Trust Formation
Our Team at Bizzonns helps you in the documentation and end-to-end process of getting a Trust Incorporated.
They also guide you with the After Formation Process of the Trust.
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Overview
In India, trust formation is a legal process through which individuals or organizations create a legal entity known as a trust to manage and administer assets for the benefit of specific individuals, groups, or causes. Trusts are commonly established for purposes such as charitable, educational, religious, or philanthropic activities. The process of forming a trust involves several steps and legal requirements.
According to the Indian Trusts Act of 1882, a trust is a duty attached to property ownership that results from confidence placed in the owner and accepted by him or one he declared and accepted, for the benefit of a third party, or of a third party and the owner.
The “Author of the Trust” is the individual who proclaims or repossesses the confidence.
The “Trustee” is the individual who accepts the trust.
The term “Beneficiary” refers to the one for whose advantage the confidence is acknowledged.
“Trust Property” or “Trust Money” are the terms used to describe the trust’s subject matter.
The Trust Deed or Instrument of Trust is the name of the document, if any, through which the Trust is established.
Benefits of Trust Formation
Legal Validity
Registered trusts are legally recognized entities. Registration provides authenticity and ensures that the trust is valid under the law. It adds a layer of legitimacy to the trust’s operations and activities.
Tax Benefits
Depending on the nature of the trust and its activities, registration can provide tax benefits. Charitable and religious trusts, for instance, can apply for tax exemption under sections 12A and 80G of the Income Tax Act, making donations to the trust eligible for tax deductions.
Transparency
Registration involves disclosing the trust’s objectives, activities, and financial details to the authorities. This transparency can foster trust among beneficiaries, donors, and the public.
Legal Protections
Registered trusts have a legal framework that outlines their operations and governance. This can offer protection to trustees from legal liabilities arising from their actions as long as they act in accordance with the trust’s objectives and the law.
Easy Succession
Registered trusts can easily add or replace trustees without affecting the continuity of the trust’s operations.
Perpetual Existence
A registered trust enjoys perpetual existence. Unlike individuals, trusts don’t have a limited lifespan. This ensures that the trust’s objectives and activities can continue even after the founders or initial trustees are no longer involved.
Credibility and Acceptance
Registered trusts are often perceived as more credible and reliable by stakeholders, donors, and the public. This can lead to increased support and donations for the trust’s activities.
Easy Transfer
Registered trusts can easily transfer or hold property and assets in their name. This simplifies the process of acquiring and managing assets for the trust’s activities.
Recognition for Fundraising
Registered trusts have an advantage when it comes to fundraising. Many donors and funding organizations prefer to support registered trusts because of the legal oversight and accountability they offer.
Government Benefits
Depending on the trust’s objectives, it might be eligible for government grants, subsidies, or support, which can aid its activities.
Trust Deed
A trust can be created through spoken or written communication, and a trust deed is not necessary. But in some circumstances, a Trust Deed is both preferred and necessary. A written Trust deed is not required but is preferred when there is a public Trust.
Advantages of Trust Formation
Charitable Activities
Trusts are commonly formed for charitable, philanthropic, and social welfare purposes. They provide a structured and organized way to contribute to causes such as education, healthcare, poverty alleviation, and community development.
Perpetual Existence
Trusts have a perpetual existence, separate from the individuals who created them. This means that even if the founders or initial trustees change or pass away, the trust’s activities can continue as long as they align with its objectives.
Recognition for Grants and Funding
Many governmental and non-governmental organizations prefer to provide grants and funding to registered trusts due to the transparency and accountability associated with their operations.
Legal Recognition
Registered trusts have legal recognition, which lends credibility and authenticity to their activities. This recognition can attract donors, supporters, and beneficiaries who are more likely to engage with a registered entity.
Asset Protection
Trusts offer a level of protection for assets. By transferring assets to the trust, they are separated from the personal assets of the trustees and founders, reducing the risk of personal liability.
Fundraising and Donations
Trusts can conduct fundraising activities and solicit donations more effectively due to their legal recognition and the tax benefits offered to donors.
Any Questions? Answered
Our FAQ section addresses common inquiries to help you find the information you need quickly. If you have further questions, feel free to reach out!