Indian Trusts Act, 1882
Creation of Trusts: Complete Notes (Part B)
Part B covers Chapter II of the Act (Sections 4 to 10) and the practice of creating trusts: the lawful purpose requirement, the certainties and formalities, the capacity of the parties, the nature of trust property and the constitution of the trust, testamentary trusts, and the trust deed in practice. This consolidated note covers Topics 7 to 12.
1. Lawful Purpose (Section 4)
A trust may be created for any lawful purpose. A purpose is unlawful if it is (a) forbidden by law, (b) of such a nature that, if permitted, it would defeat the provisions of any law, (c) fraudulent, (d) involves or implies injury to the person or property of another, or (e) the court regards it as immoral or opposed to public policy. Every trust with an unlawful purpose is void; where lawful and unlawful purposes cannot be separated, the whole trust is void. The illustrations give a trust to train girls for prostitution, a trust for smuggling, and an insolvent's trust for himself, which is invalid against creditors. Where property was transferred for an illegal purpose, Section 84 lets the transferor recover if the purpose was not carried out, he is less guilty, or retention would defeat a law.
2. Creating a Trust (Sections 5 and 6)
Under Section 6, a trust is created when the author indicates with reasonable certainty, by any words or acts, (a) an intention to create a trust, (b) its purpose, (c) the beneficiary and (d) the trust property, and transfers the property to the trustee unless the trust is by will or the author is himself trustee. The illustrations show that words of "fullest confidence" can create a trust where the other certainties exist, while words of hope, a discretion to choose the "most deserving", a gift of "the bulk" of property, and a condition do not.
Property | Valid declaration under Section 5 |
|---|---|
Immovable | Non-testamentary instrument in writing, signed by the author or the trustee, and registered; or a will of the author or trustee |
Movable | Either of the above, or transfer of ownership to the trustee |
Either | The rules do not apply where they would effectuate a fraud |
Obligations in the nature of trusts under Chapter IX arise by operation of law and need no writing or registration.
3. The Parties (Sections 7, 9 and 10)
Party | Who qualifies | Special rules |
|---|---|---|
Author (Section 7) | Every person competent to contract; a minor, or a person on his behalf, with permission of a principal Civil Court of original jurisdiction | Subject to any law on the circumstances and extent of disposition (personal law limits, joint family property, restrictions on transfer) |
Beneficiary (Section 9) | Every person capable of holding property | May disclaim by notice to the trustee, or by setting up an inconsistent claim with notice of the trust |
Trustee (Section 10) | Every person capable of holding property; a trust involving discretion needs a trustee competent to contract | No one is bound to accept; acceptance by words or acts; disclaimer within a reasonable period prevents vesting; a co-trustee's disclaimer vests the property in the others from the date of creation |
The author may be trustee or a beneficiary, and a trustee may be one of several beneficiaries; but a sole trustee cannot be the sole beneficiary.
4. Trust Property and Constitution (Section 8)
Trust property must be transferable to the beneficiary, so interests that Section 6 of the Transfer of Property Act makes non-transferable (a mere expectancy, a mere right to sue, a right to future maintenance, a public office, pensions and the like) cannot be held in trust. It must not be merely a beneficial interest under a subsisting trust. It must be identified with reasonable certainty. The trust is constituted by transfer to the trustee, by self-declaration, or by will; a court will not perfect an incompletely constituted trust in favour of a volunteer (Milroy v Lord), though a beneficiary who gave value may enforce the promise as a contract.
5. Testamentary Trusts
A trust may be declared by will (Section 5), with no transfer during the testator's life (Section 6). It depends on a valid will: under the Indian Succession Act, 1925, writing, signature and two attesting witnesses for an unprivileged will (Section 63); for Muslims, any form, subject to the one third limit and the rule on bequests to heirs. Registration of a will is optional. Testamentary trusts are bound by the Succession Act's rules on bequests to persons not in existence (Section 113), perpetuity (Section 114) and accumulations (Section 117); Section 118, which restricted religious and charitable bequests by Christians, was struck down in John Vallamattom v Union of India (2003). The executor administers the estate, and the property then passes to the trustee, often by assent. A trust created by will is revocable at the testator's pleasure (Section 78).
6. The Trust Deed in Practice
The deed is the trust's constitution, and it matters because many default rules of the Act yield to it. A complete deed deals with parties and intention, the trust property, beneficiaries and objects, distribution, trustees' powers, decision making, appointment and removal, remuneration, protection of trustees, accounts, revocation and termination. Where it is silent, co-trustees must act jointly (Section 48), trustees receive no remuneration (Section 50), investment is limited by Section 20, and the trust is irrevocable (Section 78).
- Registration: a non-testamentary trust of immovable property needs a registered instrument (Section 5; Registration Act, Sections 17 and 49), presented within four months.
- Stamp duty: payable on declarations of trust and settlements under the applicable State law, with rates that vary widely.
- After execution: PAN, a separate bank account, tax filings, beneficial ownership records, and State registration for public trusts.
- Disputes: disputes among trustees and beneficiaries under a trust deed are not arbitrable (Vimal Kishor Shah v Jayesh Dinesh Shah, 2016; Vidya Drolia, 2020).
⚠ Key point Part B in one line: a trust must have a lawful purpose (Section 4); it is created when intention, purpose, beneficiary and property are indicated with reasonable certainty and the property is transferred (Section 6), with a registered instrument or will for immovables and a transfer or declaration for movables (Section 5); the author must be competent to contract, while trustees and beneficiaries need only be capable of holding property (Sections 7, 9 and 10); the property must be transferable (Section 8); a will can create a trust subject to the law of wills; and the trust deed sets the rules that the Act's defaults would otherwise supply. |
7. The Topics of This Part
- Topic 7: Lawful purpose and void trusts (Section 4)
- Topic 8: Creating a trust: the three certainties and the formalities (Sections 5 and 6)
- Topic 9: Parties to a trust: capacity, acceptance and disclaimer (Sections 7, 9 and 10)
- Topic 10: Trust property and constitution of the trust (Section 8)
- Topic 11: Testamentary trusts and the Indian Succession Act, 1925
- Topic 12: The trust deed in practice: drafting, registration and stamp duty