Indian Trusts Act, 1882
Extinction and Revocation of Trusts (Sections 77 to 79)
Every private trust comes to an end. Chapter VIII of the Act (Sections 77 to 79) states when a trust is extinguished, when and by whom it may be revoked, and the protection given to acts the trustees have duly done before revocation. These short sections settle questions of great practical importance: whether an author can take back property he has settled, and what happens to the property when the trust ends.
1. How a Trust Is Extinguished (Section 77)
Section 77, Indian Trusts Act, 1882 (trust how extinguished) A trust is extinguished (a) when its purpose is completely fulfilled; or (b) when its purpose becomes unlawful; or (c) when the fulfilment of its purpose becomes impossible by destruction of the trust property or otherwise; or (d) when the trust, being revocable, is expressly revoked. |
Ground | Meaning | Example |
|---|---|---|
(a) Purpose completely fulfilled | The trust has done everything it was created to do | A trust to educate a child until 25 ends when the child reaches 25 and the capital is handed over; a trust to pay debts ends when all are paid |
(b) Purpose becomes unlawful | A change in the law makes the purpose unlawful after creation | A trust to carry on an activity later prohibited by statute |
(c) Fulfilment impossible | The trust property is destroyed, or the purpose cannot be achieved for any other reason | A trust to maintain a building that is destroyed and not insured; a trust for a beneficiary who dies before it vests |
(d) Express revocation of a revocable trust | A trust that is revocable under Section 78 is expressly revoked | The author exercises a reserved power of revocation |
A trust also comes to an end, in practice, when the beneficiaries who are all competent and of one mind call for the property under Section 56 (Topic 25), because once the property is transferred to them nothing is left to hold on trust.
What happens to the property
Extinction does not make the property ownerless. Where the trust is fully executed, the property has gone where the trust directed. Where it is incapable of execution, or is executed without exhausting the property, Section 83 requires the trustee to hold the property, or the surplus, for the author or his legal representative, unless the instrument directs otherwise (Topic 33). For public charitable trusts, the court may instead apply the property cy-près to a similar purpose (Topic 43).
2. Revocation (Section 78)
Section 78 (revocation of trust) A trust created by will may be revoked at the pleasure of the testator. A trust otherwise created can be revoked only (a) where all the beneficiaries are competent to contract, by their consent; (b) where the trust has been declared by a non-testamentary instrument or by word of mouth, in exercise of a power of revocation expressly reserved to the author of the trust; or (c) where the trust is for the payment of the debts of the author of the trust, and has not been communicated to the creditors, at the pleasure of the author of the trust. |
Testamentary trusts
A trust in a will is revocable at the testator's pleasure, like the will itself, until his death (Topic 11).
Non-testamentary trusts: irrevocable unless an exception applies
Ground | Explanation |
|---|---|
(a) Consent of all beneficiaries, all competent to contract | The beneficiaries, for whom the trust exists, may agree to end it. If any is a minor, of unsound mind or unborn, this route is not available |
(b) Power of revocation expressly reserved | Applies to trusts declared by a non-testamentary instrument or by word of mouth; the power must be express and reserved to the author. It cannot be implied |
(c) Trust for payment of the author's debts, not communicated to the creditors | Until the creditors are told of it, such a trust is a mere arrangement for the author's convenience and he may revoke it at pleasure |
The consequence is clear: a non-testamentary trust is irrevocable by default. An author who settles property on trust without reserving a power of revocation cannot change his mind later, even if circumstances change, unless all beneficiaries are adults and agree. This is why a power of revocation is a key drafting decision (Topic 12), and it has tax consequences, because income from a revocable transfer is generally taxed in the transferor's hands (Topic 47).
Trusts for creditors once communicated
The illustration to Section 78 shows that once a trust for the payment of debts has been communicated to the creditors, the author can no longer revoke it at pleasure; the creditors may have relied on it, for example by holding back from suing.
3. Protection of What Has Been Duly Done (Section 79)
Section 79 (revocation not to defeat what trustees have duly done) No trust can be revoked by the author of the trust so as to defeat or prejudice what the trustees may have duly done in execution of the trust. |
Revocation operates prospectively. Acts the trustees have duly done in executing the trust before revocation, such as a sale, a lease, a distribution to a beneficiary or a contract with a third party, stand. A buyer from the trustees keeps his purchase; a beneficiary keeps what was properly paid to him. The word "duly" limits the protection to acts properly done under the trust; acts in breach of trust receive no protection from this section.
4. Variation of Trusts
The Act contains no general power, like the English Variation of Trusts Act 1958, for the court to approve changes to a private trust on behalf of minors and unborn beneficiaries. Variation in India is achieved through other routes:
- A power in the instrument to amend or revoke;
- Consent of all beneficiaries competent to contract, under Sections 11 (modifying directions), 56 (calling for the property) and 78(a) (revocation);
- The court's consent on behalf of incompetent beneficiaries to modify directions under Section 11;
- Court directions under Section 34, and the trustee's freedom not to follow directions that have become impracticable, illegal or manifestly injurious (Section 11);
- Cy-près schemes for public charitable trusts.
⚠ Key point A trust is extinguished when its purpose is completely fulfilled, becomes unlawful, or becomes impossible (by destruction of the property or otherwise), or when a revocable trust is expressly revoked (Section 77); unexhausted property results to the author under Section 83. A trust by will is revocable at the testator's pleasure; any other trust is revocable only (a) by consent of all beneficiaries competent to contract, (b) under an express power of revocation reserved to the author, or (c) at pleasure where it is a trust for the author's debts not communicated to creditors (Section 78). Revocation cannot defeat what the trustees have duly done (Section 79). |
5. Related Topics and Provisions
- Classification of trusts (Topic 5): revocable and irrevocable trusts
- Testamentary trusts (Topic 11)
- Rights of the beneficiary (Topic 25): Saunders v Vautier under Section 56
- Resulting trusts (Topic 33): Section 83