whether the trust is charitable or otherwise;
• A written trust-deed is important for registration of conveyance of immovable property within the trust name;
• A written trust-deed is crucial for obtaining registration under the Income-tax Act and claiming exemption from tax;
• Helps in controlling, regulating and managing the working and operations of the trust;
• Lays down the procedure for appointment and removal of the trustee(s), along with their powers, rights and duties; and
• Prescribes the course of action to be followed.

It is particularly necessary for the person drafting the deed in touch in mind the three certainties of a sound trust which are —

1. Certainty of declaration, i.e., imperative nature,
2. Certainty of subject matter, i.e., property within which it acts,
3. Certainty of object or beneficiary.

Crucial Aspects of Trust Deed

• Any one drafting the deed of a public public trust has to bear in his mind several enactments, particularly, the Indian Trusts Act, 1882, any local / state enactment regarding trusts, just like the Bombay Public Trusts Act, 1950 for the State of Maharashtra and also the income tax Act, 1961.
• He should also keep in mind the ratios of the assorted judicial pronouncements coping with the scope of “charitable purpose” and deciding whether a selected purpose is charitable, interpretation of the actual objects clauses of the trust deed to choose whether the identical is charitable or not.

Do’s And Dont’s for of Trust

• Use familiar words instead of farfetched words.
• Use short words instead of an extended word.
• Use active voice rather than passive voice.
• No unnecessary repetition of words.
• Write shorter sentences.
• Express the ideas in fewer words.
• Choose the correct word.
• Know precisely the meaning of the words and sentences you’re writing, and
• Put yourself within the place of reader, read the document from his point of view and satisfy yourself regarding the content, interpretation and also the sense it carries.

Contents of a Trust Deed

• A trust is also created by any language sufficient to indicate the intention and no technical words are necessary. A trust may even be created by the employment of words which are primarily words of condition, but such words will constitute a trust only where the requisites of a trust are present.
• Though the employment of the word ‘trust’ isn’t needed to form a legitimate trust, the terms of the grant or will make it clear that an obligation is truly annexed to the ownership of the trust property.

Irrevocable Clause

Trust can be established in the form of revocable or irrevocable trust. Revocable trust is basically a trust which can be altered, modified or cancelled at any time, during the lifetime of author or settler of the trust. It serves 2 purposes

• The author or settler tends to remain the owner of the trust property and exercise control over it.
• Trust property would be remitted to the intended and mentioned beneficiary, after the death of the author/grantor/settlor. On the demise of the grantor, the revocable trust becomes an irrevocable one.
• The primary objective of revocable trust is to provide a safeguard towards the legal procedure of obtaining the probate and at the same time ensuring dominance over the assets during the lifetime of the author.
• On the other hand, irrevocable trust refers to a trust which cannot be extensively amended/ modified/ altered/terminated by the grantor, once the trust deed is signed and registered.
• Thus, once the asset & property is transferred to the trust, the same cannot be reverted back. No control whatsoever is there with the grantor after it’s transferred to the trust.

Revocable Vs Irrevocable Trust

S. NO.	Revocable trust	Irrevocable trust
(I)	IT CAN BE CANCELED AT ANY POINT OF TIME, DURING THE SURVIVAL OF THE AUTHOR.	IT CANNOT BE CANCELLED.
(II)	THE AUTHOR CAHAS THE FULL RIGHTS & CONTROL OVER THE PROPERTY TRANSFERRED	THE SETTLOR/AUTHOR CANNOT EXERCISE FULL RIGHTS & CONTROL OVER THE PROPERTY.
(III)	IT MAJORLY EXIST FOR PRIVATE TRUSTS.	IT MAJORLY EXIST FOR PUBLIC/GENERAL TRUST.
(IV)	MAIN MOTIVE IS TO AVOID LEGAL PROCESS OF OBTAINING PROBATE.	MAIN MOTIVE IS TO PROTECT THE ASSETS AGAINST CREDITORS AND ESTATE DUTY.
(V)	IT OFFERS FULL FLEXIBILITY IN RESPECT OF AMENDMENT OF TRUST DEED.	IT IS COMPARATIVELY RESTRICTIVE IN RESPECT OF AMENDMENT TO TRUST DEED.
(VI)	UNDER THIS, THE INCOME IS TAXED IN THE HANDS OF THE TRUSTEE/ AUTHOR/ TRANSFEROR ONLY.	UNDER THIS, THERE ARE CERTAIN TAX BENEFITS.

Investment Clause

The Board of Trustees shall be empowered to take a position the funds of the Trust in movable or immovable properties, in such manner as they deem suitable the purpose of the objects of the trust as long as such investments shall be in accordance with the provision of Section 13(1) read with Section 11(5) of the income tax Act, 1961 yet as of the other law for the nowadays in force as are applicable to charitable trusts.

Utilization Clause

The Income and funds of the Trust are solely utilized towards the objects and no portion of it’ll be utilized for payment of Trustees by way profits.

Beneficiary Clause

Beneficiary means – to whom the Trust income/corpus is meant for;

• Charitable trust is formed in order to take the advantage of uncertain and fluctuating body of persons, being unidentified any point of your time. For example, the general public at large or a piece of the public following a selected religion, profession or faith. A charitable trust is often permanent or a minimum of indefinite in duration.
• A family trust founded to learn members of a family is that the most common purpose for a non-public trust. The main aim of establishing a family trust is that the settlor tends to progressively transfer his assets to the trust.
• the settlor transfers all the assets legally, and also, the beneficiaries get the good thing about these assets. A family trust will be founded either while one remains alive (by a declaration of trust contained during a trust deed) or post death, in terms of a will.

Dissolution Clause

On dissolution of the Trust, the web assets of the Trust shall be transferred to an association of persons or trust or society having similar objects of this Trust.

Express Words for Creation of Trust

• Intention to make a trust should be clearly spelt out. So as to seek out whether the relevant clauses of a trust deed create a public trust or not one must glide by the express words employed by the instrument.
• For finding out the real intention of the settlor, the words employed in the deed would be the real vehicle of thought of the settlor expressing his intention in cold print. – [CIT v. Kamla Town Trust (1996) 217 ITR 699 (SC)].
• As per a well settled rule of interpretation, the intention of the settlor is required to be gathered from the settlement as a full and no particular clause should be construed in isolation with the intention of the author under the settlement.
• It’s to be found not in one part of} the settlement or within the other but within the entire deed which intention can best be gathered by viewing a selected part of the settlement, not detached from its context within the settlement, but in reference to its whole context. – [Satya Vijay Patel Hindu Dharamshala Trust v. CIT (1972) 86 ITR 683 (Guj)]

Agreement drafting, Banking, Demate Account & related Compliance :

• Preparing Due Diligence Report of the Company ·
• Preparing Search Report of the Company ·
• Vetting of the availing of term loan and working capital limits documents with various Banks.
• Opening of Bank accounts ·
• Preparation of Corporate Action Information Forms for the demat of shares ·
• Opening of Demat Account of Individuals & Companies. ·
• Pledging of shares with the Bank. ·
• Liaoning with Depository,
• Depository Participant & RTA in relation to the demat of shares. ·
• Entering into agreement with Depository for opening of demat account of Companies. ·
• Application of PAN & TAN of Companies

Hope the information will assist you in your Professional endeavors. For query or help, contact: singh@carajput.com or call at 9555555480