Classification of Trusts

Trusts can be classified in several ways: by how they arise, by whom they benefit, by how much discretion the trustee has, by whether they can be undone, and by when they take effect. These classifications are not academic labels. Each one decides a practical question: which law governs the trust, what formalities apply, who can enforce it, how it is taxed, and whether the author can take the property back. This note sets out the main classifications and their legal significance.

1. By Mode of Creation: Express and Implied

Express trusts

An express trust is created deliberately by the author, who indicates the intention, purpose, beneficiary and property with reasonable certainty (Section 6) and complies with the formalities of Section 5. Express trusts may be created inter vivos by an instrument or (for movables) by transfer, or by will. Chapters II to VIII of the Act are written primarily for express trusts.

Obligations in the nature of trusts

English law speaks of implied trusts, which arise without an express declaration, and divides them into resulting and constructive trusts. The Indian Act does not use these labels. Instead, Chapter IX lists the situations in which an obligation in the nature of a trust arises (Section 80), and Section 95 requires the person bound to perform, so far as may be, the duties of a trustee. The English categories remain a useful way of grouping these cases:

Resulting and constructive obligations matter because they arise without writing or registration, even over immovable property, and because they let the law reach property obtained by abuse of a position of trust. Part H of this series studies them in detail.

2. By Beneficiary: Private and Public Trusts

The distinction is one of substance. The leading test, from Deoki Nandan v Murlidhar, is whether the beneficiaries are specific individuals or the public or a section of it (Topics 40 and 57). A family trust for the maintenance of the settlor's descendants is private, even if it also funds an annual charitable feast; a trust to run a school open to all children in a district is public. A trust may be partly public and partly private, and the parts are then governed by their respective laws.

3. By Trustee's Discretion: Specific and Discretionary

• Specific (fixed) trust: the beneficiaries and their shares are fixed by the instrument. For example, income to be paid to A, B and C in equal shares. Each beneficiary has a defined entitlement that he can enforce and transfer.
• Discretionary trust: the trustee decides which beneficiaries within a defined class receive benefits, and in what amounts. No individual beneficiary has a fixed share; each has a right to be considered and to proper administration. The court will not control the exercise of a discretion that is exercised reasonably and in good faith (Section 49; Topic 22).

The distinction has major tax consequences. Indian income tax law has long treated a trust whose shares are determinate differently from one where shares are indeterminate, taxing the latter, in most cases, at the maximum marginal rate (Topic 47).

4. By Revocability: Revocable and Irrevocable

Section 78 decides when a trust can be revoked. A trust created by will may be revoked at the pleasure of the testator, like the will itself. A trust created otherwise can be revoked only:

1. where all the beneficiaries are competent to contract, by their consent;
2. where the trust was declared by a non-testamentary instrument or by word of mouth, in exercise of a power of revocation expressly reserved to the author; or
3. where the trust is for the payment of the author's debts and has not been communicated to the creditors, at the pleasure of the author.

A non-testamentary trust is therefore irrevocable by default. An author who wants flexibility must reserve a power of revocation in the deed. Section 79 adds that revocation does not undo what the trustees have duly done before they receive notice of it (Topic 31). Revocability also has tax consequences: income from a revocable transfer is generally taxed in the hands of the transferor.

5. By Time of Operation: Testamentary and Inter Vivos

• Testamentary trust: declared by will and takes effect on the testator's death. It must satisfy the requirements of a valid will under the Indian Succession Act, 1925 (or the applicable personal law) and is revocable until death (Topic 11).
• Inter vivos (non-testamentary) trust: created during the author's lifetime and takes effect immediately. For immovable property it needs a registered instrument; for movable property, a registered instrument or transfer of ownership (Section 5).

6. Other Classifications

7. Related Topics and Provisions

• Scope of the Act (Topic 3): why public trusts fall outside it
• Discretionary trusts and the court's control (Topic 22)
• Extinction and revocation (Topic 31): Sections 77 to 79
• Obligations in the nature of trusts (Topics 32 to 36)
• Taxation of private trusts (Topic 47)